10-K

UNITED STATES 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, 2006
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.)
30 Corporate Drive Burlington, Massachusetts	01803 (Zip Code)
(Address of Principal Executive Offices)

(781) 359-4000

Registrant’s Telephone Number, Including Area Code

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

Title of Each Class	Name of Each Exchange on Which Registered
common stock, $.01 par value per share	NASDAQ Global Market

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the voting common stock held by nonaffiliates of the registrant as of June 30, 2006 was $352,142,590 based on a total of 27,192,478 shares held by nonaffiliates and on a closing price of $12.95 as reported on the NASDAQ Global Market.

The number of shares of common stock outstanding as of March 13, 2007 was 28,011,637.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A with regard to its 2007 annual meeting of stockholders or special meeting in lieu thereof on or before April 30, 2007. Certain portions of such proxy statement are incorporated by reference in Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K. Except as expressly incorporated by reference, the proxy statement is not deemed to be part of this report.

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		4
	Item 1A.	Risk Factors		13
	Item 1B.	Unresolved Staff Comments		22
	Item 2.	Properties		22
	Item 3.	Legal Proceedings		23
	Item 4.	Submission of Matters to a Vote of Security Holders		23
PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		23
	Item 6.	Selected Financial Data		26
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		43
	Item 8.	Financial Statements and Supplementary Data		43
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		43
	Item 9A.	Controls and Procedures		43
	Item 9B.	Other Information		47
PART III
	Item 10.	Directors, Executive Officers, and Corporate Governance		47
	Item 11.	Executive Compensation		47
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		47
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		47
	Item 14.	Principal Accountant Fees and Services		47
PART IV
	Item 15.	Exhibits, Financial Statement Schedules		47
Signatures				52
Ex-10.20 Amendment to Employment Agreement dated January 12, 2007
Ex-10.36 Asset Purchase Agreement dated February 20, 2007
Ex-10.37 2007 Incentive Plan dated January 1, 2007
Ex-23.1 Consent of Independent Registered Public Accounting Firm
Ex-31.1 Certification of Chief Executive Officer
Ex-31.2 Certification of Chief Financial Officer
Ex-32.1 Certification of Chief Executive Officer & Chief Financial Officer

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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 1A. RISK FACTORS,” AND “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”, THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS OF LIGHTBRIDGE, INC. TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING STATEMENTS. LIGHTBRIDGE, INC. UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS IT MAKES.

AIRPAY BY AUTHORIZE.NET, ALIAS, ALTALINKS, AUTHORIZE-IT, AUTHORIZE.NET, the Authorize.Net logo, AUTHORIZE.NET WHERE THE WORLD DOES BUSINESS ON THE WEB, AUTHORIZE.NET WHERE THE WORLD TRANSACTS, ECHECK.NET, FRAUDBUSTER, FRAUD CENTURION, FRAUDSCREEN.NET, FRAUD SENTINEL, LIGHTBRIDGE, the Lightbridge logo, and POCKET AUTHORIZE.NET are registered trademarks of Lightbridge, and AUTOMATED RECURRING BILLING, AUTHORIZE.NET YOUR GATEWAY TO IP TRANSACTIONS, ECHECK, FRAUD DETECTION SUITE, 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.

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PART I

Item 1.   Business

Overview

Lightbridge, Inc. (Lightbridge or the Company) develops, markets and supports products and services primarily for businesses that sell products or services online and, prior to February 20, 2007, for communications providers.

We have undergone significant changes to our business since 2004 and, with the sale of certain assets related to our Telecom Decisioning Services (TDS) business to Vesta Corporation (Vesta). on February 20, 2007 and our decision to exit the TDS business on October 4, 2006, our business operates in one segment, Payment Processing Services (Payment Processing).

In 2004, the Company operated in four distinct operating segments: Telecom Decisioning Services, Payment Processing, Intelligent Network Solutions (INS) and Instant Conferencing Services (Instant Conferencing). During 2005, we sold our INS business and ceased the operation of our Instant Conferencing business. We sold the TDS business on February 20, 2007. The operating results and financial condition of the TDS segment have been included as part of the financial results from continuing operations in the accompanying consolidated financial statements. Commencing in the first quarter of 2007, the financial condition and results of the TDS segment will be presented as a discontinued operation. The operating results and financial condition of the INS and Instant Conferencing segments have been included as part of the financial results from discontinued operations in the accompanying consolidated financial statements.

Lightbridge’s two areas of business in 2006 were Payment Processing and TDS. Historically, TDS had comprised a majority of the Company’s business; however, in recent years, revenues from that business declined. With the sale of the TDS business, the Company will solely operate in and focus on the Payment Processing business. The Payment Processing business consists of a set of Internet Protocol (IP) based payment processing gateway services that enable online and other merchants to authorize, settle, manage risk, and manage credit card or electronic check transactions via a variety of interfaces. The TDS business consisted of Lightbridge’s customer qualification and acquisition, risk management and authentication services, delivered primarily on an outsourced or service bureau basis, together with the Company’s TeleServices offerings.

The Company’s IP-based Payment Processing solutions offer products and services to merchants in both the Card Not Present (CNP) (e-commerce and mail order/telephone order or MOTO) and Card Present (CP) (retail point-of-sale (POS) and mobile devices) segments of the U.S. credit card transaction processing market. In addition, the Payment Processing Services include an electronic check payment processing solution for merchants. The Payment Processing solutions are designed to provide secure transmission of transaction data over the Internet and manages submission of this payment information to the credit card and Automated Clearing House (ACH) processing networks. The Company provides its Payment Processing solutions primarily through a network of outside sales partners, Independent Sales Organizations (ISOs), and merchant bank partners.

TDS offered online, real-time transaction processing and contact 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. The TDS business unit also offered services designed to authenticate users engaged in online transactions. Additionally, TDS developed and implemented interfaces that integrate its systems with client and third-party systems, such as those for billing, point-of-sale, activation and order fulfillment. TDS solutions were provided on a direct sales basis.

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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New Developments

On February 21, 2007, we announced that we had entered into an asset purchase agreement and sold certain assets related to our TDS business to Vesta at the close of business on February 20, 2007 for $2.5 million in cash plus assumption of certain contractual liabilities. The TDS operations for 2006 and prior periods will be presented as discontinued when they are disposed of in 2007. We expect to record a gain on the disposal of our TDS business of approximately $1.0 million to $1.5 million, which will be presented as a gain on disposal of discontinued operations.

On November 1, 2006, we announced that our board of directors authorized the discretionary repurchase of up to $15.0 million of shares of the Company’s common stock. The shares may be purchased from time to time depending on market conditions through December 31, 2008. As of March 8, 2007, we have not made any repurchases under this program.

On October 4, 2006, we announced our plan to exit the TDS business. With respect to our exit and subsequent sale of the TDS business, we recorded asset impairment charges of $2.4 million during 2006. We expect to incur pre-tax restructuring charges in the range of $1.9 million to $2.5 million in the first quarter of 2007. These charges are expected to consist of approximately $0.9 million to $1.1 million of severance charges with respect to terminated employees; approximately $0.3 million to $0.5 million of facilities exit charges, comprised of the net present value of the lease payment obligations for the remaining term of our TDS-related leases in Burlington and Lynn, Massachusetts, net of estimated sublease income; and approximately $0.7 million to $0.9 million of other charges related to the exit of the TDS business. Substantially all of the remaining costs will require the outlay of cash, although the timing of lease payments relating to leased facilities will be unchanged by the restructuring action. We began to implement the restructuring efforts in October 2006 with notifications of intended action to certain affected personnel. The majority of these restructuring charges related to the exit and subsequent sale of the TDS business will be reported as a discontinued operation in the first quarter of 2007.

We expect to record restructuring charges in the range of $0.4 million to $0.6 million in the first quarter of 2007 related to termination benefits of corporate employees. We also expect to record accelerated depreciation charges in the range of $0.4 million to $0.6 million in the first quarter of 2007 related to the relocation of the Company’s headquarters.

In May 2006, we were advised by T-Mobile USA, Inc. (T-Mobile) that T-Mobile planned to consolidate its contact center business and begin the transition of that business from us to other vendors. In response, we closed our Liverpool, Nova Scotia contact center in the third quarter of 2006 and we recorded restructuring and related asset impairment charges of approximately $0.9 million and $0.8 million during the second and third quarters of 2006, respectively.

In May 2006, we entered into a settlement agreement with respect to certain litigation involving NetMoneyIN, Inc. Pursuant to the agreement, we agreed to pay NetMoneyIN, Inc. a lump sum payment of $1.75 million in exchange for a release and covenant not to sue. The cost of the settlement to us was $1.5 million net of $0.25 million received from another party named in the litigation. We recorded this cost in general and administrative expenses in the second quarter of 2006. We had incurred legal expenses of approximately $0.6 million and $1.1 million for the years ended December 31, 2006 and December 31, 2005, respectively, in connection with the defense of this lawsuit. We do not expect to incur any further litigation costs related to this lawsuit.

On January 13, 2006, we announced a restructuring focused primarily within the TDS business, as well as reductions in general and administrative expenses. The restructuring consisted of a total workforce reduction of about 28 positions, and we recorded a restructuring charge of approximately $1.4 million in the first quarter of 2006, primarily related to employee severance and termination benefits.

Products and Services

PAYMENT PROCESSING

Lightbridge’s Payment Processing solutions, which are provided on an Application Services Provider (ASP) basis, allow IP-enabled merchants to process credit card and electronic check transactions through credit card

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processors and banking organizations, thereby enabling those merchants to accept electronic payments. Lightbridge offers its Payment Processing products and services through its wholly owned subsidiary Authorize.Net in two broad solutions groups, Payment Gateway Solutions and Additional Services:

Solutions Groups	Functions
Payment Gateway Solutions	The payment gateway allows IP-enabled merchants to accept credit card payments via web sites and mobile devices or from retail storefronts with integrated point of sale solutions and MOTO merchants.
	The Virtual Terminal and Batch Upload allow merchants to authorize, process, and manage credit card transactions manually from any computer that has an Internet connection and a web browser.
	The Merchant Interface is a secure web site that allows merchants to view and manage transactions and other details of their accounts, including activity reports and authorizations for purchases, credits and returns.
	The Advanced Integration Method (AIM) is a merchant-initiated server-to-server connection for submitting CNP transactions to the payment gateway.
	The Server Implementation Method (SIM) provides a solution for CNP merchants with basic customization needs where the payment gateway handles all steps in the secure transaction process.
	Card Present (CP) retail and mobile merchants may purchase third-party POS solutions or devices that are integrated to the Authorize.Net payment gateway. Merchants or solution providers integrate directly to the payment gateway using the CP Application Programming Interface (API).
Additional Services	eCheck.Net® is a solution that allows merchants to process electronic check transactions directly from a web site or through the Virtual Terminal.
	Integrated Payment Solution (IPS) — is a service that offers merchants both an Authorize.Net Payment Gateway account and Wells Fargo credit card processing account through an integrated payment system. The service uses a single online application for merchants to apply for services and automatically provides them with a payment gateway and merchant credit card processing account.
	Fraud Detection Suitetm (FDS) is designed to assist web merchants to monitor, manage, and reduce potentially fraudulent credit card transactions with a customizable, rules and filter-based solution.
	Automated Recurring Billingtm (ARB) provides a system for CNP and eCheck.Net merchants to automatically handle regularly recurring billings or subscriptions according to a specific billing interval and duration.
	Support for Cardholder Authentication Programs, provided under agreement with Visa and MasterCard, for the benefit of merchants that sell products or services online, including the Verified by Visa® and MasterCard® SecureCodetm programs for reducing liabilities and expenses of merchants arising from unauthorized use of credit cards. The Company no longer actively markets this service.
	SalesBoost.Net, provided under agreement with eBoz, Inc., is an integrated suite of 50 web promotion tools designed to boost CNP merchants’ sales by attracting shoppers to their web sites. The Company no longer actively markets this service.
	AmbironTrustwave PCI Scanning and Compliance Tools, provided under agreement with AmbironTrustWave, are leading information security and compliance management solutions that offer convenient and affordable Payment Card Industry (PCI) tools. PCI is an industry-wide security standard building on Visa’s Cardholder Information Security Program (CISP) and MasterCard’s Site Data Protection (SDP) program that increases security for storing, transmitting, and processing cardholder data.
	The Authorize.Net® Merchant Toolbox features business solutions to merchants to help improve security, marketing and productivity.

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Solutions Groups	Functions
	The Authorize.Net Verified Merchant Seal® confirms to consumers that Web sites displaying the seal are verified Authorize.Net merchants. The seal is designed to foster a sense of confidence for consumers who may be concerned about the security of making online purchases.

Payment Gateway Solutions

The Payment Processing segment’s core product is the payment gateway, which enables CNP and CP merchants to accept credit card and electronic check payments via IP. The Authorize.Net gateway is a hosted ASP service solution that integrates with existing web sites, IP-enabled POS hardware and software solutions and mobile payment devices. It is hardware and software independent, and is supported by over 250 web development and shopping cart systems.

A typical automatic transaction occurs in the following way:

When purchasing an item, whether online or at retail, the customer provides credit card or bank account information. To authorize credit card transactions, merchants must post an electronic request, including the customer’s payment information, to the Company’s secure payment gateway service. Transaction information is encrypted using 128-bit Secure Socket Layer (SSL) technology. Regardless of whether the payment information is submitted via a web site payment form, virtual terminal, mobile payment device or a point-of-sale card reader (transmitted as a CP transaction) to the Authorize.Net payment gateway, the payment gateway captures the transaction data using real-time IP technology, directs and transmits the information through the credit card authorization network to the merchant’s credit card payment processor using a secure, proprietary connection. After the credit card is authorized and the transaction approved, the Company receives confirmation from the processing network, communicates the approval to the merchant, and securely stores the transaction. Transactions are automatically submitted for settlement each day as dictated by the merchant and are typically funded within two to three business days as determined by the issuing and merchant’s acquiring banks.

In the case of eCheck.Net transactions, bank information is processed through the Automated Clearing House (ACH) processing network by utilizing the Company’s relationship with a single Originating Depository Financial Institution (ODFI). eCheck.Net transactions may take seven to ten days to be funded to the merchant. Our ability to process eCheck.Net transactions would be severely impaired if we were to lose our ODFI partner for any reason.

For submitting manual CNP credit card transactions, the secure, browser-based Virtual Terminal and Batch Upload features of the Merchant Interface are accessible from any computer with an Internet connection and a web browser, and may be used by MOTO merchants.

Account Management

Merchants can manage their payment gateway account through the Merchant Interface, a password-protected web site that offers merchants the ability to monitor and review their transactions, configure their account and their transaction settings, view account billing statements and reporting, and manually submit transactions via the Virtual Terminal and Batch Upload features.

Connection Methods

The Payment Processing segment offers several methods for connecting web sites and POS systems to the payment gateway. Web merchants have the flexibility to choose which connection method best fits their payment acceptance infrastructure. Retail and mobile merchants may connect to the payment gateway via third-party hardware and software solutions that are integrated to the payment gateway. Connection methods are as follows:

•  AIM is a merchant-initiated server-to-server connection for submitting transactions to the payment gateway. AIM provides merchants with control over each phase of the customer’s online transaction experience, including the payment form and receipt page. AIM employs industry standard secure data encryption

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technology — 128-bit SSL protocol. Additional features include: transaction key authentication, merchant control over all phases of the customer’s online transaction experience, and configurable transaction response that integrate with merchant enterprise applications.

•  SIM is a solution for web merchants with basic customization needs. The Authorize.Net payment gateway handles all the steps in the secure transaction process — payment data collection, data submission and the response to the customer. Additional features of SIM include: a payment gateway hosted payment form employing 128-bit SSL data encryption, transaction digital fingerprints to enhance security, and a customizable payment gateway hosted payment form and/or receipt page.

•  The Company has certified approximately 79 shopping cart solutions providers that have integrated their e-commerce shopping carts with the payment gateway. Certified shopping carts are Internet companies that provide merchants with easy-to-implement checkout page solutions or software that are already integrated to the payment processing gateway.

•  In most cases, for CP merchants, technical integration is handled by the merchant’s POS system provider (hardware or software). CP merchants interested in integrating directly to the payment gateway can use a card payment application programming interface.

Additional Services

eCheck.Net^® is a payment processing solution that allows both online and MOTO merchants to accept and process electronic check payments from consumer and corporate bank accounts directly through their e-commerce web site or through the Virtual Terminal. The eCheck.Net service transmits transactions via 128-bit SSL technology, and automatically submits transactions for settlement daily. Through the Merchant Interface, merchants using eCheck.Net have access to tools allowing them to view and monitor transaction activities including settled transactions, returns and chargebacks. In addition, merchants have the ability to run batch statistics on transactions, and receive notification of settlement activity to facilitate account reconciliation.

Integrated Payment Solution is a service that offers merchants both an Authorize.Net Payment Gateway account and a Wells Fargo credit processing account through an integrated payment system. The service uses a single online application for merchants to apply for services and automatically provisions them with a payment gateway and merchant credit card processing account.

Fraud Detection Suite^tm (FDS) is a customizable, rules and filter-based solution that is designed to assist merchants who sell products or services to monitor and manage fraudulent credit card transactions through a combination of multiple fraud filters and tools. These tools include the following:

•  Amount Filter allows merchants to set upper and lower transaction amount limits

•  Velocity Filter allows merchants to limit the total volume of transactions received per hour, which is designed to help combat high-volume attacks common with fraudulent transactions

•  Shipping-Billing Mismatch Filter helps identify high-risk and potentially fraudulent transactions containing an address mismatch

•  Transaction IP Velocity Filter helps identify excessive transactions received from the same IP address, isolating suspicious activity from a single source

•  Suspicious Transaction Filter helps detect suspicious transactions using proprietary identification criteria and transaction behavior analysis

•  Authorized AIM IP Address feature allows merchants connected via the AIM feature to list server IP addresses that are authorized to submit transactions

•  IP Address Blocking feature, allows merchants to block transactions from selected IP addresses

Automated Recurring Billing^tm (ARB) allows online and MOTO merchants to generate recurring transactions based on a subscription model. To use the ARB feature, a merchant creates a subscription consisting of a customer’s

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payment information, billing amount, interval, and duration. ARB then places the customer on an automatic payment schedule based on the merchant’s instructions.

The Cardholder Authentication service, provided under agreements with Visa and MasterCard, makes use of the Verified by Visa^® and MasterCard^® SecureCode^tm programs to allow CNP merchants who sell products or services online to validate the identity of registered cardholders during web-based transactions by requiring a personal identification number (PIN) at checkout. The Company no longer actively markets this service.

SalesBoost.Net, provided under agreement with eBoz, Inc., is a suite of 50 Internet-based web site promotional and marketing tools that consolidate applications into functional categories for search engine submission, banner ad impressions, newsletter mailing, email list management, web site monitoring, and a compilation of comprehensive “how-to” guides. SalesBoost.Net is designed to boost CNP merchants’ sales by attracting shoppers to their web sites. The Company no longer actively markets this service.

AmbironTrustwave PCI Scanning and Compliance Tools, provided under agreement with AmbironTrustWave, are leading information security and compliance management solutions that offer convenient and affordable Payment Card Industry (PCI) tools. PCI is an industry-wide security standard building on Visa’s Cardholder Information Security Program (CISP) and MasterCard’s Site Data Protection (SDP) program that increases security for storing, transmitting, and processing cardholder data.

Payment Processing services are priced based upon a per-transaction fee, monthly subscription fee, and an initial set-up fee. Prices vary with the mix of services a merchant selects, and the volume of transactions a merchant submits through the payment gateway service. Fees for additional services are generally charged on a monthly basis, on a per-transaction basis, or may be based upon the volume of dollars processed.

TDS

Lightbridge no longer markets or sells its TDS solutions. Lightbridge’s TDS solutions helped communications providers and businesses that sold products or services online deploy integrated, customized solutions in support of their operational business processes. Lightbridge offered its TDS products and services in five broad solutions groups:

Solutions Groups	Functions
Customer Qualification and Acquisition	Online, real-time transaction processing services and contact center services to help carriers qualify applicants and activate service. Transaction processing services include applicant qualification and service activation, as well as risk management. Transaction processing interfaces include interfaces that support the processing of data at a variety of distribution channels, including retail stores, contact centers and Internet applications, and voice recognition systems.
TeleServices	TeleServices include qualification and activation, analyst reviews, telemarketing to existing and new subscribers, back-up and disaster recovery for acquisition and activation services, porting support and customer care.
Authentication Services	Services that provide screening and authentication of identity data for users engaged in online transactions.
Risk Management	A suite of services that make online, real-time inquiries into proprietary databases, industry databases and processing modules to screen applicants for potential fraud.
Consulting Services	Solution Development and Deployment Services include requirements planning, systems integration, custom software development, project management, and training services.
	Business Advisory Consulting encompasses management consulting services designed to leverage best practices in telecommunications, online commerce and allied industries.

Clients and Client Concentration

In 2006 and 2005, one of our clients accounted for more than 10% of our total revenues, and, in 2004, two of our clients individually accounted for more than 10% of our total revenues. One client accounted for 10% of total

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accounts receivable at December 31, 2006. The following Lightbridge clients accounted for more than 10% of total revenues in the years indicated:

	Years Ended December 31,
	2006			2005			2004
Sprint/Nextel(1)		20	%		33	%		37	%
AT&T Wireless Services, Inc. (AT&T Wireless)			*			*		18
Total % of Revenues from greater-than-10% customers		20	%		33	%		55	%

(1)	Sprint Spectrum L.P. and Nextel Operations, Inc. (Sprint/Nextel) merged on August 12, 2005.
*	Represents less than 10% of total revenues.

Payment Processing

The Company sells its Payment Processing Services primarily through a network of outside sales partners, merchant banking partners, third party solution providers and its inside sales team, mainly to merchants that sell products or services online. Additionally, the Company maintains an inside sales team for management of inbound merchant inquiries regarding its Payment Processing Services. The Company had over 166,000 and 135,000 active merchants as of December 31, 2006 and 2005, respectively. Because of the size and diversity of the Company’s installed merchant base for its gateway product, the Payment Processing segment does not have significant merchant concentration.

TDS

On February 21, 2007, we announced that we had entered into an asset purchase agreement and sold certain assets related to our TDS business to Vesta at the close of business on February 20, 2007 for $2.5 million in cash plus assumption of certain contractual liabilities. The TDS operations for 2006 and prior periods will be presented as discontinued when they are disposed of in 2007. We expect to record a gain on the disposal of our TDS business of approximately $1.0 million to $1.5 million, which will be presented as a gain on disposal of discontinued operations.

Sales and Marketing and Seasonality

The Company’s sales strategy is to continue to grow its business through a differentiated model that primarily focuses on IP-enabled merchants, utilizing its relationships with its outside sales partners and merchant banking partners. Lightbridge employs a team approach to selling its Payment Processing Services in order to develop a consultative relationship with existing and prospective outside sales partners and merchant banking partners. The Company’s outside sales partnerships and banking partner relationships are not exclusive. The Company relies on payment processing product feature differentiation, attractive residual sales commissions and customer support services, to motivate these outside sales partners and others to promote Lightbridge’s services over those of another gateway service provider.

Service and technical support for Payment Processing products are provided to merchants and outside sales partners through a contact center, an online help desk, and a dedicated team of account managers that provide services to the Company’s outside sales partners. A high level of reliable service, customer support and product innovation is critical to the objective of differentiating the Company’s solutions and services from those of its competitors.

Our sales, and in particular the number of transactions we process for our customers, may vary as a result of seasonality. Customers typically process more transactions during the holiday season in the fourth quarter of the year. For additional information on how our quarterly results may fluctuate please refer to Item 1.A. Risk Factors, Our Quarterly Results may Fluctuate.

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Engineering, Research and Development

Lightbridge believes that its future success of the Company will depend in part on its ability to continue to enhance, implement, and maintain its existing product and service offerings including, without limitation, the Payment Processing gateway, and to develop, implement and maintain new products and services that allow customers to respond to changing market requirements. For the years ended December 31, 2006, 2005 and 2004, the Company’s research and development costs were approximately $11.3, $14.4 and $18.0 million, respectively. Lightbridge’s research and development activities consist of long-term efforts to develop, enhance, and maintain products and services and short-term projects to make modifications to respond to immediate client needs. In addition to internal research and development efforts, Lightbridge intends to continue its strategy of gaining access to new technology through strategic relationships and acquisitions where appropriate. Lightbridge also intends to utilize contracted development resources when desirable in order to manage its development costs.

Competition

The market for the Company’s Payment Processing solutions and services is characterized by a few large competitors and many smaller competitors. The market is fragmented, and a number of companies offer one or more payment gateway products or services competitive with those offered by Lightbridge. In particular, the Company faces competition from its Payment Processing outside sales partners, which often resell multiple competing gateway products in addition to the Authorize.Net products and services. Some of the principal competitors are PayPal, Inc., Google, Inc., CyberSource Corporation, Plug & Pay Technologies, Inc., LinkPoint International, Inc., a subsidiary of First Data Corporation, Fidelity National Information Services, Inc., Telecheck International, Inc., Check Free Corporation and Intuit Inc.

Lightbridge believes that the principal competitive factors in the online payment industry includes the ability to identify and respond to customer needs, timeliness, quality and breadth of product and service offerings, price, continuous availability of service, and technical expertise. Lightbridge believes that its ability to compete in this industry also depends in part on a number of factors outside its control, including the ability to hire and retain employees, the development of products and services by others that are competitive with Lightbridge’s products and services, the price at which others offer comparable products and services, and the extent of its competitors’ responsiveness to client needs.

Government and Industry-Specific Regulation

The Banking Secrecy Act, the USA Patriot Act of 2001, and the Homeland Security Act contain anti-money laundering and financial transparency laws and mandate the implementation of various new regulations applicable to financial services companies, including obligations to monitor transactions and report suspicious activities. The obligations under these acts which may apply directly or could be applied to Lightbridge’s financial services partners or to certain of its merchant services, require the implementation and maintenance of internal practices, procedures, and controls which may increase the Company’s costs and may subject the Company to liability.

Businesses that handle consumers’ funds, such as the Company’s Payment Processing business, are subject to numerous regulations, including those related to banking, credit cards, ACH processing, escrow, fair credit reporting, privacy of financial records and others. State money transmitter regulations and federal anti-money laundering and money services business regulations can also apply under some circumstances. The application of many of these laws with regard to electronic commerce is unclear. In addition, it is possible that a number of laws and regulations may be applicable or may be adopted in the future with respect to conducting business over the Internet concerning matters such as internet gambling, taxes, pricing, content and distribution.

Furthermore, the growth and development of the e-commerce market may prompt more stringent consumer protection laws that may impose additional regulatory burdens on those companies, such as Lightbridge, that provide services to online business. The adoption of additional laws or regulations, or taxation requirements, may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for the Company’s products and services and increase the Company’s cost of doing business.

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Consumer protection laws in the areas of privacy, credit and financial transactions have been evolving rapidly at the state, federal and international levels. As the electronic transmission, processing and storage of financial information regarding consumers continues to grow and develop, it is likely that more stringent consumer protection laws may impose additional burdens on companies involved in such transactions including, without limitation, notification of unauthorized disclosure of personal information of individuals. Uncertainty and new laws and regulations, as well as the application of existing laws to e-commerce, could limit the Company’s ability to operate in its markets, expose the Company to compliance costs fines and penalties, and substantial liability and result in costly and time-consuming litigation.

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.

In the Payment Processing segment, the Company is responsible to maintain compliance with industry security standards set forth by the credit card associations under the Payment Card Industry (PCI) Data Security Standard, and ACH processing rules and guidelines set forth by the National Automated Clearing House Association (NACHA).

The Securities and Exchange Commission (SEC) and the National Association of Securities Dealers, Inc. have also enacted regulations affecting corporate governance, securities disclosure or compliance practices. The Company expects these regulations to increase its compliance costs and require additional time and attention.

Proprietary Rights

Lightbridge’s success is dependent upon proprietary technology. Lightbridge relies on a combination of copyrights, patents, trade secrets and employee and third-party non-disclosure agreements to establish and protect its rights in its software products and proprietary technology. Lightbridge protects the source code versions of its products as trade secrets and as unpublished copyrighted works, and has internal policies and systems designed to limit access to and require the confidential treatment of its trade secrets. Lightbridge 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, Lightbridge’s employees are required as a condition of employment to enter into confidentiality agreements with Lightbridge. Lightbridge also relies on the law of trademarks to establish and protect rights in its products, services and brand names.

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

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

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

Although Lightbridge believes that its products and technology do not infringe on any existing proprietary rights of others, the Company has received notices alleging that certain of its products or services may infringe on

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another party’s intellectual property rights. There can be no assurance that third parties will not assert other infringement claims against Lightbridge in the future or that any asserted or 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 March 1, 2007, Lightbridge had a total of 201 employees, of which 200 were full-time and 1 was part-time or seasonal. None of Lightbridge’s employees are represented by a labor union, and Lightbridge believes that its employee relations are good.

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

Additional Available Information

Lightbridge’s principal Internet address is www.lightbridge.com. The Company’s web site provides a hyperlink to a third-party web site through which Lightbridge’s annual, quarterly and current reports, and amendments to those reports, are available free of charge. Lightbridge believes these reports are made available as soon as reasonably practicable after it electronically files them with, or furnishes them to, the 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. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

Item 1A.   Risk Factors

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

Authorize.Net distributes its service offerings primarily through outside sales distribution partners and its revenues are derived predominantly through these relationships. In particular, Wells Fargo is a significant distributor of our gateway services.

We intend to continue to market and distribute our current and future products and services through existing and other relationships both in and outside of the United States. There are no minimum purchase obligations applicable to any existing distributor or other sales and marketing partners and we do not expect to have any guarantees of continuing orders. Failure by our existing and future distributors including, without limitation, Wells Fargo or other sales and marketing partners to generate significant revenues, our failure to establish additional distribution or sales and marketing alliances, changes in the industry that render third party distribution networks obsolete, termination of relationships with significant distributors including, without limitation, Wells Fargo, or marketing partners would have a material adverse effect on our business, operating results and financial condition. In addition, we may be required to pay higher commission rates in order to maintain loyalty among our third-party distribution partners, which may have a material adverse impact on our profitability.

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

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example, outside sales partners of Authorize.Net products and services are permitted to and generally do market and sell competing products and services.

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 to provide some of our software, data, systems and services. In some circumstances, we rely on a single supplier or limited group of suppliers. For example, our Payment Processing business requires the services of third-party payment processors. If any of these processors cease to allow us to access their processing platforms, our ability to process credit card payments would be severely impacted. In addition, we depend on a single Originating Depository Financial Institution (ODFI) partner to process ACH transactions, and our ability to process these transactions would be severely impacted if we were to lose such partner or if such partner stopped processing our ACH transactions for any reason.

Our reliance on outside vendors and service providers also subjects us to other 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.

In addition, our business is materially dependent on services provided by various telecommunications providers. A significant interruption in telecommunications services including, without limitation, a power loss 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. 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.

The Demand for Our Payment Processing Products and Services Could Be Negatively Affected by a Reduced Growth of e-Commerce or Delays in the Development of the Internet Infrastructure.

Sales of goods and services over the Internet do not represent a significant portion of the overall sales of goods and services in the economy. We depend on the growing use and acceptance of the Internet as an effective medium of commerce by merchants and customers in the United States and as a means to grow our business. We cannot be certain that acceptance and use of the Internet will continue to develop or that a sufficiently broad base of merchants and consumers will adopt, and continue to use, the Internet as a medium of commerce.

It is also possible that the number of Internet users, or the use of Internet resources by existing users, will continue to grow, and may overwhelm the existing Internet infrastructure. Delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity could also have a detrimental effect on the Internet and correspondingly on our business. These factors would adversely affect usage of the Internet, and lower demand for our products and services.

We Could Be Subject to Liability as a Result of Security Breaches, Service Interruptions by Cyber Terrorists or Fraudulent or Illegal Use of Our Services.

Because some of our activities involve the storage and transmission of confidential personal or proprietary information, such as credit card numbers and social security numbers, and because we are a link in the chain of e-commerce, security breaches, service interruptions and fraud schemes could damage our reputation and expose us to a risk of loss or litigation and monetary damages. Cyber terrorists have periodically interrupted, and may continue to interrupt, our payment gateway services in attempts to extort payments from us or disrupt commerce. Our payment gateway services may be susceptible to credit card and other payment fraud schemes, including unauthorized use of credit cards or bank accounts, identity theft or merchant fraud. We expect that technically sophisticated criminals will continue to attempt to circumvent our anti-fraud systems. If such fraud schemes

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become widespread or otherwise cause merchants to lose confidence in our services in particular, or in Internet systems generally, our business could suffer.

In addition, the storage and transmission of confidential personal data, coupled with the large volume of payments that we handle for our clients, makes us vulnerable to third-party or employee fraud or other internal security breaches. Further, we may be required to expend significant capital and other resources to protect against security breaches and fraud to address any problems they may cause.

Our payment system may also be susceptible to potentially illegal or improper uses. These uses may include illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. Despite measures we have taken to detect and lessen the risk of this kind of conduct, we cannot ensure that these measures will succeed. In addition, regulations under the USA Patriot Act may require us to revise the procedures we use to comply with the various anti-money laundering and financial services laws. Our business could suffer if clients use our system for illegal or improper purposes or if the costs of complying with regulatory requirements increase significantly.

Authorize.Net believes it is compliant with the Payment Card Industry’s (PCI) Security Standard which incorporates Visa’s Cardholder Information Security Program (CISP) and MasterCard’s Site Data Protection (SDP) standard. However, there is no guarantee that we will maintain such compliance or that compliance will prevent illegal or improper use of our payment system.

We have expended, and may be required to continue to expend, significant capital resources to protect against security breaches, service interruptions and fraud schemes. Our security measures may not prevent security breaches, service interruptions and fraud schemes and the failure to do so may disrupt our business, damage our reputation and expose us to risk of loss or litigation and possible monetary damages.

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

We provide Payment Processing transaction services, as well as 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 including cyber terrorism, power loss, telecommunications failure, unauthorized access by hackers, electronic break-ins, intrusions or attempts to deny our ability to deploy our services, computer viruses or similar events. In addition, a 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. Errors in our computer and telecommunications systems may adversely impact our ability to provide the products and services contracted for by our clients. We may need to expend significant capital or other resources to protect against or repair damage to our systems that occur as a result of malicious activities, cyber-terrorism, natural disasters or human error, but these protections and repairs may not be completely effective. Our property and business interruption insurance and errors and omissions insurance might not be adequate to compensate us for any losses that may occur as the result of these types of damage. It is also possible that such insurance might cease to be available to us on commercially reasonable terms, or at all.

Changes to Credit Card Association and ACH Rules or Practices Could Adversely Impact Our Authorize.Net Business.

Our Authorize.Net credit card payment gateway does not directly access the credit card associations. As a result, we must rely on banks and their credit card processing providers to process our transactions. Nevertheless, as a payment gateway we must comply with the operating rules of the credit card associations. The associations’ member banks set these rules, and the associations interpret the rules. Some of those member banks compete with Authorize.Net. Visa, MasterCard, American Express or Discover could adopt new operating rules or interpretations of existing rules which we might find difficult or even impossible to comply with, resulting in our inability to give

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customers the option of using credit cards to fund their payments. If we were unable to provide a gateway for credit card transactions, our Authorize.Net business would be materially and adversely affected.

In December 2004, the Payment Card Industry (PCI) Data Security Standard was created by major credit card companies to safeguard customer information. Visa, MasterCard, American Express, and other credit card associations mandate that merchants and service providers meet certain minimum standards of security when they store, process and transmit cardholder data. Our Payment Processing business must comply with this standard in order to continue as an internet payment gateway. Changes to this standard may require us to invest significant resources in engineering and hardware in order to comply.

Additionally, our eCheck.Net service is required to be compliant with Automated Clearing House processing rules promulgated by the National Automated Clearing House Association (NACHA). NACHA could adopt new operating rules or interpretations of existing rules which we might find difficult or impossible to comply with, resulting in our inability to give customers the option of using the ACH network for payment processing services, as well as significantly hindering our ability, or making us unable, to utilize the ACH network for our own billing and collection activities for our own services.

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

From time to time, we have had and may be forced to respond to or prosecute other intellectual property infringement claims to protect our rights or defend a customer’s or other third party’s rights. These claims, regardless of merit, may consume valuable management time, result in costly litigation or service 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.

We may also be required to indemnify our customers, third parties or purchasers of assets or businesses we have sold for losses they may incur under indemnification agreements if we are found to have violated the intellectual property rights of others. We may also seek to settle intellectual property infringement claims which could require payment of material amounts to the third parties claiming infringement. Please refer to Part I Item 3, “Legal Proceedings” for a discussion of certain matters related to our intellectual property.

In connection with the sale of our INS business to VeriSign on June 14, 2005, we agreed to indemnify VeriSign for up to $5.0 million in damages incurred for potential breaches of our intellectual property representations and warranties in the asset purchase agreement. Such representations and warranties extend for two years from the date of closing. We received notification from VeriSign, Inc. asserting that we are obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign which alleges that VeriSign is infringing certain patents of the plaintiff. VeriSign asserts that our obligation to indemnify it arises in connection with the sale by us to VeriSign of certain assets related to our Intelligent Network Systems business unit, including our Prepay IN software, which VeriSign acquired in April 2005. We objected to VeriSign’s claim and have asked for additional information, which we have not yet recieved. We are not a party to the litigation at this time.

The Success of Our Business Strategy Is Dependent on Our Ability to Further Penetrate into the Payment Processing Market and to Expand into New or Complementary Markets.

As part of our business strategy, we are seeking to further penetrate into the payment processing market and to expand our business into new markets or markets that are complementary to our existing payment processing business.

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If we are not able to successfully expand our penetration into our existing payment processing market or into new or complementary markets, our financial results and future prospects may be harmed. Our ability to increase market penetration and enter new or complementary markets depends on a number of factors, including:

•  growth in our existing and targeted markets;

•  our ability to provide products and services to address the needs of those markets; and

•  competition in those markets.

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

We may continue to make acquisitions in the future if we identify companies, technologies or assets that appear to expand or complement our business. Acquisitions involve risks that could cause the actual results of any acquisitions we make to differ from our expectations. At the same time, if we are not able to make acquisitions, we may not be able to expand our business. Some examples of the difficulties posed by acquisitions are that:

•  We may experience difficulty in integrating and managing acquired businesses successfully and in realizing anticipated economic, operational and other benefits in a timely manner. The need to retain existing clients, employees, and sales and distribution channels of an acquired Company and to integrate and manage differing corporate cultures can also present significant risks. If we are unable to successfully integrate and manage acquired businesses, we may incur substantial costs and delays or other operational, technical or financial problems.

•  Our acquisition of other businesses could significantly reduce our available cash and liquidity. In other future acquisitions, we may issue equity securities that could be dilutive to our shareholders or we may use substantial amounts of our remaining cash, which may have an adverse effect on our liquidity. We also may incur additional debt and amortization expense related to intangible assets as a result of acquisitions. This additional debt and amortization expense, as well as the potential impairment of any purchased goodwill, may materially and adversely affect our business and operating results. We may also be required to make continuing investments in acquired products or technologies to bring them to market, which may negatively affect our cash flows and net income.

We may also incur additional costs relating to the integration, review and evaluation and enhancement of our internal controls for businesses we acquire. In addition, we may assume contingent liabilities that may be difficult to estimate and costs and liabilities associated with assumed litigation matters.

•  Acquisitions may divert management’s attention from our existing business and may damage our relationships with our key clients and employees.

•  Acquisitions may also result in liabilities including, without limitation, intellectual property infringement claims not known at the time of acquisition as well as for assumed obligations.

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

The market for products and services offered to participants in online transactions is highly competitive and subject to rapid change. This market is fragmented, and a number of companies offer one or more products or services competitive with ours. We anticipate continued growth and the formation of new alliances in the market in which we compete, which will result in the entrance of new or the creation of bigger competitors in the future. For example, in October 2005, VeriSign, Inc. announced that PayPal, Inc., a wholly-owned subsidiary of eBay, Inc., agreed to acquire VeriSign’s payment gateway business and to form a strategic alliance with VeriSign, Inc. for on-line commerce and security. In addition, in June 2006 Google, Inc. announced Google Checkout, a new payment service that may compete with us. We face potential competition from several primary sources:

•  providers of online payment processing services, including CyberSource Corporation, Plug & Pay Technologies, Inc., PayPal, Inc., Google, Inc. and LinkPoint International, Inc., a subsidiary of First Data Corporation.

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•  providers of ACH services including Fidelity National Information Services, Inc., Telecheck International, Inc., CheckFree Corporation and Intuit Inc.

Other companies, including financial services, credit card and payment processing companies compete with us or may enter the market and provide competing services.

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

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

If We Do Not Continue to Enhance Our Existing Products and Services, and Develop or Acquire New Ones, We Will Not Be Able to Compete Effectively.

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

•  identify and anticipate emerging technological and market trends affecting the markets in which we do business;

•  enhance our current products and services in order to increase their functionality, features and cost-effectiveness to clients that are seeking to control costs and to meet regulatory requirements;

•  develop or acquire new products and services that meet emerging client needs, such as products and services for the online market;

•  modify our products and services in response to changing business practices and technical requirements of our clients, as well as to new regulatory requirements;

•  integrate our current and future products with third-party products; and

•  create and maintain interfaces to changing client and third party systems.

We 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 services and in modifying or enhancing existing products and services. If we are unable to expand or appropriately enhance or modify our products and services quickly and efficiently, our business and operating results will be adversely affected.

We and Our Clients Must Comply with Complex and Changing Laws and Regulations.

Government regulation influences our activities and the activities of our current and prospective clients, as well as our clients’ expectations and needs in relation to our products and services. Businesses that handle consumers’ funds, such as our Payment Processing business, are subject to numerous state and federal regulations, including those related to banking, credit cards, electronic transactions and communication, escrow, fair credit reporting, privacy of financial records, internet gambling and others. State money transmitter regulations and federal anti-money laundering and money services business regulations can also apply under some circumstances.

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The application of many of these laws with regard to electronic commerce is unclear. In addition, it is possible that a number of laws and regulations may be applicable or may be adopted in the future with respect to conducting business over the Internet concerning matters such as taxes, pricing, content and distribution. If applied to us, any of the foregoing rules and regulations could require us to change the way we do business in a way that increases costs or makes our business more complex. In addition, violation of some statutes may result in severe penalties or restrictions on our ability to engage in e-commerce, which could have a material adverse effect on our business.

Privacy legislation including the Gramm-Leach-Bliley Act and regulations there under, as well as state laws 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.

Consumer protection laws in the areas of privacy, credit and financial transactions have been evolving rapidly at the state, federal and international levels. As the electronic transmission, processing and storage of financial information regarding consumers continues to grow and develop, it is likely that more stringent consumer protection laws may impose additional burdens on companies involved in such transactions including, without limitation, notification of unauthorized disclosure of personal information of individuals. Uncertainty and new laws and regulations, as well as the application of existing laws, could limit our ability to operate in our markets, expose us to compliance costs, fines, penalties and substantial liability, and result in costly and time-consuming litigation.

Furthermore, the growth and development of the market for e-commerce may prompt more stringent consumer protection laws that may impose additional regulatory burdens on companies that provide services to online business. The adoption of additional laws or regulations, or taxation requirements may affect the ability to offer, or cost effectiveness of offering, goods or services online, which could, in turn, decrease the demand for our products and services and increase our cost of doing business.

The Securities and Exchange Commission and the National Association of Securities Dealers, Inc. have also enacted regulations affecting our corporate governance, securities disclosure and compliance practices. We expect these regulations to increase our compliance costsand require additional time and attention. If we fail to comply with any of these regulations, we could be subject to legal actions by regulatory authorities or private parties.

Our Quarterly Operating Results May Fluctuate.

Our operating results may fluctuate in the future based upon a number of factors, many of which are not within our control. We base our operating expenses on anticipated revenue growth and many of our operating expenses are relatively fixed in the short-term. Our revenue model is based largely on recurring revenues, billed monthly, predominately derived from growth in customers and the numbers of transactions processed within a monthly billing period. The number of transactions processed is affected by many factors, several of which are beyond our control, including general consumer trends and holiday shopping in the fourth quarter of the year.

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 operating results may also fluctuate in the future due to a variety of other factors, including:

•  how well we execute on our strategy and operating plans;

•  changes in the number of transactions we process for our customers, including as a result of seasonality, success of each customer’s business, general economic conditions or regulatory requirements restricting our customers;

•  changes in our pricing policies or those of our competitors;

•  relative rates of acquisition of new customers and the loss of existing customers;

•  delays in the introduction of new or enhanced services, software and related products by us or our competitors or market acceptance of these products and services;

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•  the amount of capital expenditures required to maintain and expand our business, operations, and infrastructure; and

•  the impact of external factors or events, such as war, cyber terrorism or other acts of terrorism.

Our quarterly results may also vary due to the timing and extent of restructuring, and impairment and other charges that may occur in a given quarter.

Our quarterly results may be affected by new changes in accounting rules, such as the requirement to record share-based compensation expense for employee stock option grants made at fair market value. Since the Company has adopted the modified prospective transition method to report share-based compensation expense, periods prior to 2006 have not been restated to reflect the fair value method of expensing share-based compensation.

As a result of these factors, we believe that our quarterly results are not predictable with any significant degree of certainty, and 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 Success Depends in Part on Our Ability to 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 maintain or 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 pending application for a patent, but we cannot be certain that the patent will be issued on that application, that any of our future patents will protect our business or technology against competitors that develop similar technology or products or services or provide us with a competitive advantage, or that others will not claim rights in our patents or our proprietary technologies.

Patents issued and patent applications filed relating to products used in the payment processing 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 or services.

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

Our Business May Be Harmed by Errors in Our Software.

The software that we develop and use in providing our transaction processing is extremely complex and contains hundreds of thousands of lines of computer code. Large, complex software systems such as ours are susceptible to errors. The difficulty of preventing and detecting errors in our software is compounded by the fact that we maintain multiple versions of our systems to meet the differing requirements of our major clients, and must implement frequent modifications to these systems in response to these clients’ evolving business policies and technical requirements. Our software design, development and testing processes are not always adequate to detect errors in our software prior to its release. 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 use. 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 business policies, or to fail to comply with legal,

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credit card, and banking requirements, such as those under the Fair Credit Reporting Act, Gramm-Leach-Bliley Act, NACHA rules, MasterCard’s Site Data Protection (SDP) Standard, Visa’s Cardholder Information Security Program (CISP) and Payment Card Industry’s (PCI) Data Security Standard.

Such errors 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 merchant customers;

•  we may not be paid for the products or services provided to a client that contain errors, or we may be liable for losses or damages sustained by a customer as a result of such errors;

•  we may incur additional unexpected expenses to correct errors in our software, or to fund product development projects that we may undertake to minimize the occurrences of such errors in the future;

•  we may damage our relationships with clients or suffer a loss of reputation within our industry;

•  we may become subject to litigation or regulatory scrutiny; and

•  our customers may terminate or fail to renew their agreements with us or reduce the products and services they purchase from us.

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

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

The development of our products has, in some cases, extended over a period of more than ten years. This incremental development process has resulted in systems which are extremely complex. Systems of the size and complexity of ours are inherently difficult to modify and maintain. We have implemented and 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 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.

Changes in Management Could Affect Our Ability to Operate Our Business.

Our future success will depend to a significant degree on the skills, experience and efforts of our executive officers. The loss of any of our executive officers could impair our ability to successfully manage our current business or implement our planned business objectives and our future operations may be adversely affected.

We Face Significant Competition for a Limited Supply of Qualified Software Engineers, Consultants and Sales and Marketing Personnel.

Our business depends on the services of skilled software engineers who can develop, maintain and enhance our products, consultants who can undertake complex client projects and sales and marketing personnel. 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 services and to meet client requirements, we need to attract, motivate and retain a significant number of software engineers, consultants and sales and marketing personnel. 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, consultants and sales and marketing personnel 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.

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Our Business Could Require Additional Financing.

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

We May Not Be Able to Successfully Manage Operational Changes.

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

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Lightbridge leases approximately 80,000 square feet in a single building in Burlington, Massachusetts for its corporate headquarters. This lease was executed and delivered in January 2004, had a rent commencement date in June 2004 and expires in 2011. The Company sublet 35,000 square feet in conjunction with the Company vacating the third floor of the Company’s corporate headquarters in the third quarter of 2005. The initial sublease term for such 35,000 square feet is from November 9, 2005 through September 30, 2008. The Company will be vacating the remaining 45,000 square feet in 2007 in connection with the sale of certain assets related to the Company’s TDS business on February 20, 2007 and subsequent sublease agreement for that space. The Company plans to relocate its corporate headquarters to a 10,000 square foot facility in Marlborough, Massachusetts during the first half of 2007.

The Company leases approximately 14,000 and 23,400 square feet with lease expiration dates in 2010 and 2009, respectively, in American Fork, Utah and Bellevue, Washington, respectively, for its Payment Processing operations. The Company’s Bellevue, Washington lease was executed in August 2004, and had a rent commencement date in September 2004.

The Company leases approximately 30,000 square feet with an lease expiration date in 2008, for a former product development facility in Broomfield, Colorado. We have subleased our Broomfield, Colorado facility for the balance of the lease term. The Company leases 29,000 square feet with a lease expiration date in 2007, for the contact center in Lynn, Massachusetts. The Company leases approximately 4,000 square feet in Waltham, Massachusetts for a data center with a lease expiration date in 2010. The Waltham, Massachusetts data center facility has been subleased in connection with the sale of certain assets related to the TDS business. The terms of the Company’s leases generally run from one to six years. We believe that our present facilities are adequate for our current needs and that suitable additional space will be available as needed.

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Item 3.   Legal Proceedings

In May 2006, we entered into a settlement agreement with respect to certain litigation involving NetMoneyIN, Inc. Pursuant to the agreement, we agreed to pay NetMoneyIN, Inc. a lump sum payment of $1.75 million in exchange for a lease and covenant not to sue. The cost of the settlement to us is $1.5 million net of $0.25 million received from another party named in the litigation. We recorded this cost in general and administrative expenses in the second quarter of 2006.

We had incurred legal expenses of approximately $0.6 million and $1.1 million for the years ended December 31, 2006 and December 31, 2005, respectively, in connection with the defense of this lawsuit following our acquisition of Authorize.Net. We do not expect to incur any additional litigation costs related to this lawsuit.

In connection with the sale of our INS business to VeriSign on June 14, 2005, we agreed to indemnify VeriSign for up to $5.0 million in damages incurred for potential breaches of our intellectual property representations and warranties in the asset purchase agreement. Such representations and warranties extend for two years from the date of closing. We received notification from VeriSign, Inc. asserting that we are obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign which alleges that VeriSign is infringing certain patents of the plaintiff. VeriSign asserts that our obligation to indemnify it arises in connection with the sale by us to VeriSign of certain assets related to our Intelligent Network Systems business unit, including our Prepay IN software, which VeriSign acquired in April 2005. We objected to VeriSign’s claim and have asked for additional information, which we have not yet received. We cannot predict the outcome of this matter at this time and we are presently not a party to the litigation.

We are involved in various litigation and legal matters other than the VeriSign matter described above that have arisen in the ordinary course of business. We believe that the ultimate resolution of any existing matter will not have a material adverse effect on our consolidated financial statements.

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, 2006.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Shares of the Company’s common stock, $.01 par value per share, are quoted on the NASDAQ Global Market under the symbol “LTBG.” The following table sets forth, for the calendar quarters indicated, the high and low closing prices per share of the common stock on the National Market System, as reported in published financial sources:

	High		Low
2006
First Quarter	$	11.10	$	8.38
Second Quarter	$	14.31	$	11.12
Third Quarter	$	13.60	$	10.60
Fourth Quarter	$	14.03	$	10.96
2005
First Quarter	$	6.35	$	5.74
Second Quarter	$	6.79	$	5.73
Third Quarter	$	8.10	$	6.50
Fourth Quarter	$	9.95	$	7.53

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Performance Graph

The following graph compares the cumulative total return of our common stock for the five year period from 2002 to 2006 to the cumulative total return of the NASDAQ 100 Stock Market Index and the NASDAQ Computer Index for the same period.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Lightbridge, Inc., The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index

* $100 invested on 12/31/01 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.

	Dec-01		Dec-02		Dec-03		Dec-04		Dec-05		Dec-06
Lightbridge, Inc.		100.00		50.62		74.90		49.71		68.23		111.44
NASDAQ Composite		100.00		68.85		101.86		112.16		115.32		127.52
NASDAQ Computer & Data Processing		100.00		70.29		89.82		102.40		105.49		119.25

Holders

As of March 13, 2007, there were 153 holders of record of common stock (which number does not include the number of stockholders whose shares are held by a broker or clearing agency but which does include each such brokerage house or clearing agency as one record holder).

Dividend Policy

The Company has never declared or paid any cash dividends on its common stock. The Company 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.

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Issuer Purchases of Equity

					(c)Total Number of		(d)Maximum Dollar Value
					Shares		of Shares
	(a)Total Number		(b)Average Price		Purchased as		that May
	of Shares		Paid per		Part of Publicly		Yet Be Purchased
Period	Purchased		Share		Announced Plan		under the Plan (in thousands)
October 1, 2006 — October 31, 2006		—		—		—		—
November 1, 2006 — November 30, 2006(1)		369	$	13.71		—		—
December 1, 2006 — December 31, 2006		—		—		—		—
Total		369	$	13.71		—		15,000

(1)  Represents shares of stock surrendered by Lightbridge employees in order to meet tax withholding obligations in connection with the vesting of an installment of their restricted stock awards

In September 2006, our Board of Directors authorized a stock repurchase program of up to $15.0 million allowing us to repurchase shares of our outstanding common stock in the open market or through private transactions from time to time depending on market conditions. As of March 8, 2007, the Company has not made any repurchases under this program.

Securities Authorized for Issuance under Equity Compensation Plans

See Part III, Item 12 for information regarding securities authorized for issuance under equity compensation plans.

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Item 6.   Selected Financial Data

The following selected financial data have been derived from the Company’s audited historical consolidated financial statements, certain of which are included elsewhere in this Annual Report on Form 10-K. The following selected financial data should be read in conjunction with the Company’s consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.

The following selected financial data includes the results of operations, from the date of acquisition, of Authorize.Net Corporation, which the Company acquired on March 31, 2004.

	Years Ended December 31,
	2006			2005			2004			2003			2002
	(In thousands, except per share amounts)
Statement of Operations Data:
Revenues	$	95,646		$	108,278		$	115,133		$	99,023		$	107,120
Cost of revenues		38,795			49,803			58,533			52,624			55,853
Gross profit		56,851			58,475			56,600			46,399			51,267
Operating expenses:
Engineering and development costs		11,259			14,375			18,002			17,150			15,389
Sales and marketing		19,571			18,072			17,705			8,960			6,848
General and administrative		17,550			15,974			15,758			12,991			15,569
Purchased in-process research and development		—			—			679			—			—
Restructuring costs		7,283			1,259			4,069			1,227			3,154
Total operating expenses		55,663			49,680			56,213			40,328			40,960
Income from operations		1,188			8,795			387			6,071			10,307
Interest income		4,883			1,937			935			1,778			2,439
Equity in loss of partnership investment		—			—			—			(471	)		(464	)
Income from continuing operations before provision for income taxes		6,071			10,732			1,322			7,378			12,282
(Benefit) provision for income taxes		(18,219	)		1,976			8,677			1,889			2,591
Income (loss) from continuing operations		24,290			8,756			(7,355	)		5,489			9,691
Discontinued operations, net of income taxes:
Gain on sale of Fraud Centurion assets								2,673
Gain on sale of INS assets		—			12,689			—			—			—
Income (loss) from operations		468			(2,433	)		(10,723	)		(6,938	)		(6,061	)
Total discontinued operations, net of income taxes		468			10,256			(8,050	)		(6,938	)		(6,061	)
Net income (loss)	$	24,758		$	19,012		$	(15,405	)	$	(1,449	)	$	3,630
Net income (loss) per common share (basic):
From continuing operations	$	0.89		$	0.33		$	(0.28	)	$	0.20		$	0.35
From discontinued operations		0.02			0.38			(0.30	)		(0.25	)		(0.22	)
Net income (loss) per common share (basic)	$	0.91		$	0.71		$	(0.58	)	$	0.05		$	0.13
Net income (loss) per common share (diluted):
From continuing operations	$	0.86		$	0.32		$	(0.28	)	$	0.20		$	0.34
From discontinued operations		0.02			0.38			(0.30	)		(0.25	)		(0.21	)
Net income (loss) per common share (diluted)	$	0.88		$	0.70		$	(0.58	)	$	(0.05	)	$	0.13
Basic weighted average shares		27,248			26,670			26,643			27,015			28,030
Diluted weighted average shares		28,245			27,282			26,643			27,416			28,433

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	December 31,
	2006		2005		2004		2003		2002
	(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	116,172	$	84,808	$	51,625	$	133,488	$	133,470
Working capital	$	103,966	$	74,156	$	42,997	$	137,684	$	136,501
Total assets	$	222,474	$	189,535	$	170,486	$	177,836	$	180,672
Long-term obligations, less current portion	$	700	$	700	$	149	$	33	$	259
Stockholders’ equity	$	190,315	$	156,953	$	135,667	$	154,503	$	159,641

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We have undergone significant changes to our business since 2004 and, with the sale of certain assets related to our TDS business to Vesta we are now focused on our Payment Processing Services segment (Payment Processing). In 2004, the Company operated in four distinct operating segments: Telecom Decisioning Services (TDS), Payment Processing, Intelligent Network Solutions (INS) and Instant Conferencing Services (Instant Conferencing). During 2005, we sold our INS business and ceased the operation of our Instant Conferencing business. We sold the TDS business on February 20, 2007. The operating results and financial condition of the TDS segment have been included as part of the financial results from continuing operations in the accompanying consolidated financial statements. Commencing in the first quarter of 2007, the financial condition and results of the TDS segment will be presented as a discontinued operation. The operating results and financial condition of the INS and Instant Conferencing segments have been included as part of the financial results from discontinued operations in the accompanying consolidated financial statements.

Lightbridge’s two areas of business in 2006 were Payment Processing and TDS. Historically, TDS comprised a majority of the Company’s business; however, in recent years, revenues from that business declined. With the sale of the TDS business, the Company will solely operate in and focus on the Payment Processing business. The Payment Processing business consists of a set of Internet Protocol (IP) based payment processing gateway services that enable online and other merchants to authorize, settle, manage risk, and manage credit card or electronic check transactions via a variety of interfaces. The TDS business consisted of Lightbridge’s customer qualification and acquisition, risk management and authentication services, delivered primarily on an outsourced or service bureau basis, together with the Company’s TeleServices offerings.

The Company’s IP-based Payment Processing solutions offer products and services to merchants in both the Card Not Present (CNP) (e-commerce and mail order/telephone order or MOTO) and Card Present (CP) (retail point-of-sale (POS) and mobile devices) segments of the U.S. credit card transaction processing market. In addition, the Payment Processing Services include an electronic check payment processing solution for merchants. The Payment Processing solutions are designed to provide secure transmission of transaction data over the Internet and manage submission of this payment information to the credit card and Automated Clearing House (ACH) processing networks. The Company provides its Payment Processing solutions primarily through a network of outside sales partners, Independent Sales Organizations (ISOs), and merchant bank partners.

Our Payment Processing segment offers a transaction processing system under the Authorize.Net^® brand that allows businesses to authorize, settle and manage credit card, electronic check and other electronic payment transactions online.

A majority of our revenues historically have been derived from clients located in the United States. Our revenues are derived from transaction services and consulting and maintenance services.

Payment Processing and Exit from Telecom Decisioning Services

Transaction services revenues related to payment processing are derived from our credit card processing and ACH processing services, and other services (collectively, “processing services”). Processing services revenue is

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based on a one-time set up fee, a monthly gateway fee, and a fee per transaction. The per transaction fee is recognized in the period in which the transaction occurs. Gateway fees are monthly subscription fees charged to our merchant customers for the use of our payment gateway. Gateway fees are recognized in the period in which the service is provided. Set-up fees represent one-time charges for initiating our processing services. Although these fees are generally paid to us at the commencement of the agreement, they are recognized ratably over the estimated average life of the merchant relationship, which is determined through a series of analyses of active and deactivated merchants.

TDS

Our transaction service revenues related to the TDS business were derived primarily from the processing of applications for qualification of subscribers for telecommunications services and the activation of services for those subscribers. Our telecommunications transactions offerings included screening for subscriber fraud, evaluating carriers’ existing accounts, interfacing with carrier and third-party systems and providing contact center services. Pricing varied 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 transactions processed varied depending on seasonal and retail trends, the success of the carriers and others utilizing our services in attracting subscribers and the markets served by our clients. Transaction revenues have been recognized in the period in which the services are performed.

Our consulting revenues were related to our TDS business and were derived principally from providing solution development and deployment services and business advisory consulting in the areas of customer acquisition and retention, authentication, and risk management. The majority of consulting engagements have been performed on a time and materials basis and revenues from these engagements have been recognized based on the number of hours worked by our consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. When we performed work under a fixed fee arrangement, revenues were generally recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. In instances where the customer, at its discretion, had the right to reject the services prior to final acceptance, revenue was deferred until such acceptance occurs. Revenues from software maintenance and support contracts were recognized ratably over the term of the agreement.

2007 Developments

On February 21, 2007, we announced that we had entered into an asset purchase agreement and sold certain assets related to our TDS business to Vesta at the close of business on February 20, 2007 for $2.5 million in cash plus assumption of certain contractual liabilities. The TDS operations for 2006 and prior periods will be presented as discontinued when they are disposed of in 2007. We expect to record a gain on the disposal of our TDS business of approximately $1.0 million to $1.5 million, which will be presented as a gain on disposal of discontinued operations.

2006 Developments

On November 1, 2006, we announced that our board of directors authorized the discretionary repurchase of up to $15.0 million of shares of the Company’s common stock. The shares may be purchased from time to time depending on market conditions through December 31, 2008. As of March 8, 2007, we have not made any repurchases under this program.

On October 4, 2006, we announced our plan to exit the TDS business. With respect to our exit and subsequent sale of the TDS business, we recorded asset impairment charges of $2.4 million during 2006. We expect to incur pre-tax restructuring charges in the range of $1.9 million to $2.5 million in the first quarter of 2007. These charges are expected to consist of approximately $0.9 million to $1.1 million of severance charges with respect to terminated employees; approximately $0.3 million to $0.5 million of facilities exit charges, comprised of the net present value of the lease payment obligations for the remaining term of our TDS-related leases in Burlington and Lynn, Massachusetts, net of estimated sublease income; and approximately $0.7 million to $0.9 million of other charges related to the exit and subsequent sale of the TDS business. Substantially all of the remaining costs will

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require the outlay of cash, although the timing of lease payments relating to leased facilities will be unchanged by the restructuring action. We began to implement the restructuring efforts in October 2006 with notifications of intended action to certain affected personnel. The majority of these restructuring charges related to the exit and subsequent sale of the TDS business will be reported as a discontinued operation in the first quarter of 2007.

We expect to record restructuring charges in the range of $0.4 million to $0.6 million in the first quarter of 2007 related to termination benefits of corporate employees. We also expect to expect to record accelerated depreciation charges in the range of $0.4 million to $0.6 million in the first quarter of 2007 related to the relocation of the Company’s headquarters.

In May 2006, we were advised by T-Mobile that T-Mobile planned to consolidate its contact center business and begin the transition of that business from us to other vendors. In response, we closed our Liverpool, Nova Scotia contact center in the third quarter of 2006 and we recorded restructuring and related asset impairment charges of approximately $0.9 million and $0.8 million during the second and third quarters of 2006, respectively.

In May 2006, we entered into a settlement agreement with respect to certain litigation involving NetMoneyIN, Inc. Pursuant to the agreement, we agreed to pay NetMoneyIN, Inc. a lump sum payment of $1.75 million in exchange for a release and covenant not to sue. The cost of the settlement to us was $1.5 million net of $0.25 million received from another party named in the litigation. We recorded this cost in general and administrative expenses in the second quarter of 2006. We had incurred legal expenses of approximately $0.6 million and $1.1 million for the years ended December 31, 2006 and 2005, respectively, in connection with the defense of this lawsuit. We do not expect to incur any further litigation costs related to this lawsuit.

On January 13, 2006, we announced a restructuring focused primarily within the TDS business, as well as reductions in general and administrative expenses. The restructuring consisted of a total workforce reduction of about 28 positions, and we recorded a restructuring charge of approximately $1.4 million in the first quarter of 2006, primarily related to employee severance and termination benefits.

Operating Segments

Based upon the way financial information is provided to our chief operating decision maker, the Chief Executive Officer, for use in evaluating allocation of resources and assessing performance of the business, for the periods presented we have reported our operations in two distinct operating segments: Payment Processing Services, and Telecom Decisioning Services.

•  Payment Processing Services (Payment Processing) — This segment provides a transaction processing system under the Authorize.Net^® brand that allows businesses to authorize, settle and manage credit card, electronic check and other electronic payment transactions online.

•  Telecom Decisioning Services (TDS) — This segment provided wireless subscriber qualification, risk assessment, fraud screening, consulting services and contact center services to telecommunications and other companies. As discussed above, we sold the TDS business on February  20, 2007.

We do not allocate shared-based compensation, certain corporate or centralized marketing and general and administrative expenses to our business unit segments, because these activities are managed separately from the business units. Also, we do not allocate restructuring expenses and other non-recurring gains or charges to our business unit segments because our Chief Executive Officer evaluates the segment results exclusive of these items. Asset information by operating segment is not reported to or reviewed by our Chief Executive Officer and therefore we have not disclosed asset information for each operating segment.

The historical operating results associated with our Retail Management System (RMS) product, which we no longer actively market or sell, are included in our TDS segment.

As a result of the decision to exit, and subsequent sale of certain assets related to, the TDS business, we do not expect our historical financial results related to the TDS segment to be indicative of our future results.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our 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 us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. We base our 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.

We have identified the policies below as critical to our business operations and the understanding of our results of operations.

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

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

Share-Based Compensation.  Effective January 1, 2006, we account for employee stock-based compensation costs in accordance with Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (SFAS 123(R). Except as noted below, we utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based compensation at the date of grant, and used the Monte Carlo simulation model for the share-based performance options, which both require the input of highly subjective assumptions, including expected volatility and expected life. Further, as required under SFAS 123(R), we now estimate forfeitures for options granted that are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation.

Internal-use Software.  Costs incurred to develop internal-use software during the application development stage are capitalized and reported at cost, subject to an impairment test as described below. Application development stage costs generally include costs associated with internal-use software configuration, coding, installation and testing. Costs of significant upgrades and enhancements that result in additional functionality are also capitalized whereas costs incurred for maintenance and minor upgrades and enhancements are expensed as incurred. We assess potential impairment of capitalized internal-use software whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows that are expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. This analysis requires us to estimate future net cash flows associated with the assets. If these estimates change, reductions or write-offs of internal-use software costs could result.

Impairment of Long-Lived Assets.  We evaluate long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). Long-lived assets are evaluated for recoverability in accordance with SFAS 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, we estimate the future cash flow expected to

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result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. We determine fair value by appraisal or discounted cash flow analysis.

During the third quarter of 2006, we assessed the fair value of certain of our long-lived assets associated with our TDS segment, including computer equipment and other tangible assets. This assessment resulted in impairment charges of $2.4 million. As a result of our May 2006 announcement to close our Liverpool, Nova Scotia contact center, we incurred impairment charges of $1.1 million.

Income Taxes and Deferred Taxes.  Our 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. We assess the recoverability of any tax assets recorded on the balance sheet and provide any necessary valuation allowances as required. If we were to determine that it was more likely than not that we would be unable to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to operations in the period that such determination was made.

In evaluating our ability to recover our deferred tax assets, we considered all available positive and negative evidence including our past operating results, the existence of cumulative income in the most recent fiscal years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we are responsible for assumptions utilized including the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions required significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. Our decision to exit the TDS business on October 4, 2006 removed considerable uncertainty regarding our estimates of expected future results. Based upon our cumulative operating results and an assessment of our expected future results, we concluded that it was more likely than not that we would be able to realize a substantial portion of our U.S. net operating loss carryforward tax asset prior to their expiration and realize the benefit of other net deferred tax assets. As a result, we reduced our valuation allowance in 2006, resulting in recognition of a deferred tax asset of $20.3 million.

Restructuring Estimates.  Restructuring-related liabilities include estimates for, among other things, anticipated disposition of lease obligations. Key variables in determining such estimates include anticipated commencement of sublease rentals, estimates of sublease rental payment amounts and tenant improvement costs and estimates for brokerage and other related costs. We periodically evaluate and, if necessary, adjust our estimates based on available information.

Goodwill and Acquired Intangible Assets, Impairment of Long-lived Assets.  We recorded goodwill of $57.6 million in connection with the acquisition of Authorize.Net, and we recorded other intangible assets of $23.3 million in connection with the acquisition of Authorize.Net. We are required to test such goodwill for impairment on at least an annual basis or if other indicators of impairment arise. We have adopted March 31st as the date of the annual impairment tests for Authorize.Net.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.

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Results of Operations

Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

Revenues.  Revenues and certain revenues comparisons for the years ended December 31, 2006 and 2005 were as follows:

	Year Ended		Year Ended
	December 31,		December 31,		$			%
	2006		2005		Difference			Difference
	(Dollars in thousands)
Transaction services
Payment Processing (Authorize.Net)	$	57,549	$	45,328	$	12,221			27.0	%
TDS		35,427		57,493		(22,066	)		(38.4	)
Total Transaction services revenues		92,976		102,821		(9,845	)		(9.6	)%
Consulting and maintenance services
TDS		2,670		5,457		(2,787	)		(51.1	)%
Total	$	95,646	$	108,278	$	(12,632	)		(11.7	)%

The decrease in transaction services revenues was primarily due to a $22.1 million decline in transactions services revenues from our TDS segment offset by a $12.2 million increase in Authorize.Net’s revenue. Authorize.Net’s revenues for 2006 increased 27.0% compared to 2005. The increased revenues were primarily the result of an increase in the number of merchant customers and the volume of transactions processed. The decline in TDS transaction services revenues was primarily a result of a $15.5 million reduction in transaction fees charged to Sprint/Nextel following the merger between Sprint Spectrum L.P. (Sprint) and Nextel Operations, Inc. (Nextel), a $3.1 million reduction in transaction fees charged to T-Mobile, as a result of their decision to consolidate its contact center business with other vendors, and an unfavorable change in the mix of services provided to our TDS clients.

In the near term, we expect transaction services revenue from our Payment Processing segment to continue to increase. However, as a result of the sale of our TDS business, we will not generate any transaction services revenue from our TDS segment after February 2007.

The decrease in consulting and maintenance services revenues of $2.8 million was principally due to lower revenues from AT&T Wireless and Sprint/Nextel. We will not generate consulting and maintenance services revenues associated with our TDS segment as a result of the sale of certain TDS assets after February 2007.

Cost of Revenues and Gross Profit.  Cost of revenues consists primarily of personnel costs, software and services, costs of maintaining systems and networks used in processing qualification and activation transactions (including depreciation and amortization of systems and networks) and amortization of capitalized software and acquired technology. Cost of revenues for Authorize.Net, included in transaction services cost of revenues, consists of expenses associated with the delivery, maintenance and support of Authorize.Net’s products and services, including personnel costs, communication costs, such as high-bandwidth Internet access, server equipment depreciation, transactional processing fees, as well as customer care costs. 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 pricing to clients, and changes in the amount of monthly gateway fees and gateway setup fees to clients.

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Cost of revenues, gross profit and certain comparisons for the years ended December 31, 2006 and 2005 were as follows:

	Year Ended			Year Ended
	December 31,			December 31,			$			%
	2006			2005			Difference			Difference
	(Dollars in thousands)
Cost of revenues:
Transaction services	$	37,396		$	47,263		$	(9,867	)		(20.9	)%
Consulting and maintenance services		1,399			2,540			(1,141	)		(44.9	)
Total cost of revenues	$	38,795		$	49,803		$	(11,008	)		(22.1	)%
Gross profit:
Transaction services $	$	55,580		$	55,558		$	22			0.0	%
Transaction services %		59.8	%		54.0	%
Consulting and maintenance services $	$	1,271		$	2,917		$	(1,646	)		(56.4	)%
Consulting and maintenance services %		47.6	%		53.5	%
Total gross profit $	$	56,851		$	58,475		$	(1,624	)		(2.8	)%
Total gross profit %		59.4	%		54.0	%

Transaction services cost of revenues decreased by $9.9 million in 2006 from the prior year. Transaction services cost of revenues from our TDS segment were approximately $24.9 million for 2006, which represents a decrease of approximately $12.4 million compared to 2005. Transactions services cost of revenues from our Payment Processing segment were approximately $12.5 million for 2006, which represents an increase of approximately $2.6 million compared to the prior year. In our TDS business, we realized reductions in third party data and services costs as a result of processing fewer transactions. We also realized personnel-related savings resulting from our restructuring activities. The increase in our Payment Processing transaction services cost of revenues was primarily due to the increase in the number of transactions processed and increased customer support personnel costs to support the new merchants added during the year.

Authorize.Net’s transaction services gross profit amount was approximately $45.2 million in 2006 versus approximately $35.4 million in the preceding year as a result of higher revenues. This increase was partially offset by a decrease in the transaction services gross profit related to our TDS segment where the revenue reduction exceeded the cost of sales expense reduction. Transaction services gross profit from our TDS segment were approximately $10.5 million for 2006 which represents a decrease of approximately $9.6 million compared to 2005.

Authorize.Net generated a higher gross profit percentage than our TDS segment, resulting in increased transaction services gross profit percentage in 2006 in comparison with 2005. Transactions services gross profit percentage from our Payment Processing segment was approximately 78% for 2006 and 2005. Transactions services gross profit percentage from our TDS segment decreased to 28% in 2006 from 32% in 2005.

Consulting and maintenance services cost of revenues decreased by $1.1 million in 2006. This decrease was attributable to a reduction in personnel-related expenses as a result of our restructuring activities. Consulting and maintenance services gross profit and gross profit percentage decreased in 2006 due to the lower revenues from AT&T Wireless, Inc. and Sprint Nextel following the merger between Sprint Spectrum L.P. (Sprint) and Nextel Operations, Inc. (Nextel), partially offset by the reduction in personnel-related expenses. All of our consulting and maintenance services are part of our TDS segment. We do not expect future consulting and maintenance services revenues associated with our TDS segment as a result of the sale of the TDS segment.

In the near term, we expect gross profit will decrease and gross profit percentage to increase due to the exit from and subsequent sale of the TDS business and higher gross profit percentage from the Payment Processing business.

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Operating Expenses.  Operating expenses and certain operating expense comparisons for the years ended December 31, 2006 and 2005 were as follows:

	Year Ended		Year Ended
	December 31,		December 31,		$			%
	2006		2005		Difference			Difference
	(Dollars in thousands)
Engineering and development	$	11,259	$	14,375	$	(3,116	)		(21.7	)%
Sales and marketing		19,571		18,072		1,499			8.3
General and administrative		17,550		15,974		1,576			9.9
Restructuring		7,283		1,259		6,024			478.5
Total	$	55,663	$	49,680	$	5,983			12.0	%

Engineering and Development.  Engineering and development expenses include software development costs, consisting primarily of personnel and outside technical service costs related to developing new products and services, enhancing existing products and services, and implementing and maintaining new and existing products and services. The $3.1 million decrease in engineering and development expenses for 2006 as compared with 2005 was primarily due to cost savings associated with our restructuring activities. The cost savings were partially offset by a $0.4 million share-based compensation expense due to the adoption of SFAS No. 123(R).

We expect engineering and development expenses to decrease in 2007 as a result of our exit from and subsequent sale of the TDS business offset by a planned increase in the level of funded development associated with our Authorize.Net services and products.

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. For Authorize.Net, sales and marketing expenses also include commissions paid to outside sales agents. The increase of $1.5 million in sales and marketing expenses in 2006 as compared with 2005, in absolute dollars and as a percentage of revenue, was due to the increase in expenses for Authorize.Net. Authorize.Net represented $18.4 million of sales and marketing expenses in 2006 as compared to $16.3 million in 2005. This increase was partially offset by reductions in sales and marketing costs for the TDS segment.

We expect that sales and marketing expenses in 2007 will continue to increase with growth in Authorize.Net’s revenues as a result of greater sales agent commissions associated with these revenues.

General and Administrative.  General and administrative expenses consist principally of salaries of executive, finance, human resources, legal and administrative personnel and fees for certain outside professional services. The increase of $1.6 million in general and administrative expenses, as compared to in 2005, in absolute dollars and as a percentage of revenues, was due to $3.2 million in share-based compensation expense due to the adoption of SFAS No. 123(R) partially offset by cost savings associated with our restructuring activities.

We expect general & administrative expenses to decrease in 2007. However, general and administrative expenses will increase in the first half of 2007 as a result of our exit and sale of the TDS business and our plans to relocate our corporate headquarters to Marlborough, Massachusetts. During the second half of 2007, we expect our general and administrative expenses to decline as a result of such events.

Restructuring.  A discussion of restructuring charges recorded during 2006 and 2005 is contained in the separate “Restructurings” section below.

Interest Income.  Interest income consists of earnings on our cash and short-term investment balances. Interest income increased to $4.9 million in 2006 from $1.9 million in 2005. This increase in interest income was primarily due to our higher cash and short-term investments balance and an increase in the prevailing interest rates.

(Benefit) Provision for Income Taxes.  Benefit for income taxes increased to $18.2 million for the year ended December 31, 2006 as compared to a provision for income taxes of $2.0 million during the year ended December 31, 2005. In 2006 our effective tax rate was (300) percent. During 2006, due to with the release of our deferred tax asset valuation allowance, we recorded an income tax benefit of $20.3 million. Also during 2006 we recorded a discrete item of $0.2 million related to the settlement of a tax audit and related interest for prior periods, a current provision

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of $0.2 million related to federal, state and foreign taxes and a deferred federal and state provision of $1.7 million attributable to amortization of intangibles with indefinite lives. In 2005 our effective tax rate was 19 percent consisting of a current state and foreign taxes expense of $0.2 million and a deferred federal and state provision of $1.8 million attributable to amortization of intangibles with indefinite lives. During 2005 we maintained a full valuation allowance recorded against our deferred tax assets.

In evaluating our ability to recover our deferred tax assets, we considered all available positive and negative evidence including our past operating results, the existence of cumulative income in the most recent fiscal years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we are responsible for assumptions utilized including the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions required significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. Our decision to exit the TDS business on October 4, 2006 removed considerable uncertainty regarding our estimates of expected future results. Based upon our cumulative operating results and an assessment of our expected future results, we concluded that it was more likely than not that we would be able to realize all of our U.S. net operating loss carryforward tax asset prior to their expiration and realize the benefit of other net deferred tax assets. As a result, the Company reduced its valuation allowance in 2006, resulting in recognition of a deferred tax asset of $20.3 million.

As of December 31, 2006 we had a remaining valuation allowance of $9.1 million, which primarily relates to certain state NOLs and tax credits that we expect to expire or go unused within the respective carryforward period. If circumstances change such that the realization of these deferred tax assets is concluded to be more likely than not, the Company will record future income tax benefits at the time that such determination is made.

Because of the availability of the U.S. NOLs discussed above, a significant portion of our future provision for income taxes is expected to be a non-cash expense; consequently, the amount of cash paid with respect to income taxes is expected to be a relatively small portion of the total annualized tax expense during periods in which the NOLs are utilized.

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

Revenues.  Revenues and certain revenue comparisons for the years ended December 31, 2005 and 2004 were as follows:

	Year Ended		Year Ended
	December 31,		December 31,		$			%
	2005		2004		Difference			Difference
	(Dollars in thousands)
Transaction services
Payment Processing (Authorize.NET)	$	45,328	$	26,836	$	18,492			68.9	%
TDS		57,493		76,812		(19,319	)		(25.2	)
Total Transaction services revenues		102,821		103,648		(827	)		(0.8	)
Consulting and maintenance services
TDS		5,457		9,851		(4,394	)		(44.6	)
Software licensing and hardware		—		1,634		(1,634	)		(100	)%
Total	$	108,278	$	115,133	$	(6,855	)		(6.0	)%

The decrease in transaction services revenues was due to the decline of $19.3 million in transaction services revenue from our TDS segment partially offset by an increase in revenue of $18.5 million from Authorize.Net. The decline in TDS transaction services revenues was primarily a result of a $15.2 million reduction in transaction fees charged to AT&T Wireless, a decrease in transaction fees charged to Sprint and Nextel as a result of their merger, and an unfavorable change in the mix of services provided to them.

The increase in Authorize.Net transaction services revenue was due to a full year of revenue in 2005 and an increase in the number of merchant customers added and the volume of transactions processed. Lightbridge began

35

recording Payment Processing revenues as of April 1, 2004 following the acquisition of Authorize.Net on March 31, 2004. The year ended December 31, 2004 includes revenue from April 1, 2004 through December 31, 2004.

The decrease in consulting and maintenance services revenues of $4.4 million was principally due to lower revenues from AT&T Wireless and a decline in consulting and maintenance revenues related to our decision to no longer market, sell or develop our RMS product.

The decline in software licensing and hardware revenues of $1.6 million in 2005 was similarly due to our decision to no longer market, sell or develop our RMS product.

Cost of Revenues and Gross Profit.  Cost of revenues and certain cost of revenues comparisons for the years ended December 31, 2005 and 2004 were as follows:

	Year Ended			Year Ended
	December 31,			December 31,			$			%
	2005			2004			Difference			Difference
	(Dollars in thousands)
Cost of revenues:
Transaction services	$	47,263		$	54,127		$	(6,864	)		(12.7	)%
Consulting and maintenance services		2,540			4,393			(1,853	)		(42.2	)
Software licensing and hardware		—			13			(13	)		(100	)
Total cost of revenues	$	49,803		$	58,533		$	(8,730	)		(14.9	)%
Gross profit:
Transaction services $	$	55,558		$	49,521		$	6,037			12.2	%
Transaction services %		54.0	%		47.8	%
Consulting and maintenance services $	$	2,917		$	5,458		$	(2,541	)		(46.6	)%
Consulting and maintenance services %		53.5	%		55.4	%
Software licensing and hardware $	$	N/A		$	1,621		$	(1,621	)		(100	)%
Software licensing and hardware %		N/A			99.2	%
Total gross profit $	$	58,475		$	56,600		$	1,875			3.3	%
Total gross profit %		54.0	%		49.2	%

Transaction services cost of revenues decreased by $6.9 million in 2005 from 2004. In our TDS business, spending decreased in our contact centers as a result of the closing of our Broomfield, Colorado contact center, and the staffing shift from that site to our Liverpool, Nova Scotia contact center. We also realized reductions in third party data and services costs as a result of processing fewer transactions for AT&T Wireless, reduced costs for maintaining systems and networks used in processing qualification and activation transactions, and personnel-related savings resulting from our 2004 restructuring activities.

Transaction services gross profit and gross profit percentage increased primarily as a result of Authorize.Net’s higher contribution to the transaction services gross profit amount. Authorize.Net’s percent of the transaction services gross profit amount was 64% in 2005 versus 40% in 2004 as a result of higher revenues. This increase was partially offset by a decrease in the transaction services gross profit related to our TDS segment, where the revenue reduction exceeded the cost of sales expense reduction. Authorize.Net generated a higher gross profit percentage than our TDS segment, resulting in increased transaction services gross profit percentage in 2005 in comparison with 2004.

Consulting and maintenance services cost of revenues decreased by $1.9 million in 2005. This decrease was attributable to a reduction in personnel-related expenses as a result of the September and December 2004 restructurings. Consulting and maintenance services gross profit and gross profit percentage decreased in 2005 due to lower revenues related to our RMS product and from AT&T Wireless which were partially offset by the reduction in headcount.

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There were no software licensing and hardware revenues in 2005 due to our decision to no longer market, sell or develop our RMS product.

Operating Expenses.  Operating expenses and certain operating expense comparisons for the years ended December 31, 2005 and 2004 were as follows:

	Year Ended		Year Ended
	December 31,		December 31,		$			%
	2005		2004		Difference			Difference
	(Dollars in thousands)
Engineering and development	$	14,375	$	18,002	$	(3,627	)		(20.1	)%
Sales and marketing		18,072		17,705		367			2.1
General and administrative		15,974		15,758		216			1.4
Restructuring		1,259		4,069		(2,810	)		(69.1	)
Purchased in-process research and development		—		679		(679	)		(100	)
Total	$	49,680	$	56,213	$	(6,533	)		(11.6	)%

Engineering and Development.  The $3.6 million decrease in engineering and development expenses for 2005 as compared with 2004 was primarily due to cost savings associated with the 2004 restructuring activities and our decision to cease new development and enhancement of our RMS software product. This decrease was partially offset by a full year of Authorize.Net engineering and development expenses in 2005 which we acquired on March 31, 2004. Authorize.Net represented $4.7 million of engineering and development expenses in 2005 compared to $3.2 million in 2004.

Sales and Marketing.  The increase of $0.4 million in sales and marketing expenses in 2005 as compared to in 2004, was due to a full year of Authorize.Net sales and marketing expenses partially offset by restructuring activities and reduced sales and marketing program spending. Authorize.Net represented $16.3 million of sales and marketing expenses in 2005 compared to $10.2 million in 2004.

General and Administrative.  The increase in general and administrative costs in 2005 was primarily due to a full year of Authorize.Net general and administrative expenses partially offset by cost savings associated with the 2004 restructurings. Authorize.Net represented approximately $3.0 million of general and administrative expenses in 2005 compared to $2.6 million in 2004.

Restructuring.  A discussion of restructuring charges recorded during 2005 and 2004 is contained in the separate “Restructurings” section below.

Purchased In-Process Research and Development (IPR&D).  In connection with the Authorize.Net acquisition, we recorded a $0.7 million charge during the first quarter of 2004 for two IPR&D projects. The Authorize.Net technology includes payment gateway solutions that enable merchants to authorize, settle and manage electronic transactions via the Internet, at retail locations and on wireless devices. The research projects in process at the date of acquisition related to the development of the Card Present Solution (CPS) and the Fraud Tool (FT). Development on the FT project and the CPS project was started at the end of 2003 and the beginning of 2004, respectively. The complexity of the CPS technology lies in its fast, flexible and redundant characteristics. The complexity of the FT technology lies in its responsiveness to changing fraud dynamics and efficiency.

Management used a variety of methods for evaluating the fair values of the projects, including independent appraisals. The value of the projects was determined using the income method. 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, we estimated that the CPS and the FT projects were approximately 15% and 80% complete, respectively, with fair values of approximately $638,000 and $41,000, respectively. The discount rate used for the fair value calculation was 30% for the CPS project and 22% for the FT project. At the date of acquisition,

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development of the technology involved risks to us including the remaining development effort required to achieve technological feasibility and uncertainty with respect to the market for the technology.

We completed the development of the FT project in May 2004 and the CPS project in September 2005 and spent approximately $129,000 and $433,000, respectively, on each project after the acquisition.

Interest Income.  Interest income consists of earnings on our cash and short-term investment balances. Interest income increased to $1.9 million in 2005 from $0.9 million in 2004. This increase was primarily due to an increase in our cash and short-term investments balance as a result of the cash received for the sale of our INS business, an increase in the prevailing interest rates, and cost savings from the 2004 and 2005 restructurings.

Provision for Income Taxes.  We recorded a provision for income taxes of approximately $2.0 million in 2005, which reflected a current provision for state and foreign taxes of $0.2 million, a deferred federal and state provision of $1.8 million attributable to amortization of intangibles with indefinite lives and includes a full valuation allowance after utilizing net operating loss carry-forwards to offset projected current taxable income. In 2004, we recorded a provision for income taxes of approximately $8.7 million, which related to a full valuation allowance being recorded against our deferred tax assets.

Discontinued Operations

INS Segment — On April 25, 2005, we announced that we had entered into an asset purchase agreement for the sale of our INS business, which includes our PrePay IN product and related services, to VeriSign. The sale was completed on June 14, 2005 for $17.45 million in cash plus assumption of certain contractual liabilities. Of the $17.45 million in consideration, $1.495 million is being held in escrow by VeriSign, and $0.25 million is being held by us as a liability to VeriSign, until certain representations and as warranties expire and will be recorded as a gain, net of indemnity claims at that time. As of December 31, 2006 based on notification we received from VeriSign, Inc., asserting that we are obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign, the liability is still appropriate. We cannot predict the outcome of this matter at this time and we are presently not a party to the litigation. Please refer to Part I Item 3, “Legal Proceedings” for a discussion on this matter.

In addition, a liability of $0.45 million has been established in accordance with FIN 45 based on the estimated cost if we were to purchase an insurance policy to cover up to $5.0 million of indemnification obligations for certain potential breaches of our intellectual property representations and warranties in the asset purchase agreement with VeriSign. Such representations and warranties extend for a period of two years and expire on June 14, 2007. We periodically verifiy that the $0.45 million liability is appropriate.

Instant Conferencing Segment — On August 17, 2005, we and America Online, Inc. mutually agreed to terminate our master services agreement under which we provided our GroupTalk instant conferencing services to America Online, Inc. We subsequently terminated all of the outsourcing agreements and ceased operations of the Instant Conferencing segment in the third quarter of 2005. In accordance with SFAS 144, the operating results and financial condition of the Instant Conferencing segment have been included as part of the financial results from discontinued operations in the accompanying consolidated financial statements.

We recorded net income from discontinued operations of $0.5 million and $10.3 million for the years ended December 31, 2006 and December 31, 2005, respectively. We recorded a net loss from discontinued operations of $8.1 million for the year ended December 31, 2004. The net income from discontinued operations in 2006 represents a refund received for past telecommunications costs previously paid which related to the Instant Conferencing segment. The net income from discontinued operations in 2005 includes the gain on the sale of INS of $12.7 million and a $1.4 million settlement of a lawsuit between Lucent Technologies, Inc. and us. The net loss from discontinued operations in 2004 includes the gain on the sale of our Fraud Centurion products of $2.7 million and a $2.3 million impairment charge related to the impairment of goodwill and other intangibles as a result of the Altawave acquisition in 2002.

Liquidity and Capital Resources

As of December 31, 2006, we had cash and cash equivalents, short-term investments of $116.2 million, which included $8.8 million of cash due to merchants related to our payment processing business. Our cash and cash

38

equivalents increased to $116.2 million at December 31, 2006 from $83.1 million at December 31, 2005 as a result of the cash flows generated from operating activities in 2006. We believe that our current cash and short-term investment balances will be more than sufficient to finance our operations and capital expenditures for the next twelve months. Thereafter, the adequacy of our cash balances will depend on a number of factors that are not readily foreseeable such as the impact of general market conditions on our operations, additional acquisitions or investments, divestitures, restructuring or obligations associated with the closure of facilities or exit from product or service lines, and the sustained profitability of the our operations. We may also require additional cash in the future to finance growth initiatives including acquisitions.

For the year ended December 31, 2006, we generated cash from operating activities of continuing operations of $26.9 million, and cash from financing activities of $4.6 million, and $1.1 million of cash from investing activities.

Our capital expenditures totaled $2.2 million for the year ended December 31, 2006. The capital expenditures during this period were principally associated with our service delivery infrastructure and computer equipment for software development activities. We lease our facilities and certain equipment under non-cancelable operating lease agreements that expire at various dates through January 2011.

As a result of our plans to exit, and the subsequent sale of certain assets related to, the TDS business, we expect to incur future cash outlays of approximately $1.9 to $2.5 million in the first quarter of 2007 for severance, facilities exit and other charges related to the exit and subsequent sale.

Our primary contractual obligations and commercial commitments are under our operating leases. Our future minimum payments due under operating leases, including facilities affected by restructurings, as of December 31, 2006, are as follows:

			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(Dollars in thousands)
Operating leases	$	12,963	$	3,895	$	7,382	$	1,686		—

In March of 2007, we entered into a lease agreement for a 10,000 square foot facility in Marlborough, Massachusetts which will serve as our new corporate headquarters. Our future minimum payments due under this lease are $0.1 million, $0.5 million and $0.3 million, for the periods of less than one year, one to three years and three to five years, respectively.

We typically agree to indemnify our customers and distributors for any damages or expenses or settlement amounts resulting from claimed infringement of intellectual property rights of third parties, our landlords for any expenses or liabilities resulting from our use of the leased premises, occurring on the leased premises or resulting from the breach of our obligations under the leases related to the leased premises, and purchasers of assets or businesses we have sold for any expenses or liabilities resulting from our breaches of any representations, warranties or covenants contained in the purchase and sale agreements associated with such sales including, without limitation, that the assets sold do not infringe on the intellectual property rights of third parties. While we maintain insurance that may provide limited coverage for certain warranty and indemnity claims, such insurance may cease to be available to us on commercially reasonable terms or at all. Please refer to Part I. Item 3. Legal Proceedings for a discussion of certain indemnity claims asserted by Verisign.

At December 31, 2006, we were holding funds in the amount of $8.8 million due to merchants comprised of $7.3 million held for Authorize.Net’s eCheck.Net ^® product, and $1.5 million held for Authorize.Net’s Integrated Payment Solution (IPS) product. The funds are included in both cash and cash equivalents and the funds due to merchants’ liability on our consolidated balance sheet. Authorize.Net holds merchant funds for approximately seven business days; the actual number of days depends on the contractual terms with each merchant. The $1.5 million held for IPS includes funds from processing both credit card and Automated Clearing House (ACH) transactions. IPS credit card funds are held for approximately two business days; IPS ACH funds are held for approximately four business days, according to the requirements of the IPS product and the contract between Authorize.Net and the financial institution through which the transactions are processed.

In addition, we have $0.5 million on deposit with a financial institution to cover any deficit account balance that could occur if the amount of eCheck.Net transactions returned or charged back exceeds the balance on deposit

39

with the financial institution. This amount is classified as restricted cash in the Company’s balance sheet. To date, the deposit has not been applied to offset any deficit balance, and we believe that the likelihood of incurring a deficit balance with the financial institution due to the amount of transactions returned or charged back is remote. The deposit will be held continuously for as long as we utilize the ACH processing services of the financial institution, and the amount of the deposit may increase as processing volume increases.

At December 31, 2006, we had a letter of credit in the amount of $0.8 million which was reduced from $1.6 million in December 2006 per the terms of our operating lease for our Burlington, MA headquarters. As a result of our plans to relocate corporate headquarters, this amount was increased to $1.1 million in March 2007.

Restructuring and Related Asset Impairments

The following table summarizes the activity in the restructuring accrual for the years ended December 31, 2004, 2005, and 2006 (amounts in thousands):

	Employee Severance
	and Termination			Facility Closing			Asset
	Benefits			and Related Costs			Impairment			Total
Accrued restructuring balance at January 1, 2004	$	—		$	985		$	—		$	985
Restructuring accrual — January 2004		488									488
Restructuring accrual — September 2004		2,090									2,090
Restructuring accrual — December 2004		1,410			178						1,588
Cash payments		(1,784	)		(841	)					(2,625	)
Restructuring adjustments					(36	)					(36	)
Accrued restructuring balance at December 31, 2004	$	2,204		$	286		$	—		$	2,490
Restructuring accrual — January 2005		70			302						372
Restructuring accrual — September 2005					1,037			654			1,691
Impairment of assets								(654	)		(654	)
Cash payments		(2,082	)		(650	)					(2,732	)
Restructuring adjustments		(175	)		(3	)					(178	)
Accrued restructuring balance at December 31, 2005	$	17		$	972		$	—		$	989
Restructuring accrual — January 2006		1,396									1,396
Restructuring accrual — May 2006		61						862			923
Restructuring accrual — August 2006		296			301			211			808
Restructuring accrual — September 2006								2,402			2,402
Restructuring accrual — October 2006		1,705			71						1,776
Impairment of assets								(3,475	)		(3,475	)
Cash payments		(2,454	)		(657	)					(3,111	)
Restructuring adjustments					59						59
Accrued restructuring balance at December 31, 2006	$	1,021		$	746		$	—		$	1,767

We have incurred significant restructuring charges related to or the result of the decline in our TDS business which we sold on February 20, 2007. In October 2006, we announced plans to exit from the TDS business. As a result of our decision, we determined that there were impairment indicators that existed as of September 30, 2006 which required us to assess the recoverability of the TDS long-lived assets as of September 30, 2006. We reviewed the carrying value of our long-lived assets and determined that the expected future cash flows from the TDS

40

business would not be sufficient to recover the recorded carrying value of such long-lived assets. We analyzed various scenarios related to our exit from the TDS business and weighed the probability of each scenario. We considered various valuation methods in determining the fair value of the assets including appraisal values. Accordingly, we recognized an impairment charge to reduce the carrying value of leasehold improvements to zero and other tangible assets to their estimated fair value of $1.1 million which resulted in an impairment charge of $2.4 million in the third quarter of 2006 which represented the excess of the carrying amount over the fair value of the TDS long-lived assets. During the fourth quarter of 2006, we incurred restructuring charges of $1.8 million primarily related to employee severance and termination benefits for 87 employees who were terminated in the fourth quarter and 48 employees who received notification that they would be terminated by the second quarter of 2007. During the third and fourth quarter of 2006, we incurred restructuring and asset impairment charges of $4.2 million related to our exit of the TDS business. We expect total restructuring charges related to the exit of the TDS business to be approximately $6.5 million to $7.3 million.

During 2006, we made restructuring adjustments of $0.1 million. These adjustments were primarily related to an adjustment of a sublease assumption associated with our Broomfield, Colorado facility.

In May 2006, we announced the planned closing of the Liverpool, Nova Scotia contact center. Related to this closing, we recorded restructuring and related asset impairment charges of $0.9 million and $0.8 million during the second and third quarters of 2006, respectively.

In January 2006, we announced a workforce reduction focused primarily within the TDS business, as well as reductions in general and administrative expenses. The restructuring consisted of a total workforce reduction of about 28 positions, and we recorded a restructuring charge of $1.4 million in the first quarter of 2006, primarily related to employee severance and termination benefits.

In September 2005, we decided to consolidate our administrative facilities and vacated the third floor of our corporate headquarters at 30 Corporate Drive, Burlington Massachusetts. We recorded a restructuring and related asset impairment charge of $1.7 million in 2005 related to this action. This charge included $1.0 million of lease obligations and facility exit costs, and $0.7 million for the impairment of leasehold improvements and equipment. The lease obligation represents the fair value of future lease commitment costs, net of projected sublease rental income. The estimated future cash flows used in the fair value calculation are based on certain estimates and assumptions by us, including the projected sublease rental income, the amount of time the space will be unoccupied prior to sublease and the lengths of any sublease. The estimated future cash flows used were discounted using a credit adjusted risk-free interest rate and has a maturity date that approximates the expected timing of future cash flows. These amounts will be paid out over the remaining term of the lease.

In January 2005, we announced the closing our Broomfield, Colorado contact center in order to take advantage of our other existing contact center infrastructure and operate more efficiently. This action resulted in the termination of approximately 40 employees associated with product service and delivery at this location. We recorded a restructuring charge of approximately $0.4 million relating to facility closing costs and employee severance and termination benefits during the three months ended March 31, 2005. We anticipate that the severance costs related to this action will be paid by the end of the first quarter of 2006, and we anticipate that all other costs relating to this action, consisting principally of lease obligations on unused space, net of estimated sublease income, will be paid by the end of 2008.

In December 2004, we announced a restructuring of our business in order to lower overall expenses to better align them with future revenue expectations. This action followed our announcement of an anticipated revenue reduction as a result of the acquisition of AT&T Wireless Services, Inc. (AT&T Wireless) by Cingular Wireless LLC (Cingular). This action resulted in the termination of 38 employees, in our corporate offices in Burlington, Massachusetts as follows: 16 in product and service delivery, 11 in engineering and development, 10 in sales and marketing and 1 in general and administrative. We recorded a restructuring charge of approximately $1.4 million relating to employee severance and termination benefits during the three months ended December 31, 2004. Additionally, subsequent to our acquisition of Authorize.Net we relocated our offices in Bellevue, Washington and the remaining rent paid of $0.2 million on the vacated space was included in restructuring charges during the three months ended December 31, 2004. The costs related to these actions were paid by the end of 2005.

41

In September 2004, we announced a restructuring of our business in order to lower overall expenses to better align them with future revenue expectations. This action, a continuation of our emphasis on expense management, resulted in the termination of 64 employees and 2 contractors in our corporate offices in Burlington, Massachusetts and our Broomfield, Colorado location as follows: 12 in product and service delivery, 16 in engineering and development, 25 in sales and marketing and 13 in general and administrative. We recorded a restructuring charge of approximately $2.1 million relating to employee severance and termination benefits during the three months ended September 30, 2004. All costs related to this action were paid by the end of 2005.

In January 2004, we announced a reorganization of our internal business operations. This action, a continuation of our emphasis on expense management, resulted in the termination of 10 individuals in our corporate office in Burlington, Massachusetts. We recorded a restructuring charge of approximately $0.5 million relating to employee severance and termination benefits during the three months ended March 31, 2004. All costs related to this action were paid by the end of the first quarter of 2005.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements other than operating lease obligations during the year ended December 31, 2006. During 2006, we were a party to a material transaction involving a related person or entity (other than employment, separation and other compensation agreements with certain entities).

Inflation

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

New Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“ FIN 48”), which will become effective for Lightbridge, Inc. on January 1, 2007. The Interpretation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company is evaluating the impact of adopting FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. We will be required to adopt the provisions of SFAS 157 beginning with our first quarter ending March 31, 2007. We are assessing the impact of adopting SFAS 157 but do not expect that it will have a material effect on our consolidated financial position, results of operations or cash flows.

We adopted, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Years Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 requires that companies utilize a dual-approach to assessing the quantitative effects of financial statement misstatements. The dual approach includes both an income statement focused and balance sheet focused assessment. The adoption of SAB 108 had no effect on our consolidated financial statements for the year ended December 31, 2006.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits Companies to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. Companies shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. We have not decided if we will early adopt SFAS 159 or if we will choose to measure any eligible financial assets and liabilities at fair value.

42

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The market risk exposure inherent in our financial instruments and consolidated financial position represents the potential losses arising from adverse changes in interest rates. We are exposed to such interest rate risk primarily in our 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. Our short term investments also include debt securities maturing in one year or less that are classified as available for sale, which are carried at fair value. We do not execute transactions in or hold derivative financial instruments for trading or hedging purposes.

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 a material impact on the fair value due to their short maturity.

We are 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 included elsewhere in the report are listed in the index included in Part IV, 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

None.

Item 9A.   Controls and Procedures

(a)  Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of December 31, 2006. This evaluation included consideration of the controls, processes and procedures that comprise our internal control over financial reporting. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2006, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

(b)  Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2006, based on the framework in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In completing our assessment, no material weaknesses in the Company’s internal controls over financial reporting as of December 31, 2006 were identified. In addition, based on such assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2006, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

43

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been attested to by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included following Item 9A below.

(c)  Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting occurred during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

(d)  Inherent Limitations of Disclosure Controls and Internal Control Over Financial Reporting

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Lightbridge, Inc.

Burlington, Massachusetts

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting that Lightbridge, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

45

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of the Company and our report dated March 15, 2007 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.

Deloitte & Touche LLP

Boston, Massachusetts

March 15, 2007

46

Item 9B.  Other Information

None.

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 2007 annual meeting of stockholders or special meeting in lieu thereof to be filed with the Securities and Exchange Commission on or before April 30, 2007 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 2007 annual meeting of stockholders or special meeting in lieu thereof to be filed with the Securities and Exchange Commission on or before April 30, 2007 and is incorporated by reference herein.

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 2007 annual meeting of stockholders or special meeting in lieu thereof to be filed with the Securities and Exchange Commission on or before April 30, 2007 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 2007 annual meeting of stockholders or special meeting in lieu thereof to be filed with the Securities and Exchange Commission on or before April 30, 2007 and is incorporated by reference herein.

Item 14.   Principal Accountant Fees and Services

Information required by this item will be contained in the Company’s Proxy Statement for the 2007 annual meeting of stockholders or special meeting in lieu thereof to be filed with the Securities and Exchange Commission on or before April 30, 2007 and is incorporated by reference herein.

PART IV

Item 15.   Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report

(1) Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm — Deloitte & Touche LLP	F-1
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-2
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004	F-3
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005 and 2004	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004	F-5
Notes to Consolidated Financial Statements	F-6

(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.

47

(3) Exhibits

				Filed with	Incorporated by Reference
				this			Exhibit
Exhibit No.			Description	Form 10-K	Form	Filing Date	No.
	2	.1	Stock Sale Agreement dated February 29, 2004 with InfoSpace, Inc., Go2Net, Inc., Authorize.Net Corporation		8-K	March 9, 2004		2	.1
	2	.2	Asset Purchase Agreement dated April 25, 2005 with VeriSign, Inc.		8-K	June 20, 2005		10	.1
	3	.1	Amended and Restated Certificate of Incorporation		S-1	August 27, 1996		3	.2
	3	.2	Amended and Restated By-Laws		S-1	June 21, 1996		3	.4
	3	.3	Amendment to Amended and Restated By-Laws, adopted October 29, 1998		10-Q	November 13, 1998		3	.1
	4	.1	Specimen Common Stock Certificate		S-1	August 27, 1996		4	.1
	4	.2	Rights Agreement dated November 14, 1997 with American Stock Transfer and Trust Company as Rights Agent		8-A	November 21, 1997		1
	4	.3	Form of Certificate of Designation of Series A Participating Cumulative Preferred Stock		8-A	November 21, 1997		A
	4	.4	Form of Rights Certificate		8-A	November 21, 1997		B
	4	.5	Amendment No. 1 to Rights Agreement dated November 14, 1997 with American Stock Transfer and Trust Company as Rights Agent		8-K	January 30, 2007		4	.1
	10	.1*	1990 Incentive and Nonqualified Stock Option Plan		S-1	August 9, 1996		10	.6
	10	.2*	1996 Incentive and Non-Qualified Stock Option Plan		S-1	August 9, 1996		10	.7
	10	.3*	Amendment to 1996 Incentive and Non-Qualified Stock Option Plan		S-8	August 11, 2000		4	.8
	10	.4*	Amendment to 1996 Incentive and Non-Qualified Stock Option Plan		10-Q	May 15, 2001		10	.1
	10	.5*	1996 Employee Stock Purchase Plan		S-1	August 9, 1996		10	.8
	10	.6*	Amendments to 1996 Stock Purchase Plan, as amended		10-Q	August 14, 2001		10	.1
	10	.7*	Amendment to 1996 Stock Purchase Plan, as amended		10-Q	November 14, 2002		10	.1
	10	.8*	Amendment to 1996 Stock Purchase Plan, as amended		10-Q	August 9, 2004		10	.2
	10	.9*	1998 Non-Statutory Stock Option Plan		10-Q	August 14, 2000		10	.5
	10	.10*	Amendment to 1998 Non-Statutory Stock Option Plan, as amended, effective November 16, 2000		10-K	April 2, 2001		10	.22
	10	.11*	2004 Stock Incentive Plan		Def.14A	April 29, 2004		—
	10	.12*	Terms and Conditions of Stock Options Granted under the 2004 Stock Incentive Plan		10-Q	November 9, 2004		10	.4
	10	.13*	Form of Notice of Grant of Stock Options Granted under the 2004 Stock Incentive Plan		10-Q	November 9, 2004		10	.5

48

				Filed with	Incorporated by Reference
				this			Exhibit
Exhibit No.			Description	Form 10-K	Form	Filing Date	No.
	10	.14*	Form of Notice of Stock Option Grants to Directors		8-K	February 22, 2005		10	.2
	10	.15*	Corporate Executive Incentive Plan for People Managers and Senior Individual Contributors Grade 9 and above dated January 1, 2006		8-K	February 21, 2006		99	.1
	10	.16*	Business Unit Incentive Plan for People Managers and Senior Individual Contributors Grade 9 and above dated January 1, 2006		8-K	February 21, 2006		99	.2
	10	.17*	Form of Executive Retention Agreement dated May 23, 2005 with each of Timothy C. O’Brien, Eugene J. DiDonato and Roy Banks		8-K	May 25, 2005		10	.1
	10	.18*	Employment Agreement dated August 2, 2004 with Robert E. Donahue		10-Q	November 9, 2004		10	.2
	10	.19*	Employment Agreement dated January 7, 2005 with Robert E. Donahue		8-K	January 13, 2005		10	.1
	10	.20*	Amendment to Employment Agreement dated January 12, 2007 with Robert E. Donahue	X
	10	.21*	Employee’s Restricted Stock Agreement dated May 9, 2006		8-K	May 11, 2006		10	.1
	10	.22*	Oldham Offer Letter		8-K	September 6, 2006		10	.1
	10	.23*	Departure of Don Oldham		8-K	November 28, 2006		9	.01
	10	.24	Settlement Agreement dated May 19, 2005 with Lucent Technologies, Inc.		8-K	May 25, 2005		10	.2
	10	.25	Office Building Lease dated March 12, 1998 with 8900 Grantline Road Investors		10-Q	May 1, 1998		10	.1
	10	.26	Office Lease dated August 15, 2000 with Arthur Pappathanasi, trustee of 330 Scangus Nominee Trust		10-Q	November 8, 2000		10	.1

49

				Filed with	Incorporated by Reference
				this			Exhibit
Exhibit No.			Description	Form 10-K	Form	Filing Date	No.
	10	.27	Second Amendment of Office Lease dated September 7, 2005 with Arthur Pappathanasi, trustee of 330 Scangus Nominee Trust		8-K	September 12, 2005		10	.1
	10	.28	Office Building Lease dated December 23, 2003 with Corporate Drive Corporation, as trustee of Corporate Drive Nominee Realty Trust		10-K	March 15, 2004		10	.32
	10	.29	Lease dated February 10, 2004 with Region of Queens Municipality, LTBG TeleServices ULC		10-Q	May 10, 2004		10	.3
	10	.30	Office Lease dated August 10, 2004 with EOP Operating Limited Partnership		10-Q	November 9, 2004		10	.3
	10	.31	First Amendment to Office Lease dated May 3, 2005 with EOP Operating Limited Partnership		10-Q	November 4, 2005		99	.1
	10	.32	Utah Commercial Lease dated October 27, 2005 between Authorize.Net Corp. and Scarborough Building LLC		8-K	November 1, 2005		10	.1
	10	.33	Sublease Agreement with Oracle USA, Inc. dated November 7, 2005		8-K	November 15, 2005		10	.1
	10	.34	Early Lease Termination Agreement with Region of Queens Municipality for Liverpool, Nova Scotia Premises		8-K	August 17, 2006		10	.1
	10	.35	Confidential Settlement Agreement dated May 22, 2006 by and among NetMoneyIN, Inc. and Infospace, Inc., E-Commerce Exchange LLC, Lightbridge, Inc. and Authorize.Net corp		8-K	May 25, 2006		10	.1
	10	.36	Asset Purchase Agreement dated February 20, 2007 between Vesta Corporation and Lightbridge, Inc.	X
	10	.37*	2007 Incentive Plan dated January 1, 2007	X
	23	.1	Consent of Independent Registered Public Accounting Firm	X
	24	.1	Power of Attorney (on signature page)	X
	31	.1	Certification of the chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
	31	.2	Certification of the chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
	32	.1	Certification of the chief executive officer and the chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
	99	.1	Sublease Agreement dated as of February 8, 2007 by and between Lightbridge, Inc. and By Appointment Only, Inc., as amended		8-K	February 14, 2007		99	.1

50

* Management contract or compensatory plan.

51

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 15 day of March 2007.

Lightbridge, Inc.

By:  /s/  Robert E. Donahue

Robert E. Donahue

President and Chief Executive Officer

Each person whose signature appears below hereby appoints Robert E. Donahue and Timothy C. O’Brien, 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/  Timothy C. O’Brien Timothy C. O’Brien	Vice President, Finance and Administration, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 15, 2007
/s/  Robert E. Donahue Robert E. Donahue	President, Chief Executive Officer and Director (Principal Executive Officer)	March 15, 2007
/s/  Rachelle B. Chong Rachelle B. Chong	Director	March 15, 2007
/s/  Gary Haroian Gary Haroian	Director	March 15, 2007
/s/  Kevin C. Melia Kevin C. Melia	Director	March 15, 2007
/s/  Andrew G. Mills Andrew G. Mills	Director	March 15, 2007

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Lightbridge, Inc.

Burlington, Massachusetts

We have audited the accompanying consolidated balance sheets of Lightbridge, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. 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.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lightbridge, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the financial statements, the Company changed its method of accounting for share-based payments upon the adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/  Deloitte & Touche LLP

Boston, Massachusetts

March 15, 2007

F-1

LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	(Amounts in thousands except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	116,172		$	83,120
Short-term investments		—			1,688
Accounts receivable, net		5,010			11,911
Deferred tax assets		4,690			—
Other current assets		1,871			3,432
Total current assets		127,743			100,151
Property and equipment, net		4,907			10,804
Other assets, net		459			438
Restricted cash		500			2,100
Goodwill		57,628			57,628
Intangible assets, net		15,582			18,414
Deferred tax assets		15,655			—
Total assets	$	222,474		$	189,535
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,879		$	3,448
Accrued compensation and benefits		3,690			5,724
Other accrued liabilities		4,689			5,203
Deferred rent		606			656
Deferred revenues		2,395			2,863
Funds due to merchants		8,751			7,112
Accrued restructuring		1,767			989
Total current liabilities		23,777			25,995
Deferred rent, less current portion		1,957			2,548
Deferred tax liabilities		4,754			3,074
Deferred revenues, less current portion		971			265
Other long-term liabilities		700			700
Total liabilities		32,159			32,582
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; no shares issued or outstanding at December 31, 2006 and 2005		—			—
Common stock, $0.01 par value; 60,000,000 shares authorized; 30,888,910 and 30,259,882 shares issued and 27,448,926 and 26,820,839 shares outstanding at December 31, 2006 and 2005, respectively		309			303
Additional paid-in capital		178,196			169,648
Accumulated other comprehensive income		171			110
Retained earnings		32,437			7,679
Treasury stock, at cost		(20,798	)		(20,787	)
Total stockholders’ equity		190,315			156,953
Total liabilities and stockholders’ equity	$	222,474		$	189,535

See notes to consolidated financial statements.

F-2

LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31
	2006			2005			2004
	(Amounts in thousands
	except per share amounts)
Revenues:
Transaction services	$	92,976		$	102,821		$	103,648
Consulting and maintenance services		2,670			5,457			9,851
Software licensing and hardware		—			—			1,634
Total revenues		95,646			108,278			115,133
Cost of revenues:
Transaction services		37,396			47,263			54,127
Consulting and maintenance services		1,399			2,540			4,393
Software licensing and hardware		—			—			13
Total cost of revenues		38,795			49,803			58,533
Gross profit:
Transaction services		55,580			55,558			49,521
Consulting and maintenance services		1,271			2,917			5,458
Software licensing and hardware		—			—			1,621
Total gross profit		56,851			58,475			56,600
Operating expenses:
Engineering and development		11,259			14,375			18,002
Sales and marketing		19,571			18,072			17,705
General and administrative		17,550			15,974			15,758
Purchased in-process research and development		—			—			679
Restructuring charges and related asset impairments		7,283			1,259			4,069
Total operating expenses		55,663			49,680			56,213
Income from operations		1,188			8,795			387
Interest income, net		4,883			1,937			935
Income from continuing operations before (benefit) provision for income taxes		6,071			10,732			1,322
(Benefit) provision for income taxes		(18,219	)		1,976			8,677
Income (loss) from continuing operations		24,290			8,756			(7,355	)
Discontinued operations, net of income taxes:
Gain on sale of Fraud Centurion assets		—			—			2,673
Gain on sale of INS business		—			12,689			—
Income (loss) from operations		468			(2,433	)		(10,723	)
Total discontinued operations, net of income taxes		468			10,256			(8,050	)
Net income (loss)	$	24,758		$	19,012		$	(15,405	)
Net income (loss) per common shares (basic):
From continuing operations	$	0.89		$	0.33		$	(0.28	)
From discontinued operations		0.02			0.38			(0.30	)
Net income (loss) per common share (basic)	$	0.91		$	0.71		$	(0.58	)
Net income (loss) per common share (diluted):
From continuing operations	$	0.86		$	0.32		$	(0.28	)
From discontinued operations		0.02			0.38			(0.30	)
Net income (loss) per common share (diluted):	$	0.88		$	0.70		$	(0.58	)
Basic weighted average shares		27,248			26,670			26,643
Diluted weighted average shares		28,245			27,282			26,643

See notes to consolidated financial statements.

F-3

LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

										Accumulated			Retained
					Additional					Other			Earnings								Total
	Common Stock				Paid-in					Comprehensive			(Accumulated			Treasury Stock					Stockholders’
	Shares		Amount		Capital		Warrants			Income/(Loss)			Deficit)			Shares		Amount			Equity
	(Amounts in thousands)
Balance, January 1, 2004		29,648	$	298	$	166,882	$	206			—		$	4,072			2,804	$	(16,955	)	$	154,503
Net loss		—		—		—		—			—			(15,405	)		—		—			(15,405	)
Foreign currency loss		—		—		—		—			(184	)		—			—		—			(184	)
Total comprehensive loss																						(15,589	)
Issuance of common stock under employee stock purchase plan		84		—		395		—			—			—			—		—			395
Exercise of common stock options		220		2		148		—			—			—			—		—			150
Repurchase of common stock		—		—		—		—			—			—			635		(3,832	)		(3,832	)
Tax benefit from disqualifying dispositions of stock options		—		—		40		—			—			—			—		—			40
Balance, December 31, 2004		29,952		300		167,465		206			(184	)		(11,333	)		3,439		(20,787	)		135,667
Net income		—		—		—		—			—			19,012			—		—			19,012
Foreign currency gain		—		—		—		—			314			—			—		—			314
Unrealized loss on short-term investments		—		—		—		—			(20	)		—								(20	)
Total comprehensive income																						19,306
Issuance of common stock under employee stock purchase plan		73		—		290		—			—			—			—		—			290
Exercise of common stock options		235		3		1,273		—			—			—			—		—			1,276
Expiration of warrants		—		—		206		(206	)		—			—			—		—			—
Share-based compensation		—		—		414		—			—			—			—		—			414
Balance, December 31, 2005		30,260		303		169,648		—			110			7,679			3,439		(20,787	)		156,953
Net income		—		—		—		—			—			24,758			—		—			24,758
Foreign currency gain		—		—		—		—			41			—			—		—			41
Change in unrealized loss		—		—		—		—			20			—								20
Total comprehensive income																						24,819
Issuance of common stock under employee stock purchase plan		20		—		126		—			—			—			—		—			126
Exercise of common stock options		605		6		4,451		—			—			—			—		—			4,457
Issuance of restricted stock awards		4		—		—		—			—			—			—		—			—
Repurchase of restricted common stock		—		—		—		—			—			—			1		(11	)		(11	)
Share-based compensation		—		—		3,971		—			—			—			—		—			3,971
Balance, December 31, 2006		30,889	$	309	$	178,196	$	—		$	171		$	32,437			3,440	$	(20,798	)	$	190,315

See notes to consolidated financial statements.

F-4

LIGHTBRIDGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2006			2005			2004
	(Amounts in thousands)
Cash flows from operating activities:
Net income (loss)	$	24,758		$	19,012		$	(15,405	)
Income (loss) from discontinued operations		468			10,256			(8,050	)
Income (loss) from continuing operations		24,290			8,756			(7,355	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
Purchased in-process research and development		—			—			679
Depreciation and amortization		7,539			8,968			9,859
Asset impairment related to restructuring		3,475			654			—
Deferred income taxes		(18,665	)		1,813			9,081
Loss on disposal of property and equipment		—			17			63
Tax benefit from disqualifying dispositions of stock options		—			—			40
Shared-based compensation expense		3,971			414			—
Changes in assets and liabilities:
Accounts receivable		6,901			2,457			5,281
Other assets		1,496			(1,485	)		248
Accounts payable and accrued liabilities		(3,344	)		(342	)		1,648
Funds due to merchants		1,639			1,554			(839	)
Deferred rent		(641	)		404			4,301
Deferred revenues		238			532			353
Other liabilities		—			816			116
Net cash provided by operating activities of continuing operations		26,899			24,558			23,475
Cash flows from investing activities of continuing operations:
Purchases of property and equipment		(2,157	)		(3,139	)		(13,764	)
Change in restricted cash		1,600			(1,500	)		(600	)
Purchase of short-term investments		(520	)		(3,928	)		(33,490	)
Proceeds from sales and maturities of short-term investments		2,208			14,829			84,705
Acquisition of Authorize.Net, less cash received		—			—			(77,510	)
Net cash provided by (used in) investing activities of continuing operations		1,131			6,262			(40,659	)
Cash flows from financing activities of continuing operations:
Proceeds from issuance of common stock		4,583			1,566			545
Repurchase of restricted common stock		(11	)		—			(3,832	)
Net cash provided by (used in) financing activities of continuing operations		4,572			1,566			(3,287	)
Effects of foreign exchange rate changes on cash and cash equivalents		(18	)		270			(192	)
Net cash provided by (used in) operating activities of discontinued operations		468			(3,589	)		(12,360	)
Net cash provided by investing activities of discontinued operations		—			15,017			2,374
Net increase (decrease) in cash and cash equivalents		33,052			44,084			(30,649	)
Cash and cash equivalents, beginning of year		83,120			39,036			69,685
Cash and cash equivalents, end of year	$	116,172		$	83,120		$	39,036

See notes to consolidated financial statements.

F-5

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Business

Business — Lightbridge, Inc. and subsidiaries (Lightbridge or the Company) was incorporated in June 1989 under the laws of the state of Delaware. The Company develops, markets and supports products and services for businesses that sell products or services online and communications providers, including Internet Protocol (IP)-based payment gateway, customer qualification and acquisition, risk management, and authentication services. Lightbridge’s two areas of business in 2006 were of Payment Processing Services (Payment Processing) and Telecom Decisioning Services (TDS).

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 majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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 and disclosure of contingent assets and liabilities at each reporting date and the amount of revenues and expenses reported each period. These estimates include provisions for bad debts, certain accrued liabilities, goodwill and impairment of long lived assets, recognition of revenue and expenses, and recoverability of deferred tax assets. Actual results could differ from these estimates.

Financial Instruments — Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses. The estimated fair value of these financial instruments approximates their carrying value because of their short-term nature.

Cash and Cash Equivalents — Cash and cash equivalents include short-term, highly liquid instruments, which consist primarily of money market accounts. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.

Short-Term Investments — Short-term investments consist of corporate debt and government securities maturing in one year or less and are classified as available-for-sale. These investments are carried at fair market value with unrealized gains and losses recorded as a component of stockholders’ equity. The Company did not hold any short-term investments at December 31, 2006. As of December 31, 2005, short-term investments consisted of the following (in thousands):

			Gross		Gross			Fair
			Unrealized		Unrealized			Market
	Cost		Gains		Losses			Value
December 31, 2005:
Corporate debt securities	$	710	$	—	$	(8	)	$	702
Government securities		998		—		(12	)		986
	$	1,708	$	—	$	(20	)	$	1,688

Realized gains and losses are determined using the specific identification method. Gains are recognized when realized and are recorded in the Consolidated Income Statements as Other income (expense), net. Losses are recognized as realized or when the Company has determined that an other-than-temporary decline in fair value has occurred.

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. Acquired property and equipment is

F-6

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recorded at appraised fair value, which is then considered cost, and depreciated over the remaining estimated useful life. Repairs and maintenance costs are expensed as incurred.

Deferred Rent — Deferred rent consists of step rent and tenant improvement allowances from landlords related to the Company’s operating leases for its facilities. Step rent represents the difference between actual operating lease payments due and straight-line rent expense, which is recorded by the Company over the term of the lease, including the build-out period. The amount of the difference is recorded as a deferred credit in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and is reduced in the later periods of the lease when payments begin to exceed the straight-line expense. Tenant allowances from landlords for tenant improvements are generally comprised of cash received from the landlord as part of the negotiated terms of the lease. These cash receipts are recorded as a deferred credit that is amortized into income as a reduction of rent expense over the term (including the build-out period) of the applicable lease.

Revenue Recognition and Concentration of Credit Risk — The Company generates revenue from performing payment processing services; the processing of qualification and activation transactions; services (including maintenance, installation and training); development and consulting contracts. Revenues from processing of qualification and activation transactions for communications providers are recognized in the period in which services are performed. If substantial doubt exists regarding collection of fees for the Company’s products or services at the time of delivery or performance, the Company defers recognition of the associated revenue until the fees are collected.

Revenues from payment processing transaction services are derived from the Company’s credit card processing and eCheck processing services (collectively “processing services”), from gateway fees and from set-up fees. Processing services revenue is based on a fee per transaction, and is recognized in the period in which the transaction occurs. Gateway fees are monthly subscription fees charged to merchant customers for the use of the payment gateway. Gateway fees are recognized in the period in which the service is provided. Set-up fees represent one-time charges for initiating the Company’s processing services. Although these fees are generally paid to the Company at the commencement of the agreement, they are recognized ratably over the estimated average life of the merchant relationship, which is determined through a series of analyses of active and deactivated merchants. Commissions paid to outside sales partners are recorded in sales and marketing expense in the Company’s statements of operations.

The Company recognizes revenue in accordance with EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” which includes evaluating a number of criteria that management considers in making its determination with respect to gross vs.  net reporting of revenue. The Company recognizes revenue on the gross amount earned from the merchant under arrangements where the Company is the primary obligor, performs all services, performs administrative functions including billing, and bears all performance and collection risks. The Company recognizes revenue on the net amount earned from outside sales partners or third party solution providers when the Company is not the primary obligor, does not perform all the services, and bears no collection risk.

Revenues from consulting and services contracts are recognized on a project-by-project basis. Revenues for services rendered are recognized on a time and materials basis or on a fixed-fee basis. Revenues for time and materials contracts are recognized based on the number of hours worked by the Company’s consultants at an agreed upon rate per hour and are recognized in the period in which services are performed. Revenues related to fixed-fee contracts are recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. In instances where the customer, at its discretion, has the right to reject the services prior to final acceptance, revenue is deferred until such acceptance occurs. Revenues from software maintenance and support contracts are recognized ratably over the term of the agreement and are reported as consulting and services revenues.

The Company’s TDS customers were historically providers of wireless telecommunications services and are generally granted credit without collateral. The Company maintains an allowance for bad debts and sales returns

F-7

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and allowances based on factors such as the composition of accounts receivable, historical experience, and current economic trends. These estimates are adjusted periodically to reflect changes in facts and circumstances. The Company’s allowance for doubtful accounts was $0.9 million $1.1 million and $1.1 million for the years ended December 31, 2006, 2005 and 2004, respectively. One customer accounted for 10% of the total accounts receivable at December 31, 2006 and two customers accounted for 40% and 14%, respectively, of the total accounts receivable at December 31, 2005. The following reflects the activity of the allowance for doubtful accounts for the years ended:

	Years Ended
	December 31,
	2006			2005			2004
Balance at beginning of year	$	1,147		$	1,075		$	944
Provisioning		707			762			(255	)
Actual Activity		(966	)		(690	)		386
Balance at end of year	$	888		$	1,147		$	1,075

Customers exceeding 10% of the Company’s revenues and their percentage of total revenue during the years ended December 31 are as follows:

	Years Ended December 31,
	2006			2005			2004
Sprint Spectrum L.P. /Nextel Operations. Inc.(1)		20	%		33	%		37	%
AT&T Wireless Services, Inc.			*			*		18
Total % of Revenues from greater-than-10% customers		20	%		33	%		55	%

(1)	Sprint Spectrum L.P. and Nextel Operations, Inc. merged on August 12, 2005.
*	Represents less than 10% of revenue.

Goodwill and Acquired Intangible Assets — During 2004, the Company recorded goodwill of $57.6 million in connection with the acquisition of Authorize.Net. The Company is required to test such goodwill as well as indefinite lived intangible assets for impairment on at least an annual basis. The Company has adopted March 31st as the date of the annual impairment tests for Authorize.Net. The Company completed its annual testing for impairment of goodwill and indefinite lived intangible assets and, based on those tests, concluded that no impairment of goodwill and indefinite lived intangible assets existed as of March 31, 2006 or 2005. The Company will assess the impairment of goodwill on an annual basis or more frequently if other indicators of impairment arise.

Acquired intangible assets related to the acquisition of Authorize.Net include reseller networks, existing technology, merchant customer base, trademarks and processor relationships. The reseller network and the processor relationships are amortized over twelve years. The merchant customer base and the existing technology are amortized over five years. Trademarks are not amortized.

F-8

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of acquired intangible assets are as follows (dollars in thousands):

	December 31, 2006							December 31, 2005
			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net
Amortizable intangible assets:
Outside sales partner network	$	9,300	$	(2,131	)	$	7,169	$	9,300	$	(1,356	)	$	7,944
Merchant customer base		7,000		(3,850	)		3,150		7,000		(2,450	)		4,550
Existing technology		3,162		(1,730	)		1,432		3,162		(1,098	)		2,064
Processor relationships		300		(69	)		231		300		(44	)		256
Unamortized intangible assets:
Trademarks		3,600		—			3,600		3,600		—			3,600
	$	23,362	$	(7,780	)	$	15,582	$	23,362	$	(4,948	)	$	18,414

Amortization expense for intangible assets totaled $2.8 million for the years ended December 30, 2006 and 2005.

Future amortization expense consisted of the following at December 31, 2006:

	Amortization
2007	$	2,832
2008		2,833
2009		1,317
2010		800
2011		800
Thereafter		3,400
Total future amortization expense	$	11,982

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 reported differently for financial purposes and income tax purposes, and are recognized to the extent realization of such benefits is more likely than not. Lightbridge periodically assesses the recoverability of any tax assets recorded on the balance sheet and provides for any necessary valuation allowances. (See Note 13).

Development Costs — Development costs, which consist of research and development of new products and services, are expensed as incurred, except for software development costs meeting certain criteria for capitalization. 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.

Internal Use Software — The Company follows the guidance set forth in Statement of Position (“SOP”) No. 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use, in accounting for the development of its on demand use systems. SOP No. 98-1 requires companies to capitalize qualifying computer software costs which are incurred during the application development stage, and to amortize them over the software’s estimated useful life.

The Company capitalized $0.5 million during the year ended December 31, 2006 which primarily related to upgrades and enhancements to the Company’s proprietary billing system that added significant functionality. These amounts are included in internally developed software in the accompanying consolidated balance sheets. The

F-9

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company amortizes such costs when the systems become operational. Approximately $0.1 million of this software was placed in service as of December 31, 2006. These costs are being amortized over an estimated life of three years. The Company did not incur material amortization costs associated with this software during the year ended December 31, 2006.

Foreign Currency Translation — The financial statements of the Company’s foreign subsidiary are translated in accordance with SFAS No. 52, “Foreign Currency Translation”. The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidy in Canada is the Canadian dollar. Accordingly, the assets and liabilities of the Company’s foreign subsidiary are translated into U.S. dollars using the exchange rate in effect at each balance sheet date. Revenue and expense accounts generally are translated using an average rate of exchange during the period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income as a separate component of stockholders’ equity. We recognize realized foreign currency transaction gains and losses in the consolidated statements of operations except where such transaction gains and losses arise in intercompany transactions of a long-term investment nature. In those situations, we report such movements in accumulated other comprehensive income (loss). Gains and losses arising from transactions denominated in foreign currencies have not been material to date.

Supplemental Cash Flow Information

	Years Ended December 31,
	2006		2005		2004
	(In thousands)
Supplemental Item:
Cash paid for income taxes	$	345	$	1,481	$	2,004

Advertising Expenses — The Company expenses advertising costs as incurred. During the years ended December 31, 2006, 2005 and 2004, advertising expenses totaled $0.4 million, $0.3 million and $0.9 million, respectively, and were included in sales and marketing expense in the consolidated statements of operations.

Impairment of Long-Lived Assets — The Company evaluates long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Long-lived assets are evaluated for recoverability in accordance with SFAS 144 whenever events or changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. The Company determines fair value by appraisal or discounted cash flow analysis.

Accumulated Other Comprehensive Income (Loss) — The components of accumulated other comprehensive income (loss) include, in addition to net income, unrealized gains and losses on short-term investments and foreign currency translation adjustments. Accumulated other comprehensive income consisted of (in thousands):

	Years Ended December 31,
	2006		2005			2004
Unrealized gain (loss) on short-term investments		—		(20	)		—
Foreign currency gain (loss)		171		130			(184	)
Accumulated other comprehensive income (loss)	$	171	$	110		$	(184	)

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“ FIN 48”), which will become effective for Lightbridge, Inc. on

F-10

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

January 1, 2007. The Interpretation prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company is evaluating the impact of adopting FIN 48 on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Company will be required to adopt the provisions of SFAS 157 beginning with its first quarter ending March 31, 2007. The Company is assessing the impact of adopting SFAS 157 but does not expect that it will have a material effect on its consolidated financial position, results of operations, or cash flows.

The company adopted Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Years Misstatements in Current Year Financial Statements” (SAB 108) in 2006. SAB 108 requires that companies utilize a dual-approach to assessing the quantitative effects of financial statement misstatements. The dual approach includes both an income statement focused and balance sheet focused assessment. The adoption of SAB 108 had no effect on the Company’s consolidated financial statements for the year ended December 31, 2006.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 permits Companies to elect, at specified election dates, to measure eligible financial instruments at fair value. Companies shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. The Company has not decided if it will early adopt SFAS 159 or if it will choose to measure any eligible financial assets and liabilities at fair value.

3.   Exit From The Telecom Decisioning Services (TDS) Business

On October 4, 2006, the Company announced plans to exit from the Telecom Decisioning Services (TDS) business segment. The decision was based upon discussions with Sprint Nextel, which advised the Company that it would not be a significant customer after October 2006. With respect to the Company’s planned exit from the TDS business, it recorded an impairment charge to reduce the carrying value of leasehold improvements and other tangible assets to the estimated fair value of $1.1 million, which resulted in impairment charge of $2.4 million in the third quarter of 2006.

During the fourth quarter of 2006, the Company incurred restructuring charges of $1.8 million primarily related to employee severance and termination benefits for 87 employees who were terminated in the fourth quarter and 48 employees who received notification that they would be terminated by the second quarter of 2007. The severance charges for those employees that will be terminated by the second quarter of 2007 are being recognized over the remaining service period of the employee.

On February 21, 2007, the Company announced that it had entered into an asset purchase agreement and sold certain assets related to its TDS business to Vesta Corporation at the close of business on February 20, 2007 for $2.5 million in cash plus assumption of certain contractual liabilities. The TDS operations for 2006 and prior periods will be presented as discontinued when they are disposed of in 2007. The Company expects to record a gain on the disposal of its TDS business of approximately $1.0 million to $1.5 million, which will be presented as a gain on disposal of discontinued operations.

F-11

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying amount of the major classes of assets and liabilities included as part of our disposal group as of December 31, 2006, were as follows (in thousands):

Total current assets	$	2,519
Property and equipment, net		469
Total other assets		41
Total assets	$	3,029
Total current liabilities		2,594
Total liabilities	$	2,594

4.   Share-Based Compensation

Stock Option Plans

Stock Incentive Plans — The Company awards stock options and restricted share awards under the 2004 Stock Incentive Plan (2004 Plan). No further grants can be made under the 1996 Incentive and Nonqualified Stock Option Plan (the 1996 Plan) and the 1998 Non-Statutory Stock Option Plan (the 1998 Plan). The Company does not plan to make any further grants under the 1997 Stock Incentive Plan and Restricted Stock Purchase Plan.

In April and June 2004, respectively, the Board authorized and the stockholders approved the adoption of the 2004 Plan which provides for the issuance of options and other stock-based awards to purchase up to 2,500,000 shares of the Company’s common stock, plus the number of shares then remaining available for future grants under the Company’s 1996 Plan and the 1998 Plan, plus the number of shares subject to any stock option granted pursuant to the 1996 Plan or the 1998 Plan that expires, is cancelled or otherwise terminates (other than by exercise) after the effective date of the 2004 Plan. Options are granted with an exercise price of not less than the common stock’s market value at the date of grant. Options generally have a four-year graded vesting and have 10-year contractual terms. Certain option and plan awards provide for accelerated vesting based on stock price performance or if there is a change in control (as defined in the 2004 Plan). At December 31, 2006, 3,355,367 shares were available for grant.

Employee Stock Purchase Plan — On June 14, 1996, the Board authorized and the stockholders approved the adoption of the 1996 Employee Stock Purchase Plan (ESPP Plan). The ESPP Plan provided for the sale of up to 600,000 shares of the Company’s common stock to employees. Employees may have up to 6% of their base salary withheld through payroll deductions to purchase common stock during semi-annual offering periods. The purchase price of the stock is the lower of 85% of (i) the fair market value of the common stock on the enrollment date (the first day of the offering period), or (ii) the fair market value on the exercise date (the last day of each offering period). Offering period means approximately six-month periods commencing (a) on the first trading day on or after February 1 and terminating on the last trading day in the following July, and (b) on the first trading day on or after August 1 and terminating on the last trading day in the following January.

During the years ended December 31, 2006, 2005 and 2004, the Company issued approximately 20,000, 73,000 and 84,000 shares, respectively, under the ESPP Plan. The ESPP Plan was terminated upon expiration of the offering period on January 31, 2006.

Stock Option Valuation and Expense Information under SFAS No. 123(R)

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R) “Share-Based Payment,” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). Prior to January 1, 2006, the Company accounted for share-based compensation to

F-12

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

employees in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company also followed the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” The Company elected to adopt the modified prospective transition method as provided by SFAS No. 123(R) and, accordingly, financial statement amounts for the prior periods presented in this Form 10-K have not been restated to reflect the fair value method of expensing share-based compensation.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (the FSP). The FSP provides that companies may elect to use a specified “short-cut” method to calculate the historical pool of windfall tax benefits upon adoption of SFAS No. 123(R). The Company elected to use the “short-cut” method when SFAS No. 123(R) was adopted by the Company on January 1, 2006.

Share-based compensation expense recognized in the consolidated statement of operations for the year ended December 31, 2006 is based on awards ultimately expected to vest, and has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based partially on historical experience. In the Company’s pro forma information required under SFAS No. 123 for the periods prior to January 1, 2006, did not require the Company to establish estimates for forfeitures.

The Company recognized the full impact of its share-based payment plans in the consolidated statements of operations for fiscal year 2006 under SFAS No. 123(R) and did not capitalize any such costs on the consolidated balance sheet, as such costs that qualified for capitalization were not material. The following table presents share-based compensation expense included in the Company’s consolidated statement of operations (amounts in thousands):

	The Year
	Ended
	December 31,
	2006
Cost of revenues	$	249
Engineering and development		439
Sales and marketing		119
General and administrative		3,164
Share-based compensation expense	$	3,971

Except as noted below, the Company estimates the fair value of options granted using the Black-Scholes option valuation model. It estimates the volatility of the Company’s common stock at the date of grant based on its historical volatility rate, consistent with Staff Accounting Bulletin No. 107 (SAB 107). The Company’s decision to use historical volatility is based upon the absence of actively traded options on its common stock and its assessment that historical volatility is more representative of future stock price trends than implied volatility. Lightbridge estimates the expected term to be consistent with the simplified method identified in SAB 107 for share-based awards granted during the year ended December 31, 2006. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award. The dividend yield assumption is based on historical and expected dividend payouts. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of the Company’s employee options. The Company uses historical data to estimate pre-vesting option forfeitures and records share-based compensation expense only for those awards that are expected to vest. For options granted, the Company amortizes the fair value on a straight-line basis over the vesting period of the options.

F-13

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Lightbridge used the following assumptions to estimate the fair value of share-based payment awards:

	For the Year Ended
	December 31, 2006
		Employee Stock
	Stock Options	Purchase Plan(1)
Expected term (years)	6.25		0.50
Expected volatility	56%-62%		38	%
Risk-free interest rate (range)	4.3 - 5.2%		4.6	%
Expected dividend yield	0.0%		0.0	%

Upon adoption of SFAS No. 123(R), the Company recognized a benefit of $0.2 million as a cumulative effect of a change in accounting principle resulting from the requirement to estimate forfeitures on the Company’s share-based awards at the date of grant under SFAS No. 123(R) rather than recognizing forfeitures as incurred under APB 25. The cumulative benefit, net of tax, was immaterial for separate presentation in the consolidated statement of operations.

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

During 2004 and 2005, the Company granted stock options to certain executive officers that provide for vesting of the options upon the achievement of stock price performance. During the three months ended March 31, 2006, 125,000 of these options vested because the average closing price of the Company’s common stock reached $10.00 for over 20 consecutive trading days. During the three months ended June 30, 2006, 50,000 of these options vested because the average closing price of the Company’s common stock reached $12.50 for over 20 consecutive trading days. Additional vesting of 50,000, and 50,000 shares under such stock options could occur if the average closing price of the Company’s common stock over 20 consecutive days reaches $15.00, and $17.50, respectively. The estimated fair value of these options was calculated using a Monte Carlo simulation model that estimated (i) the probability that the performance goal will be achieved, and (ii) the length of time required to attain the target market price. The Company recognized approximately $1.3 million of share-based compensation expense related to these options during the Year Ended December 31, 2006. Stock-based compensation of $0.4 million was recorded in the Year ended December 31, 2005 related to the performance based vesting of certain executive’s stock options. The compensation charge was in accordance with the achievement of certain stock price milestones determined in the option grants of the executives.

Share Awards

The value of restricted share awards is determined by their intrinsic value (as if the underlying shares were vested and issued) on the grant date. The following table summarizes the Company’s time-based non-vested share activity for the year ended December 31, 2006:

The following table summarizes the status of the Company’s non-vested restricted shares:

			Weighted
	Number of		Average
	Shares		Fair Value
Non-vested at January 1, 2006		—	$	—
Granted		30,000		13.17
Vested		3,750		13.17
Forfeited		—		—
Non-vested at December 31, 2006		26,250	$	13.17

F-14

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Option Pro Forma Information under SFAS 123

The Company did not recognize compensation expense for employee share-based awards for the year ended December 31, 2005 when the exercise price of the Company’s employee stock awards equaled the market price of the underlying stock on the date of grant. The Company had previously adopted the provisions of SFAS No. 123, as amended by SFAS No. 148, through disclosure only. The following table illustrates the effects on net income (loss) and earnings (loss) per share for the years ended December 31, 2005 and 2004, as if the Company had applied the fair value recognition provisions of SFAS 123 to share-based employee awards.

	2005			2004
	(In thousands, expect per share amounts)
Income (loss) from continuing operations as reported	$	8,756		$	(7,355	)
Add: Stock-based compensation included in income (loss) from continuing operations		414			—
Deduct: Total stock-based employee compensation expense determined under fair value method		(2,331	)		(2,754	)
Pro forma income (loss) from continuing operations	$	6,839		$	(10,109	)
Income (loss) from continuing operations per common share — basic as reported	$	0.33		$	(0.28	)
Income (loss) from continuing operations per common share — diluted as reported	$	0.32		$	(0.28	)
Income (loss) from continuing operations per common share — basic pro forma	$	0.26		$	(0.38	)
Income (loss) from continuing operations per common share — diluted proforma	$	0.25		$	(0.38	)
Net income (loss) as reported	$	19,012		$	(15,405	)
Add: Stock-based compensation included in net income (loss)		414			—
Deduct: Total stock-based employee compensation expense determined under fair value method		(2,520	)		(3,272	)
Pro forma net income (loss)	$	16,906		$	(18,677	)
Net income (loss) per common share — basic as reported	$	0.71		$	(0.58	)
Net income (loss) per common share — diluted as reported	$	0.70		$	(0.58	)
Net income (loss) per common share — basic pro forma	$	0.63		$	(0.70	)
Net income (loss) per common share — diluted pro forma	$	0.62		$	(0.70	)

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:

	2005	2004
Risk-free interest rate	3.68% — 4.47%	1.9% — 3.4%
Expected life of options grants	1-5 years	1-5 years
Expected volatility	55% — 68%	82%
Expected dividend payment rate, as a percentage of the stock price on the date of grant	0%	0%

F-15

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents activity under all stock option plans:

						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
	(In thousands)							(In thousands)
Outstanding at January 1, 2004		3,329		$	10.12
Granted		2,905			5.71
Exercised		(220	)		0.68
Forfeited or expired		(1,331	)		9.15
Outstanding at December 31, 2004		4,683			8.00
Granted		1,243			6.26
Exercised		(235	)		7.25
Forfeited or expired		(1,870	)		8.74
Outstanding at December 31, 2005		3,821			7.23
Granted		775			11.42
Exercised		(605	)		7.36
Forfeited or expired		(996	)		10.30
Outstanding at December 31, 2006		2,995		$	7.29		7.65	$	19,097
Vested or expected to vest at December 31, 2006		2,673		$	7.19		7.15	$	17,338

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

Options exercisable at December 31, 2004	2,502	$	10.05
Options exercisable at December 31, 2005	2,012	$	8.51
Options exercisable at December 31, 2006	1,655	$	6.92	7.13	$	11,322

F-16

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth information regarding options outstanding at December 31, 2006:

						Weighted				Weighted
						Average				Average
				Weighted		Remaining				Exercise
				Average		Contractual		Number		Price for
Number of		Range of		Exercise		Life		Currently		Currently
Options		Exercise Prices		Price		(Years)		Exercisable		Exercisable
(In thousands)								(In thousands)
	12	$	3.75	$	3.75		7.62		6	$	3.75
	300		3.76		3.76		7.59		300		3.76
	547		4.44 - 5.50		5.10		7.44		302		5.13
	217		5.60 - 6.10		5.87		7.27		151		5.85
	400		6.11		6.11		8.02		159		6.11
	339		6.16		6.16		7.95		147		6.16
	336		6.17 - 7.70		6.81		7.47		206		6.86
	393		7.72 - 9.78		9.36		7.62		186		9.06
	348		9.81 - 13.17		12.45		8.17		111		12.14
	103		13.37 - 37.32		17.14		6.24		87		17.68
	2,995			$	7.29		7.65		1,655	$	6.92

The weighted average grant date fair value of options granted during the years ended December 31, 2006, 2005 and 2004 were $6.98, $3.20 and $3.12, respectively. The intrinsic value of options exercised during the year ended December 31, 2006 was $2.2 million.

As of December 31, 2006, there was $3.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s stock plans including non-vested restricted share awards. That cost is expected to be recognized over a weighted-average period of 2.80 years.

The Company received $4.6 million in cash from option exercises and issuances of stock under the ESPP Plan for the year ended December 31, 2006. The Company has excess tax benefits of $1.0 million that will be recorded as a credit to additional paid-in capital when realized based upon the “with-and-without” method. The Company has net operating loss carryforwards that are sufficient to offset taxable income. Under the with-and-without method, an excess tax benefit will be realized when the excess share-based compensation deduction provides the Company with incremental benefit by reducing the current year’s taxes payable.

5.   Discontinued Operations

Intelligent Network Solutions (INS) Business

On October 1, 2004, the Company closed the sale of its Fraud Centurion product suite which was included in the Company’s INS business product offerings. The Company received net cash proceeds of $2.4 million as a result of the sale. As part of this transaction, we sold equipment with a net book value of approximately $0.2 million to Subex and assigned the customer maintenance contracts to Subex. The liabilities for deferred revenue related to these contracts as of the closing date totaled $0.5 million.

On April 25, 2005, the Company announced that it had entered into an asset purchase agreement for the sale of its INS business, which included its PrePay IN product and related services, to VeriSign, Inc. The sale was completed on June 14, 2005 for $17.45 million in cash plus assumption of certain contractual liabilities. Of the $17.45 million in consideration, $1.495 million is being held in escrow by VeriSign, and $0.25 million is being held by the Company as a liability to VeriSign, until certain representations and warranties expire and will be recorded as a gain, net of indemnity claims at that time. In addition, a liability has been established of $0.45 million in accordance with FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for

F-17

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Guarantees, Including Indirect Guarantees of Indebtedness of Others,” based on the estimated cost if the Company were to purchase an insurance policy to cover up to $5 million of indemnification obligations for certain potential breaches of its intellectual property representations and warranties in the asset purchase agreement with VeriSign. The Company periodically verifies that the $0.45 million liability is appropriate. The $0.25 million and $0.45 million are classified as other long-term liabilities on the Company’s consolidated balance sheet. Such representations and warranties extend for a period of two years and expire on June 14, 2007. As of December 31, 2006 based on notification the Company received from VeriSign, Inc., asserting that the Company is obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign, the liability is still appropriate. The Company cannot predict the outcome of this matter at this time and it is presently not a party to the litigation. The operating results and financial condition of this former INS segment have been reported as discontinued operations in the accompanying consolidated financial statements in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” as the sale was completed during the second quarter of 2005.

Included in the amounts reported for net income from discontinued operations for the year ended December 31, 2005 is the gain on the sale of the INS business of $12.7 million (net of income tax provision of $0.1 million) and a $1.4 million settlement received by the Company from a lawsuit between Lucent Technologies, Inc. and the Company that was finalized in the second quarter of 2005. The net loss from discontinued operations for the year ended December 31, 2004 includes the gain on the sale of the Fraud Centurion assets of $2.7 million and approximately $2.3 million of goodwill and intangible asset impairment charges.

Instant Conferencing Business

In the first quarter of 2005, the Company made the decision to no longer actively market or sell its GroupTalk product and took actions to outsource the continuing operations of its Instant Conferencing business. On August 17, 2005, the Company and America Online, Inc. mutually agreed to terminate the master services agreement under which the Company provided our GroupTalk instant conferencing services to America Online, Inc. Lightbridge subsequently terminated all of the outsourcing agreements for its GroupTalk services and ceased operations of the Instant Conferencing business in the third quarter of 2005.

The $0.5 million in net income from discontinued operations in 2006 represents a refund received for past telecommunications costs previously paid which related to the Instant Conferencing segment.

In accordance with SFAS 144, the operating results of the former INS and Instant Conferencing segments have been included as part of the financial results from discontinued operations in the accompanying consolidated financial statements. The components of losses from operations of discontinued operations previously classified as operating activities are as follows:

	Years Ended December 31,
	2006		2005			2004
Results of operations:
Total gross profit	$	468	$	4,336		$	8,565
Total operating expenses(1)		—		6,769			19,288
Income (losses) from operation of discontinued operations		468		(2,433	)		(10,723	)

(1) 2004 includes approximately $2.3 million of goodwill and intangible asset impairment charges.

6.   Disclosures About Segments of an Enterprise and Related Information

Based upon the way financial information is provided to the Company’s Chief Executive Officer for use in evaluating allocation of resources and assessing performance of the business, the Company reports its operations in

F-18

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

two distinct operating segments: Telecom Decisioning Services (TDS) and Payment Processing Services (Payment Processing). For further information, please refer to Note 18 of the Notes to Consolidated Financial Statements.

The TDS segment provides wireless subscriber qualification, risk assessment, fraud screening, consulting services and contact center services to telecom and other companies. The Payment Processing segment offers a transaction processing system, under the Authorize.Net^® brand, that allows businesses to authorize, settle and manage credit card, electronic check and other electronic payment transactions online. Within these two segments, performance is measured based on revenue, gross profit and operating income (loss) realized from each segment. There are no transactions between segments.

The Company does not allocate certain corporate or centralized marketing and general and administrative expenses to its business unit segments, because these activities are managed separately from the business units. Also, the Company does not allocate restructuring expenses and other non-recurring gains or charges to its business unit segments because the Company’s Chief Executive Officer evaluates the segment results exclusive of these items. Asset information by operating segment is not reported to or reviewed by the Company’s Chief Executive Officer and therefore the Company has not disclosed asset information for each operating segment.

Financial information for each reportable segment for the years ended December 31, 2006, 2005 and 2004 were as follows (amounts in thousands):

					Sub-Total
			Payment		Reportable		Reconciling			Consolidated
December 31, 2006	TDS		Processing		Segments		Items			Total
Revenues	$	38,097	$	57,549	$	95,646	$	—		$	95,646
Gross profit		11,938		45,162		57,100		(249	)(1)		56,851
Operating income (loss)		5,057		17,909		22,966		(21,778	)(2)		1,188
Depreciation and amortization		2,394		4,451		6,845		694	(3)		7,539

					Sub-Total
			Payment		Reportable		Reconciling			Consolidated
December 31, 2005	TDS		Processing		Segments		Items			Total
Revenues	$	62,950	$	45,328	$	108,278	$	—		$	108,278
Gross profit		23,049		35,426		58,475		—			58,475
Operating income (loss)		11,275		11,378		22,653		(13,858	)(2)		8,795
Depreciation and amortization		3,982		4,246		8,228		740	(3)		8,968

					Sub-Total
			Payment		Reportable		Reconciling			Consolidated
December 31, 2004	TDS		Processing		Segments		Items			Total
Revenues	$	88,297	$	26,836	$	115,133	$	—		$	115,133
Gross profit		37,020		19,580		56,600		—			56,600
Operating income (loss)		16,118		3,560		19,678		(19,291	)(2)		387
Depreciation and amortization		5,760		3,086		8,846		1,013	(3)		9,859

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

F-19

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2006		2005		2004
Restructuring charges & related asset impairments	$	7,283	$	1,259	$	4,069
Litigation settlement, net		1,500		—		—
Unallocated corporate and centralized sales and marketing, general and administrative expenses		9,024		12,185		15,222
Unallocated share-based compensation		3,971		414		—
Total	$	21,778	$	13,858	$	19,291

(3) Represents depreciation and amortization included in the unallocated corporate or centralized marketing, general and administrative expenses.

7.   Funds Due to Merchants

At December 31, 2006, the Company was holding funds in the amount of $8.8 million due to merchants comprised of $7.3 million held for Authorize.Net’s eCheck.Net^® product, and $1.5 million held for Authorize.Net’s Integrated Payment Solution (IPS) product. The funds are included in cash and cash equivalents and funds due to merchants on the Company’s consolidated balance sheet. Authorize.Net typically holds eCheck.Net funds for approximately seven business days; the actual number of days depends on the contractual terms with each merchant. The $1.5 million held for IPS includes funds from processing both credit card and Automated Clearing House (ACH) transactions. IPS credit card funds are held for approximately two business days; IPS ACH funds are held for approximately four business days, according to the requirements of the IPS product and the contract between Authorize.Net and the financial institution through which the transactions are processed.

In addition, the Company has $0.5 million on deposit with a financial institution to cover any deficit account balance that could occur if the amount of eCheck.Net transactions returned or charged back exceeds the balance on deposit with the financial institution. This amount is classified as restricted cash in the Company’s balance sheet. To date, the deposit has not been applied to offset any deficit balance, and management believes that the likelihood of incurring a deficit balance with the financial institution due to the amount of transactions returned or charged back is remote. The deposit will be held continuously for as long as Authorize.Net utilizes the ACH processing services of the financial institution, and the amount of the deposit may increase as processing volume increases.

8.   Property and Equipment

Property and equipment consisted of the following at December 31:

	2006			2005
Furniture and fixtures	$	2,375		$	2,685
Leasehold improvements		3,204			6,917
Computer equipment		16,367			18,000
Computer software		6,859			6,915
Internally developed software		857			350
		29,662			34,867
Less accumulated depreciation and amortization		(24,755	)		(24,063	)
Property and equipment, net	$	4,907		$	10,804

During the year ended December 31, 2006, as a result of closing the Liverpool, Nova Scotia contact center and the Company’s planned exit from the TDS business, the Company recorded an impairment charge of $3.5 million. Related to the impairment, the Company wrote off property and leasehold improvements with a cost of $8.1 million and accumulated depreciation of $4.7 million for assets that were impaired.

F-20

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.   Letter of Credit

At December 31, 2006 the Company has an unsecured letter of credit in the amount of $0.8 million which was reduced from $1.6 million in December 2006 per the terms of the Company’s operating lease for its Burlington, MA headquarters location. As a result of the Company’s plans to relocate its corporate headquarters, this amount was increased to $1.1 million in March 2007.

10.   Restructuring Costs

The following table summarizes the activity in the restructuring accrual for the twelve months ended December 31, 2004, 2005, and 2006 (amounts in thousands):

	Employee Severance
	and Termination			Facility Closing			Asset
	Benefits			and Related Costs			Impairment			Total
Accrued restructuring balance at January 1, 2004	$	—		$	985		$	—		$	985
Restructuring accrual — January 2004		488									488
Restructuring accrual — September 2004		2,090									2,090
Restructuring accrual — December 2004		1,410			178						1,588
Cash payments		(1,784	)		(841	)					(2,625	)
Restructuring adjustments					(36	)					(36	)
Accrued restructuring balance at December 31, 2004		2,204			286			—			2,490
Restructuring accrual — January 2005		70			302						372
Restructuring accrual — September 2005					1,037			654			1,691
Impairment of assets								(654	)		(654	)
Cash payments		(2,082	)		(650	)					(2,732	)
Restructuring adjustments		(175	)		(3	)					(178	)
Accrued restructuring balance at December 31, 2005		17			972			—			989
Restructuring accrual — January 2006		1,396									1,396
Restructuring accrual — May 2006		61						862			923
Restructuring accrual — August 2006		296			301			211			808
Restructuring accrual — September 2006								2,402			2,402
Restructuring accrual — October 2006		1,705			71						1,776
Impairment of assets								(3,475	)		(3,475	)
Cash payments		(2,454	)		(657	)					(3,111	)
Restructuring adjustments					59						59
Accrued restructuring balance at December 31, 2006	$	1,021		$	746		$	—		$	1,767

The Company has incurred restructuring and asset impairment charges of $4.2 million related to or the result of the decline in its TDS business which was sold on February 20, 2007. In October 2006, the Company announced plans to exit from the TDS business. As a result of its decision, the Company determined that there were impairment indicators that existed as of September 30, 2006 which required the Company to assess the recoverability of the TDS long-lived assets as of September 30, 2006. The Company reviewed the carrying value of its long-lived assets

F-21

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and determined that the expected future cash flows for the TDS business would not be sufficient to recover the recorded carrying value of such long-lived assets. The Company analyzed various scenarios related to its exit from the TDS business and weighed the probability of each scenario. The Company considered various valuation methods in determining the fair value of the assets including appraisal values. Accordingly, the Company recognized an impairment charge to reduce the carrying value of leasehold improvements to zero and other tangible assets to their estimated fair value of $1.1 million, which resulted in an impairment charge of $2.4 million in the third quarter of 2006 which represented the excess of the carrying amount over the fair value of the TDS long-lived assets. During the fourth quarter of 2006, the Company incurred restructuring charges of $1.8 million primarily related to employee severance and termination benefits for 87 employees who were terminated in the fourth quarter and 48 employees who received notification that they would be terminated by the second quarter of 2007.

During 2006, the Company made restructuring adjustments of $0.1 million. These adjustments were primarily related to an adjustment of a sublease assumption associated with the Company’s Broomfield, Colorado facility.

In May 2006, the Company announced the planned closing of the Liverpool, Nova Scotia contact center. Related to this closing, the Company recorded restructuring and related asset impairment charges of $0.9 million and $0.8 million during the second and third quarters of 2006, respectively.

In January 2006, the Company announced a workforce reduction focused primarily within the TDS business, as well as reductions in general and administrative expenses. The restructuring consisted of a total workforce reduction of about 28 positions, and the Company recorded a restructuring charge of $1.4 million in the first quarter of 2006, primarily related to employee severance and termination benefits.

In September 2005, the Company decided to consolidate its administrative facilities and vacated the third floor of its corporate headquarters at 30 Corporate Drive, Burlington Massachusetts. The Company recorded a restructuring and related asset impairment charge of $1.7 million in 2005 related to this action. This charge included $1.0 million of lease obligations and $0.7 million for the impairment of leasehold improvements and equipment. The lease obligation represents the fair value of future lease commitment costs, net of projected sublease rental income. The estimated future cash flows used in the fair value calculation are based on certain estimates and assumptions by management, including the projected sublease rental income, the amount of time the space will be unoccupied prior to sublease and the lengths of any sublease. The estimated future cash flows used were discounted using a credit adjusted risk-free interest rate and has a maturity date that approximates the expected timing of future cash flows.

The Company has lease obligations related to the facilities subject to its restructuring which extend to the year 2011. Management will review the sublease assumptions on a quarterly basis, until the outcome is finalized. Accordingly, management may modify these estimates to reflect any changes in circumstance in future periods. If modifications are made, the changes to the liability are measured using the same credit adjusted risk-free interest rate.

In January 2005, the Company announced the closing its Broomfield, Colorado contact center in order to take advantage of its other existing contact center infrastructure and operate more efficiently. This action resulted in the termination of approximately 40 employees associated with product service and delivery at this location. The Company recorded a restructuring charge of approximately $0.4 million relating to facility closing costs and employee severance and termination benefits during the three months ended March 31, 2005. The Company anticipates that the severance costs related to this action will be paid by the end of the first quarter of 2006, and the Company anticipates that all other costs relating to this action, consisting principally of lease obligations on unused space, net of estimated sublease income, will be paid by the end of 2008.

In December 2004, the Company announced a restructuring of its business in order to lower overall expenses to better align them with future revenue expectations. This action followed the Company’s announcement of an anticipated revenue reduction as a result of the acquisition of AT&T Wireless Services, Inc. (AT&T Wireless) by

F-22

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cingular Wireless LLC (Cingular). This action resulted in the termination of 38 employees in the Company’s corporate offices in Burlington, Massachusetts as follows: 16 in product and service delivery, 11 in engineering and development, 10 in sales and marketing and 1 in general and administrative. The Company recorded a restructuring charge of approximately $1.4 million relating to employee severance and termination benefits during the three months ended December 31, 2004. Additionally, subsequent to its acquisition of Authorize.Net, the Company relocated its offices in Bellevue, Washington and the remaining rent paid of $0.2 million on the vacated space was included in restructuring charges during the three months ended December 31, 2004. The costs related to these actions were paid by the end of 2005.

In September 2004, the Company announced a restructuring of its business in order to lower overall expenses to better align them with future revenue expectations. This action, a continuation of the Company’s emphasis on expense management, resulted in the termination of 64 employees and 2 contractors in the Company’s corporate offices in Burlington, Massachusetts and its Broomfield, Colorado location as follows: 12 in product and service delivery, 16 in engineering and development, 25 in sales and marketing and 13 in general and administrative. The Company recorded a restructuring charge of approximately $2.1 million relating to employee severance and termination benefits during the three months ended September 30, 2004. All the costs related to this action were paid by the end of 2005.

In January 2004, the Company announced a reorganization of its internal business operations. This action, a continuation of the Company’s emphasis on expense management, resulted in the termination of 10 individuals in the Company’s corporate office in Burlington, Massachusetts. The Company recorded a restructuring charge of approximately $0.5 million relating to employee severance and termination benefits during the three months ended March 31, 2004. All costs related to this action were paid by the end of the first quarter of 2005.

11.   Commitments and Contingencies

The Company’s primary contractual obligations and commercial commitments are under its operating leases and a letter of credit. The Company has an unsecured letter of credit in the amount of $0.8 million which was reduced from $1.6 million in December 2006 per the terms of our operating lease for its Corporate Drive location.

Leases — The Company has noncancelable operating lease agreements for office space, certain equipment and services. These lease agreements expire at various dates through 2012 and certain of them contain provisions for extension on substantially the same terms as are in effect. Where leases contain escalation clauses, rent abatements, and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, we apply them in the determination of straight-line rent expense over the lease term.

Future minimum payments under operating leases, including facilities affected by restructurings, consisted of the following at December 31, 2006 (amounts in thousands):

							Restructured Lease
	Net Lease Obligations						Obligations
	Gross Lease		Sublease		Net Lease		Included in Gross
	Obligations		Income		Obligations		Lease Obligations
2007	$	3,895	$	949	$	2,946	$	872
2008		2,902		669		2,233		831
2009		2,405		—		2,405		779
2010		2,075		—		2,075		798
2011		1,686		—		1,686		732
Thereafter		—		—		—		—
Total minimum lease payments	$	12,963	$	1,618	$	11,345	$	4,012

F-23

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In March of 2007, the Company entered into a lease agreement for a 10,000 square foot facility in Marlborough, Massachusetts which will serve as its new corporate headquarters. The Company’s future minimum payments due under this lease are $0.1 million, $0.5 million and $0.3 million, for the periods of less than one year, one to three years and three to five years, respectively. The Company also entered into a sublease agreement for the remaining space in the Burlington, Massachusetts facility. The Company will receive sublease income of $0, $2.3 million and $0.7 million, for the periods of less than one year, one to three years and three to five years, respectively.

Rent expense for operating leases (excluding sublease income) was approximately $2.1 million, $2.5 million and $3.6 million for the years ended December 31, 2006, 2005 and 2004, respectively.

The Company leases its corporate headquarters facility. This lease was entered into in January 2004, had a rent commencement date in June 2004 and expires in 2011. The Company was not required to pay rent during the construction period from January 2004 through May 2004 and the amount of the landlord’s tenant improvement allowance was approximately $3.3 million. In addition, the Company’s Bellevue, Washington lease was executed in August 2004, and had a rent commencement date in September 2004. The Company was not obligated to pay rent during the construction period prior to the rent commencement date and the amount of the tenant improvement allowance was approximately $177,000. The Company also received abated rent for the first three months of the lease term.

Indemnities — The Company typically agrees to indemnify its customers and distributors for any damages or expenses or settlement amounts resulting from claimed infringement of intellectual property rights of third parties, its landlords for any expenses or liabilities resulting from our use of the leased premises, occurring on the leased premises or resulting from the breach of its obligations under the leases related to the leased premises, and purchasers of assets or businesses we have sold for any expenses or liabilities resulting from its breaches of any representations, warranties or covenants contained in the purchase and sale agreements associated with such sales including, without limitation, that the assets sold do not infringe on the intellectual property rights of third parties. While the Company maintains insurance that may provide limited coverage for certain warranty and indemnity claims, such insurance may cease to be available to the Company on commercially reasonable terms or at all.

The Company established a liability of $0.45 million in accordance with FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” based on the estimated cost if the Company were to purchase an insurance policy to cover up to $5 million of indemnification obligations for certain potential breaches of its intellectual property representations and warranties in the asset purchase agreement with VeriSign. Such representations and warranties extend for a period of two years and expire on June 14, 2007.

Litigation — In May 2006, the Company entered into a settlement agreement with respect to certain litigation involving NetMoneyIN, Inc. Pursuant to the agreement, the Company agreed to pay NetMoneyIN, Inc. a lump sum payment of $1.75 million in exchange for a release and covenant not to sue. The cost of the settlement to the Company was $1.5 million net of $0.25 million received from another party named in the litigation. The Company recorded this cost in its general and administrative expenses in the second quarter of 2006.

The Company had incurred legal expenses of approximately $0.6 million and $1.1 million for the years ended December 31, 2006 and December 31, 2005, respectively, in connection with the defense of this lawsuit following the Company’s acquisition of Authorize.Net. The Company has not and does not expect to incur any further litigation costs related to this matter.

In connection with the sale of the Company’s INS business to VeriSign on June 14, 2005, the Company agreed to indemnify VeriSign for up to $5.0 million in damages incurred for potential breaches of our intellectual property representations and warranties in the asset purchase agreement. Such representations and warranties extend for two years from the date of closing. The Company received notification from VeriSign, Inc. asserting that the Company is obliged to indemnify VeriSign with respect to a lawsuit filed against VeriSign which alleges that VeriSign is

F-24

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

infringing certain patents of the plaintiff. VeriSign asserts that the Company’s obligation to indemnify it arises in connection with the sale by the Company to VeriSign of certain assets of the Company related to the Company’s Intelligent Network Systems business unit, including the Company’s Prepay IN software, which VeriSign acquired in April 2005. The Company objected to VeriSign’s claim and has asked for additional information, which it has not yet received. The Company is not a party to the litigation at this time.

The Company is involved in various litigation and legal matters other than the Versign matter described above that have arisen in the ordinary course of business. The Company believes that the ultimate resolution of any existing matter will not have a material adverse effect on its consolidated financial statements.

12.   Stock Repurchases, Warrants, Stockholder Rights Plan

Stock Repurchases — In September 2006, Lightbridge’s Board of Directors authorized a stock repurchase program of up to $15.0 million allowing the Company to repurchase shares of its outstanding common stock in the open market or through private transactions from time to time depending on market conditions. The Company did not make any repurchases in 2006.

On October 4, 2001, Lightbridge announced that its board of directors authorized the repurchase of up to 2 million shares of the Company’s common stock at an aggregate price of up to $20 million. The shares may be purchased from time to time on or after October 8, 2001, depending on market conditions. On April 23, 2003, the board approved an expansion of the plan to authorize Lightbridge to purchase up to 4 million shares of the Company’s common stock at an aggregate price of up to $40 million through September 26, 2005. As of December 31, 2004, the Company had purchased approximately 2.5 million shares at a total cost of approximately $17.9 million since the inception of its repurchase program. There were no repurchases during 2005 and the authority to engage in this program expired on September 26, 2005.

Stockholder Rights Plan — In November 1997, the Board of Directors of Lightbridge declared a dividend of one right (each a “Right” and collectively the “Rights”) for each outstanding share of common stock. The Rights were issued to the holders of record of common stock outstanding on November 14, 1997, and will be issued with respect to common stock issued thereafter until the Distribution Date (as defined below) and, in certain circumstances, with respect to shares of common stock issued after the Distribution Date. Each Right, when it becomes exercisable, will entitle the registered holder to purchase from Lightbridge one one-hundredth (1/100th) of a share of Series A participating cumulative preferred stock, par value $0.01 per share, of Lightbridge at a price of $75.00. The Rights will be issued upon the earlier of the date which Lightbridge learns that a person or group acquired, or obtained the right to acquire, beneficial ownership of fifteen percent or more of the outstanding shares of common stock or such date designated by the Board following the commencement of, or first public disclosure of an intent to commence, a tender or exchange offer for outstanding shares of the Company’s common stock that could result in the offer or becoming the beneficial owner of fifteen percent or more of the outstanding shares of the Company’s common stock (the earlier of such dates being called the “Distribution Date”).

F-25

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13.   Income Taxes

Provision (benefit) for income taxes for the years ended December 31 consisted of the following (in thousands):

	2006			2005		2004
Current:
Federal	$	340		$	—	$	(777	)
Foreign		53			113		627
State		53			50		(254	)
Deferred:
Federal		(18,580	)		1,509		7,909
State		(85	)		304		1,172
(Benefit)/Provision for income taxes	$	(18,219	)	$	1,976	$	8,677

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

	2006			2005
Current Items:
Assets:
Allowance for doubtful accounts	$	366		$	589
Accrued expenses		1,400			1,724
Restructuring reserve		728			507
Operating loss carryforwards		2,529			—
Less valuation allowance		(333	)		(2,820	)
Current deferred tax assets, net	$	4,690		$	—
Long-Term Items:
Assets:
Depreciation and amortization	$	6,085		$	4,394
Acquisition costs		403			604
Intangible assets		680			743
Capital loss carryforwards		—			198
Equity compensation		1,196			170
Net operating loss carryforwards		10,393			13,546
Foreign tax credit carry-forward		732			817
R&D tax credit carry-forward		4,974			6,907
Valuation allowance		(8,808	)		(27,379	)
Long-term deferred tax assets		15,655			—
Liabilities:
Tax amortization of indefinite-lived intangibles		(4,754	)		(3,074	)
Long-term deferred tax liabilities		(4,754	)		(3,074	)
Total net long-term deferred tax assets (liabilities)	$	10,901		$	(3,074	)

F-26

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The net change in the valuation allowance for the years ended December 31, 2006, and 2005 was a decrease of approximately $21.1 million and an increase of approximately $4.2 million, respectively. At December 31, 2006, the Company had $92.0 million of federal and state net operating loss carryforwards, which expire, if unused, in years 2009 through 2024. Approximately $5.0 million of the federal net operating loss is subject to an annual limitation imposed by Section 382 of the Internal Revenue Code of approximately $3.0 million. At December 31, 2006, the Company had federal research and development credit carryforwards of $2.7 million which expire, if unused, in years 2012 through 2026. At December 31, 2006, the Company had state research and development credit carryforwards of $3.5 million, a portion of which the Company can use for an indefinite period and a portion which expire, if unused, in years 2016 through 2021. In addition, at December 31, 2006, the Company had foreign tax credit carryforwards for federal purposes of $0.6 million, which expire, if unused, in years 2007 through 2015.

In evaluating our ability to recover our deferred tax assets, we considered all available positive and negative evidence including our past operating results, the existence of cumulative income in the most recent fiscal years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we are responsible for assumptions utilized including the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions required significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. Our decision to exit the TDS business on October 4, 2006 removed considerable uncertainty regarding our estimates of expected future results. Based upon our cumulative operating results and an assessment of our expected future results, we concluded that it was more likely than not that we would be able to realize a substantial portion of our U.S. net operating loss carryforward tax asset prior to their expiration and realize the benefit of other net deferred tax assets. As a result, the Company reduced its valuation allowance in 2006, resulting in recognition of a deferred tax asset of $20.3 million.

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:

	2006			2005			2004
Statutory federal income tax rate		35	%		35	%		34	%
State taxes, net of federal benefit		8	%		0	%		4	%
Foreign taxes		0	%		0	%		48	%
Foreign tax credit		0	%		0	%		−136	%
Change in valuation allowance		−352	%		−12	%		864	%
Federal & State R&D credits		-2	%		−5	%		228	%
Change in tax exposure reserves		0	%		0	%		−70	%
Effect of liquidation of a subsidiary on tax attributes		0	%		0	%		−302	%
Equity Compensation		7	%		0	%		0	%
Other, net		4	%		1	%		−14	%
		−300	%		19	%		656	%

The Company is routinely under audit by federal, state or local authorities in the areas of income taxes. These audits include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and local tax laws. In evaluating the exposure associated with various tax filing positions, the Company accrues charges for probable exposures. At December 31, 2006, the Company has appropriately $1.0 million accrued for probable exposures and related interest.

F-27

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.   Retirement Plan

The Company has a 401(k) Retirement Plan. All employees of the Company are eligible to participate, subject to employment eligibility requirements. The Company pays a matching contribution of 50% up to the first 6% contributed by the employee. The Company’s 401(k) matching expense was $0.4 million, $0.6 million and $0.8 million for the years ended December 31, 2006, 2005 and 2004, respectively.

15.   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 (in thousands):

	2006		2005		2004
Shares for basic computation		27,248		26,670		26,643
Options and warrants (treasury stock method)		997		612		—
Shares for diluted computation		28,245		27,282		26,643

Stock options to purchase approximately 369,000 shares, 1,265,000 shares and 3,009,000 shares of common stock were excluded from the calculation of diluted earnings per share for the years ended December 31, 2006, 2005 and 2004, respectively, because these options were anti-dilutive.

In addition, all other stock options and warrants convertible into common stock have been excluded from the diluted EPS computation in the year ended December 31, 2004, as they are anti-dilutive due to the net loss recorded by the Company in this period. Had such shares been included, the number of shares for the diluted computation for the year ended December 31, 2004 would have increased by approximately 155,000.

16.  Worldcom, Inc. Settlement

During the quarter ended September 30, 2004, the Company received a settlement payment of approximately $0.5 million as a result of the WorldCom, Inc. bankruptcy proceedings for services provided to WorldCom in 2002. As part of the bankruptcy settlement, the Company also realized a one-time benefit of approximately $1.2 million related to the release from liability of amounts owed to WorldCom, Inc. and amounts that had been reserved for potential claims against the Company as part of the WorldCom, Inc. bankruptcy proceedings. Approximately $1.0 million of the benefit was recorded in general and administrative expenses and $0.2 million was included in transaction cost of revenues for 2004.

17.   Related Party Transactions

On December 31, 2004, Wells Fargo & Company (“Wells Fargo”) acquired certain assets of Strong Capital Management (“Strong Capital”). Strong Capital, which was an independent money manager that offered mutual funds to individual investors and accounts for institutional clients, owned the Company’s stock on December 31, 2004.

The Company has ongoing business relationships with a certain affiliate of Wells Fargo that existed prior to Wells Fargo acquisition of Strong Capital. Wells Fargo, together with certain of its affiliates, owns more than ten percent of the Company’s outstanding stock as reported on a Schedule 13G filed on February 8, 2007. The relationships, which are independent of each other, consist of (i) payments made by the Company to the affiliate of Wells Fargo for fees associated with the Integrated Payment Solution (“IPS”) accounts (ii) payments made by the

F-28

LIGHTBRIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company to the affiliate of Wells Fargo for credit card interchange fees related to IPS services provided to the Company’s merchant customers and (iii) payments received by the Company from the affiliate of Wells Fargo in accordance with a non-exclusive agreement in which the affiliate of Wells Fargo resells the Company’s gateway services.

Payments made by the Company to the affiliate of Wells Fargo for interchange and bank fees amounted to $2.7 million, and $2.2 million for the years ended December 31, 2006 and 2005, respectively. Payments received by the Company from Wells Fargo and its affiliate amounted to $2.8 million and $2.2 million for the years ended December 31, 2006 and 2005, respectively. Balances due to Wells Fargo and its affiliates were $0.1 million, at December 31, 2006 and 2005. Balances due from Wells Fargo and its affiliates were $0.2 million and $0.3 million, at December 31, 2006 and 2005, respectively. Wells Fargo and its affiliates were not a related party during the year ended December 31, 2004.

18.   Subsequent Events

On February 21, 2007, the Company announced that it had entered into an asset purchase agreement and sold certain assets related to its TDS business to Vesta Corporation at the close of business on February 20, 2007 for $2.5 million in cash plus assumption of certain contractual liabilities. The TDS operations for 2006 and prior periods will be presented as discontinued when they are disposed of in 2007. The Company expects to record a gain on the disposal of its TDS business of approximately $1.0 million to $1.5 million, which will be presented as a gain on disposal of discontinued operations.

19.   Interim Financial Information (Unaudited)

	Q1			Q2			Q3			Q4
	(In thousands, except per share amounts)
2006
Revenues	$	26,542		$	25,223		$	23,275		$	20,606
Gross profit	$	14,805		$	14,441		$	14,254		$	13,351
Income (loss) from operations	$	645		$	(162	)	$	224		$	481
Discontinued operations	$	468		$	—		$	—		$	—
Net income (loss)	$	1,632		$	854		$	274		$	21,998	(1)
Basic earnings (loss) per share	$	0.06		$	0.03		$	0.01		$	0.80
Diluted earnings (loss) per share	$	0.06		$	0.03		$	0.01		$	0.77
2005
Revenues	$	27,174		$	26,563		$	27,232		$	27,309
Gross profit	$	13,677		$	14,548		$	14,944		$	15,306
Income from operations	$	1,371		$	2,466		$	1,324		$	3,634
Discontinued operations	$	(2,254	)	$	12,859		$	(268	)	$	(81	)
Net income (loss)	$	(1,100	)	$	15,212		$	987		$	3,913
Basic earnings (loss) per share	$	(0.04	)	$	0.57		$	0.04		$	0.15
Diluted earnings (loss) per share	$	(0.04	)	$	0.56		$	0.04		$	0.14

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

F-29

EX-10.20

                        AMENDMENT TO EMPLOYMENT AGREEMENT

     This Amendment to Employment Agreement ("Amendment"), dated as of January
12, 2007, is entered into by and between Lightbridge, Inc., a Delaware
corporation (the "Company") and Robert E. Donahue of Northborough, Massachusetts
(the "Executive").

     WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement, dated as of January 7, 2005 (the "Employment Agreement");

     WHEREAS, in accordance with Section 13(a) of the Employment Agreement, the
Company and the Executive wish to amend Sections 3(e) and 3(f) of the Employment
Agreement;

     NOW THEREFORE, in consideration of the mutual promises herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Executive hereby agree as follows:

     1.   The first sentence of Section 3(e) of the Employment Agreement is
hereby deleted in its entirety and the following substituted in its place and
stead:

          The other Stock Option (the "Second Stock Option") shall be for
          150,000 shares of Common Stock and such shares shall vest as follows:
          (i) in the event that the average closing price of Common Stock (as
          reported by the Nasdaq National Market) over any 20 consecutive
          trading day period beginning on or after the Effective Date and ending
          on or before the date the Executive's employment under this Agreement
          as President and Chief Executive Officer terminates (the "Average
          Closing Price") equals or exceeds $12.50, such Stock Option shall
          immediately vest as to 50,000 of such shares; (ii) in the event that
          the Average Closing Price during such period equals or exceeds $15.00,
          such Stock Option shall immediately vest as to an additional 50,000 of
          such shares; and (iii) in the event that the Average Closing Price
          during such period equals or exceeds $17.50, the Stock Option shall
          immediately vest in full.

     2.   The first sentence of Section 3(f) of the Employment Agreement is
hereby deleted in its entirety and the following substituted in its place and
stead:

          In the event that, within two (2) years following a Change of Control,
          either (i) the Company (or its successor) terminates the Executive's
          employment without Cause or (ii) the Executive terminates his
          employment for Good Reason (as defined below), then (A) any
          unexercised Company stock options then held by the Executive shall
          immediately vest in full and shall remain exercisable for 90 days
          following such termination, (B) subject to the Executive's execution
          of the Release and the Severance Agreement and to the provisions of
          Section 14 below, the Company shall pay the Executive in one lump sum
          payment an amount equal to 1.5 times his then-current Annual Base
          Salary plus 1.5 times the bonus earned by the Executive in respect of
          the immediately preceding calendar year (or, if the Company's
          Compensation Committee has not yet made a determination regarding





          the amount of such bonus, 1.5 times 60% of the Executive's target
          bonus for such year), and (C) the Executive and his family members
          will be eligible to continue his group health insurance coverage in
          accordance with the federal COBRA law.

     3.   Capitalized terms used herein and without definition shall have their
respective meanings as set forth in the Employment Agreement.

     4.   The Company and the Executive hereby ratify and confirm that all of
the covenants, agreements, terms, conditions and other provisions of the
Employment Agreement are in full force and effect and unmodified, except as
altered by this Amendment.

     5.   This Amendment may be executed in one or more counterparts. A
facsimile or copy of a signature is valid as an original.



                                        2




     IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment as of the date first written above.



                                           LIGHTBRIDGE, INC.



                                           /s/ Kevin C. Melia
                                           ----------------------------------
                                           Kevin C. Melia
                                           Chairman of the Board of Directors



                                           /s/ Robert E. Donahue
                                           ----------------------------------
                                           Robert E. Donahue

EX-10.36

                                                                   Exhibit 10/36

                                                                  EXECUTION COPY

                            ASSET PURCHASE AGREEMENT

                                     BETWEEN

                               LIGHTBRIDGE, INC.,

                                    AS SELLER

                      VESTA CONSUMER CREDIT SERVICES, INC.,

                                    AS BUYER

                                       AND

                                VESTA CORPORATION

                          DATED AS OF FEBRUARY 20, 2007



                                    CONTENTS

                                                                          
1.  Definitions...........................................................     1

2.  Purchase and Sale of Assets...........................................     7
    2.1   Purchase and Sale...............................................     7
    2.2   Excluded Assets.................................................     9
    2.3   Assumption of Liabilities.......................................    10
    2.4   Excluded Liabilities............................................    11
    2.5   Instruments of Sale and Transfer................................    12

3.  Purchase Price........................................................    13
    3.1   Purchase Price..................................................    13
    3.2   Allocation of Purchase Price....................................    13
    3.3   Price for Restrictive Covenants.................................    13
    3.4   Withholding.....................................................    13

4.  Closing...............................................................    13
    4.1   Closing Date....................................................    13
    4.2   Closing Payments and Deliveries.................................    14

5.  Representations and Warranties of Seller..............................    14
    5.1   Organization, Valid Existence, etc..............................    14
    5.2   Corporate Authority.............................................    14
    5.3   No Conflict.....................................................    15
    5.4   Consents and Approvals..........................................    15
    5.5   Financial Information...........................................    15
    5.6   Absence of Certain Changes or Events............................    16
    5.7   Taxes...........................................................    16
    5.8   Property; Assets................................................    18
    5.9   Equipment.......................................................    18
    5.10  Environmental and Safety Matters................................    19
    5.11  Contracts.......................................................    20
    5.12  Claims and Legal Proceedings....................................    21
    5.13  Employees; Labor Matters........................................    21




                                       -i-



                                                                          
    5.14  Intellectual Property...........................................    22
    5.15  Inventory.......................................................    28
    5.16  Permits.........................................................    28
    5.17  Warranties......................................................    28
    5.18  Compliance With Law.............................................    28
    5.19  Insurance.......................................................    29
    5.20  Employee Plans..................................................    29
    5.21  Brokerage.......................................................    30
    5.22  Absence of Questionable Payments................................    30
    5.23  Customers and Suppliers.........................................    30
    5.24  Controls........................................................    31
    5.25  Full Disclosure.................................................    31

6.  Representations and Warranties of Buyer...............................    31
    6.1   Organization, Valid Existence, etc..............................    31
    6.2   Transaction Documents...........................................    31
    6.3   No Conflict.....................................................    32
    6.4   Claims and Local Proceedings....................................    32
    6.5   Brokerage.......................................................    32

7.  Certain Covenants.....................................................    32
    7.1   Access..........................................................    32
    7.2   Assignment of Contracts.........................................    34
    7.3   Conduct of Business Prior to Closing............................    34
    7.4   Employees.......................................................    36
    7.5   Covenants to Satisfy Conditions.................................    37
    7.6   Pre-Closing Accounts Receivable.................................    37

8.  Conditions Precedent to Obligations of Buyer..........................    37
    8.1   No Injunction or Litigation.....................................    37
    8.2   Representations, Warranties and Covenants.......................    37
    8.3   No Material Adverse Effect......................................    38
    8.4   Consents and Approvals..........................................    38
    8.5   Taxes...........................................................    38




                                      -ii-


                                                                          
    8.6   Delivery of Documents and Business Software.....................    39
    8.7   Satisfaction of Conditions......................................    40

9.  Conditions Precedent to Obligations of Seller.........................    40
    9.1   No Injunction or Litigation.....................................    40
    9.2   Representations, Warranties and Covenants.......................    40
    9.3   Delivery of Documents...........................................    40
    9.4   Satisfaction of Conditions......................................    41
    9.5   Consents and Approvals..........................................    41

10. Certain Post-Closing Covenants........................................    41
    10.1  Further Assurances..............................................    41
    10.2  Books and Records...............................................    42
    10.3  Services Requests and Product Orders............................    42
    10.4  Warranty Claims.................................................    42
    10.5  Post-Closing Cooperation........................................    42
    10.6  Payment of Business Excluded Liabilities........................    42
    10.7  Customer Payments...............................................    42
    10.8  Data Management.................................................    43
    10.9  Confidentiality Obligations of Buyer following the Closing......    43

11. Taxes and Costs; Apportionments.......................................    43
    11.1  Transfer Taxes..................................................    43
    11.2  Transaction Costs...............................................    43
    11.3  Apportionments..................................................    44
    11.4  Employment Taxes................................................    44

12. Covenants Not to Compete..............................................    44
    12.1  Covenants.......................................................    44
    12.2  Minor Investments...............................................    45
    12.3  Remedies........................................................    45

13. Survival and Indemnification..........................................    45
    13.1  Survival........................................................    45
    13.2  Indemnification by Seller.......................................    46
    13.3  Indemnification by Buyer........................................    46




                                      -iii-



                                                                          
    13.4  Threshold and Time Limitations..................................    47
    13.5  Procedure.......................................................    47
    13.6  Exclusive Remedy................................................    49
    13.7  Specific Performance............................................    49

14. Termination...........................................................    49
    14.1  Termination.....................................................    49
    14.2  Effect of Termination...........................................    50

15. Miscellaneous.........................................................    50
    15.1  Confidentiality Obligations of Seller Following the Closing.....    50
    15.2  Public Announcements............................................    51
    15.3  Severability....................................................    51
    15.4  Modification and Waiver.........................................    51
    15.5  Notices.........................................................    51
    15.6  Assignment......................................................    53
    15.7  Captions........................................................    53
    15.8  Entire Agreement................................................    53
    15.9  No Third-Party Rights...........................................    53
    15.10 Counterparts....................................................    53
    15.11 Governing Law; Jurisdiction and Venue...........................    54



                             SCHEDULES AND EXHIBITS

Schedule A        Business Software
Schedule B        Other Encumbrances
Schedule C        Products
Schedule 7.4      Offeree Employees

Exhibit  2.5(a)   Bill of Sale and Assignment
Exhibit  2.5(b)   Assumption Agreement
Exhibit  8.6(c)   Lease Assignment and Assumption
Exhibit  8.6(d)   Assignment of Trademarks
Exhibit  8.6(e)   Assignment of Patents
Exhibit  8.6(i)   Transition Services Agreement

Disclosure Memorandum


                                      -iv-


                            ASSET PURCHASE AGREEMENT

     This Asset Purchase Agreement (this "AGREEMENT") is made as of February 20,
2007, by and among Lightbridge, Inc., a Delaware corporation ("SELLER"), Vesta
Consumer Credit Services, Inc. ("BUYER") and Vesta Corporation.

                                    RECITALS

     A. Seller desires and intends to sell certain of its assets used in or
related to the Business (as defined below) to Buyer, at the price and on the
terms and conditions herein set forth.

     B. Buyer desires and intends to purchase such assets and to assume certain
of the operating liabilities relating to the Business, at the price and on the
terms and conditions herein set forth.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, the parties hereby agree as follows:

1.   DEFINITIONS

     As used in this Agreement, the following capitalized terms shall have the
meanings set forth below:

     "AFFILIATE": means with respect to any entity, any other Person or other
entity which, directly or indirectly, controls or is controlled by or is under
common control with such entity. "Control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.

     "AFFILIATED GROUP": As defined in Section 5.7(a).

     "AGREEMENT": This Agreement and all Schedules and Exhibits hereto,
including, without limitation, the Disclosure Memorandum.

     "ASSETS": As defined in Section 2.1.

     "ASSUMED LIABILITIES": As defined in Section 2.3.

     "ASSUMPTION AGREEMENT": As defined in Section 2.5.

     "BILL OF SALE": As defined in Section 2.5.


                                        1



     "BUSINESS": The business, operations and activities of Seller relating to
its Telecom Decisioning Services business as conducted on the Closing Date.

     "BUSINESS DAY": Any day that is not a Saturday, a Sunday or any other day
on which banks generally are required or authorized to be closed in Portland,
Oregon.

     "BUSINESS SOFTWARE": Seller's proprietary software (in source code and
object code format) used in the Business, which software is identified on
SCHEDULE A.

     "CLAIM": Any claim, demand, cause of action, suit, proceeding, arbitration,
hearing or investigation.

     "CLOSING": The consummation of the purchase and sale of the Assets under
this Agreement.

     "CLOSING DATE": The date upon which the Closing becomes effective.

     "CODE": The Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder, as in effect from time to time.

     "CONTRACT": Any contract, agreement, lease, license, grant of immunity from
suit, commitment, arrangement, purchase or sale order, or undertaking, whether
written or oral.

     "DISCLOSURE MEMORANDUM": That certain Disclosure Memorandum dated as of the
date hereof and delivered by Seller to Buyer on the date hereof in connection
with this Agreement.

     "EMPLOYEE BENEFIT PLAN": Any employee benefit plan, program, policy,
practice, contract, agreement, fund or other arrangement (including any
"employee benefit plan," as defined in Section 3(3) of ERISA) or any employment,
consulting or personal services contract, whether written or oral or funded or
unfunded, (a) sponsored, maintained or contributed to by Seller or to which
Seller is a party, (b) covering or benefiting any current or former officer,
employee, agent, director or independent contractor of Seller (or any dependent
or beneficiary of any such individual), or (c) with respect to which Seller has
(or could have) any obligation or liability, in each case that relates to the
Business.

     "ENCUMBRANCE": Any security interest, mortgage, lien, charge, option,
easement, license, adverse claim or restriction of any kind, including, without
limitation, any restriction on the use, transfer, voting, receipt of income or
other exercise of any attributes of ownership. For avoidance of doubt, the term
"restriction on the use" or any similar expression does not mean or refer to
intellectual property rights of another the violation of which constitutes or
could give rise to a claim of infringement.

     "ENVIRONMENT": The air, ground (surface and subsurface) or water (surface
and groundwater), or the workplace.


                                        2



     "ENVIRONMENTAL AND SAFETY LAW": Any federal, state, local or other Law
pertaining to public or worker health, welfare or safety or the Environment
(including, without limitation, those Laws regulating the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of Hazardous Materials), including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. Section 9601 et seq., as amended by the Superfund Amendments and
Reauthorization Act of 1986; the Resource Conservation and Recovery Act of 1976,
as amended, 42 U.S.C. Section 6901 et seq.; the Federal Clean Air Act, 42 U.S.C.
Section 7401-7626; the Federal Water Pollution Control Act and Federal Clean
Water Act of 1977, as amended, 33 U.S.C. Section 1251 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 135 et seq.; the
Federal Environmental Pesticide Control Act, the Federal Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Federal Safe Drinking Water
Act, 42 U.S.C. Section 300(f) et seq.; the Emergency Planning and Community
Right-To-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Occupational
Safety and Health Act of 1970, 29 U.S.C. Section 651 et seq.; and any applicable
Judgments issued by a court of competent jurisdiction in connection with any of
the foregoing.

     "ERISA": The Employee Retirement Income Security Act of 1974, as amended,
and all regulations and rulings promulgated thereunder, as in effect from time
to time.

     "ERISA AFFILIATE": Any corporation, partnership, limited liability company,
sole proprietorship, trade, business or other entity or organization that,
together with the Company, is or was treated as a single employer under Section
414(b), (c), (m) or (o) of the Code.

     "EXCLUDED ASSETS": As defined in Section 2.2.

     "EXCLUDED CONTRACTS": As defined in Section 2.2.4.

     "EXCLUDED LIABILITIES": As defined in Section 2.4.

     "FACILITIES": All structures, improvements and fixtures located on the
Leased Real Property.

     "GAAP": United States generally accepted accounting principles.

     "GOVERNMENTAL BODY": Any federal, state or other court or governmental
body, any subdivision, agency, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory or taxing authority
thereunder, domestic or foreign.

     "HAZARDOUS MATERIALS": Any hazardous or toxic substances, materials and
wastes, including, without limitation, those substances included in the
definitions of "Hazardous Substances," "Hazardous Materials," "Toxic
Substances," "Hazardous Waste," "Solid Waste," "Pollutant," or "Contaminant" in
any Environmental and Safety Law or the Hazardous Material Transportation Act,
49 U.S.C. Section 1801 et seq., or in the regulations promulgated


                                        3



pursuant to those Laws; those substances listed in the United States Department
of Transportation Table (49 C.F.R. Section 172.101 and any amendments thereto);
such other substances, materials and wastes which are regulated or are
classified as hazardous or toxic by any Governmental Body; and asbestos,
polychlorinated biphenyls and oil and petroleum products or by-products.

     "INDEMNIFIED PARTY": As defined in Section 13.5.

     "INDEMNIFYING PARTY": As defined in Section 13.5.

     "INTELLECTUAL PROPERTY RIGHTS": All worldwide intellectual property rights
of any kind or nature, including without limitation all domestic and foreign
trade names, trademarks (including common-law trademarks), service marks, domain
names, art work, packaging, plates, emblems, logos, insignia, works of
authorship, and copyrights, and any related registrations and applications, and
all goodwill associated therewith, all domestic and foreign patents and patent
applications, all technology, know-how, show-how, trade secrets, processes,
formulae, drawings, inventions, methods, designs, schematics, specifications,
algorithms, systems, forms, technical and user manuals, data, databases and
database rights, compilations, computer programs and software, object and source
code, software and data licenses, firmware, applications, tools and toolsets,
interfaces, product information and development work-in-progress and all
documentary evidence of any of the foregoing, and versions, derivatives,
enhancements and improvements of any of the foregoing, and all copies and
tangible embodiments thereof (in whatever form or medium), together with all
statutory, contractual and other claims, demands and rights for royalties, fees
or other income from any of the foregoing, and all rights to sue for
infringement or violation of any of the foregoing, and all proceeds thereof.

     "JUDGMENT": Any judgment, order, award, writ, injunction, ruling or decree
of any Governmental Body or arbitrator.

     "KNOWLEDGE": With reference to (a) Seller, the actual knowledge of the
directors and executive officers of Seller and Thomas Tivnan, Chris LeBlanc and
Kate Cosentino, after due inquiry with respect to the particular item or topic;
and (b) Buyer, the actual knowledge of the directors and officers of Buyer,
after due inquiry with respect to the particular item or topic.

     "LAW" shall mean all applicable provisions of all constitutions, treaties,
statutes, laws (including common laws), rules, regulations, ordinances, codes or
orders of any Governmental Body.

     "LEASED REAL PROPERTY": The real property described in Section 2.1.6.

     "LOSS": Any loss, damage, Judgment, debt, liability, obligation, fine,
penalty, cost or expense (including, without limitation, any legal and
accounting fees or expenses).


                                        4



     "MATERIAL ADVERSE EFFECT": With respect to any event or circumstance
(either individually or in the aggregate with all other such events and
circumstances), an effect caused thereby or resulting therefrom that would be
materially adverse as to, or in respect of:

     (a) the Assets, or the Assumed Liabilities, in each case taken as a whole;

     (b) the business, operations, profits, assets, liabilities, or condition
(financial or other) of the Business;

     (c) the ability of Seller to perform its obligations under this Agreement
or any Transaction Document; or

     (d) the validity or enforceability of this Agreement or any Transaction
Document.

The expiration or termination of any customer contract or reduction in goods or
services obtained by a customer from Seller shall not be deemed a Material
Adverse Effect.

     "OFFEREE EMPLOYEES": As defined in Section 7.4.

     "PERMIT": Any permit, license, approval, certification, endorsement or
qualification of any Governmental Body or any other Person (including, without
limitation, any customer).

     "PERMITTED ENCUMBRANCES": (a) inchoate workmen's, repairmen's or other
similar Encumbrances arising or incurred in the ordinary course of business
consistent with past practices in respect of obligations which are not overdue
and that constitute Assumed Liabilities; (b) recorded easements; (c) building
codes, zoning ordinances, planning restrictions and other Laws or determinations
of any Governmental Body heretofore, now or hereafter enacted, made or issued by
any such authority affecting the property; and (d) any other Encumbrances set
forth on SCHEDULE B to this Agreement.

     "PERSON": an individual, partnership, corporation, limited liability
company, trust, joint venture, unincorporated organization or a government
agency or subdivision thereof.

     "PERSONAL PROPERTY": As defined in Section 5.8.

     "PRODUCTS": Any and all products or services relating to the Business that
Seller now licenses, provides or sells or is developing, including, without
limitation, those listed in SCHEDULE C hereto.

     "PURCHASE PRICE": As defined in Section 3.1.

     "REAL PROPERTY LEASE": The lease relating to the real property described in
SCHEDULE 2.1.6 of the Disclosure Memorandum.

     "REMEDIAL ACTION": Any investigation, site assessment, monitoring or other
evaluation of conditions relating to the Environment at a site, or any clean-up,
treatment,


                                        5



containment, removal, restoration, corrective action or remedial work
involving any Hazardous Materials.

     "RESTRICTED ACTIVITIES": As defined in Section 12.1.

     "SELLER IP RIGHTS": As defined in Section 2.1.1.

     "SELLER-LICENSED IP RIGHTS": As defined in Section 2.1.1.

     "SELLER-OWNED IP RIGHTS": As defined in Section 2.1.1.

     "SELLER SOURCE CODE": As defined in Section 5.14(i).

     "TAX" or "TAXES": Any and all (i) taxes, charges, fees, levies or other
assessments, including, without limitation, income, excise, gross receipts,
personal property, real property, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, severance, stamp,
occupation, windfall profits, social security and unemployment or other taxes
imposed by the United States or any agency or instrumentality thereof, any
state, county, local or foreign government, or any agency or instrumentality
thereof, and any interest or fines, and any and all penalties or additions
relating to such taxes, charges, fees, levies or other assessments or the
failure to comply with any requirement imposed with respect to any Tax Returns,
(ii) liability in respect of any items described in clause (i) payable by reason
of being a member of an affiliated, combined, unitary, consolidated, fiscal
unity or similar group for any period, and (iii) liability in respect of any
items described in clause (i) or (ii) payable as a result of any express or
implied obligation to indemnify any other Person with respect to such amount by
reason of contract, assumption, transferee liability, operation of law or
otherwise, including any liability for Taxes of a predecessor or transferor
entity and (iv) any and all interest, penalties, additions to tax and additional
amounts imposed in connection with or with respect to any amounts described in
(i), (ii) or (iii).

     "TAX RETURNS": As defined in Section 5.7(a).

     "THIRD-PARTY CLAIM": As defined in Section 13.5.

     "THIRD PARTY PRODUCT TECHNOLOGY": As defined in Section 5.14(e).

     "THRESHOLD": As defined in Section 13.4.

     "TRANSACTION DOCUMENTS": The agreements, documents, instruments and
certificates delivered at the Closing pursuant to Sections 8.2(c), 8.3, 8.6,
9.2(c) and 9.3.

     "TRANSFER": As defined in Section 2.1.


                                        6



2.   PURCHASE AND SALE OF ASSETS

     2.1  PURCHASE AND SALE

     Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall sell, transfer, convey, assign and deliver (collectively,
"TRANSFER"), or cause to be transferred, to Buyer, free and clear of all
Encumbrances other than Permitted Encumbrances, and Buyer shall purchase and
acquire, all of Seller's right, title and interest in and to all of the
following assets and rights of Seller relating to the Business (whether tangible
or intangible, real, personal or mixed, wherever located and whether or not
reflected on the books and records of Seller), except for the Excluded Assets
(collectively, the "ASSETS"):

          2.1.1 INTELLECTUAL PROPERTY

     All right, title and interest of Seller in, to and under those licenses,
sublicenses or similar agreements described and set forth in Part II of SCHEDULE
2.1.1 to the Disclosure Memorandum providing Seller any right or concession to
use any information, intellectual property or Intellectual Property Rights as of
the Closing (the "SELLER-LICENSED IP RIGHTS"), and all information and
intellectual property (whether or not protectible by patent, trademark,
copyright or trade secret rights) and Intellectual Property Rights owned by
Seller as of the Closing to the extent used primarily in the Business as of the
Closing, including, without limitation, the Seller-owned IP described in Part I
of SCHEDULE 2.1.1 to the Disclosure Memorandum (the "SELLER-OWNED IP RIGHTS"
and, together with the Seller-Licensed IP Rights, collectively the "SELLER IP
RIGHTS").

          2.1.2 EQUIPMENT

     All machinery, equipment, furniture, computer hardware, motor vehicles,
tooling, improvements and other tangible personal property owned by Seller as of
the Closing described in SCHEDULE 2.1.2 to the Disclosure Memorandum, and all
rights to the warranties received from the manufacturers and distributors of all
such personal property and fixtures and any related claims, credits, rights of
recovery and setoffs with respect to such personal property and fixtures.

          2.1.3 PERSONAL PROPERTY LEASES

     All of Seller's right, title and interest in, to and under the leases and
rental agreements in respect of equipment or other tangible personal property
used in the operation of the Business as of the Closing described in SCHEDULE
2.1.3 to the Disclosure Memorandum.

          2.1.4 PERMITS

     All Permits relating to the Assets or Seller's operation of the Business as
of the Closing, to the extent actually assignable or transferable, described and
set forth in SCHEDULE 2.1.4 to the Disclosure Memorandum.


                                        7



          2.1.5 CONTRACTS

     All of Seller's right, title and interest in, to and under all Contracts
relating to the Assets or Seller's operation of the Business as of the Closing
and described in SCHEDULE 2.1.5 to the Disclosure Memorandum.

          2.1.6 LEASED REAL PROPERTY

     All of Seller's rights under the Real Property Lease for the real property
described in SCHEDULE 2.1.6 to the Disclosure Memorandum (the "LEASED REAL
PROPERTY") and all of Seller's right, title and interest in and to the
Facilities.

          2.1.7 BOOKS AND RECORDS

     All of Seller's books and records (including, without limitation, all
discs, tapes and other media-storage data and information) relating to the
Assets, the Assumed Liabilities or Seller's operation of the Business as of the
Closing, provided that the Seller shall be expressly entitled to retain, in both
written and electronic form, one copy of such books and records as may be
necessary solely for the purposes of defending any legal claims made against it,
preparing its financial statements and tax returns, and otherwise complying with
law or Seller's contractual obligations (and Seller shall not use or cause such
books and records to be used for any other purpose and shall not transfer any of
such books and records to any third party, other than transfers to an offsite
data storage facility, other than a purchaser of all or substantially all its
assets that agrees to be bound by the foregoing terms).

          2.1.8 OTHER RECORDS, MANUALS AND DOCUMENTS

     All of Seller's mailing lists, customer lists, supplier lists, vendor data,
marketing information and procedures, files (including, without limitation,
sales and customer files), advertising and promotional materials, current
product material, equipment maintenance records, warranty information, standard
forms of documents, manuals (including, without limitation, manuals of
operations or business procedures and other similar procedures), and all other
information of Seller relating to the Assets, the Assumed Liabilities or
Seller's operation of the Business as of the Closing.

          2.1.9 PRODUCTS

     All of Seller's rights in and to the Products, including, without
limitation, the sole and exclusive right to make, use and sell the Products and
derivatives based on the Products.

          2.1.10 DOMAIN NAMES

     All Seller's domain names set forth in Section A of SCHEDULE 2.1.10 of the
Disclosure Memorandum and the related rights set forth in Section B of SCHEDULE
2.1.10 of the Disclosure Memorandum.


                                        8



          2.1.11 TELEPHONE NUMBERS

     All telephone numbers used primarily in connection with the Business and
listed on SCHEDULE 2.1.11 to the Disclosure Memorandum.

     2.2  EXCLUDED ASSETS

     Anything in Section 2.1 to the contrary notwithstanding, Seller and Buyer
expressly understand and agree that Seller is not transferring to Buyer pursuant
to this Agreement, any Transaction Document or otherwise, any assets not
included in the Assets, including, without limitation, any of the following
assets or rights of Seller (the "EXCLUDED ASSETS"):

          2.2.1 CASH AND CASH EQUIVALENTS AND CURRENT ASSETS

     All cash, cash equivalents, short term investments, accounts and accounts
receivable of Seller as of the Closing, whether or not relating to the Business.

          2.2.2 TAX REFUNDS

     Any rights to refunds of Taxes paid with respect to the Business or the
ownership, operation or use of the Assets, on or prior to the Closing.

          2.2.3 EMPLOYEE BENEFIT PLAN ASSETS

     Assets of Seller's Employee Benefit Plans relating to employees engaged in
the Business or otherwise.

          2.2.4 CONTRACT RIGHTS

     All of Seller's right, title and interest in, to and under all Contracts
described in SCHEDULE 2.2.4 to the Disclosure Memorandum (the "EXCLUDED
CONTRACTS").

          2.2.5 REAL PROPERTY

     All real property owned by Seller and all rights of Seller under leases for
real property other than the Leased Real Property, and all of Seller's right,
title and interest in and to structures, improvements and fixtures located on
such owned real property and such other leased real property.


                                        9



          2.2.6 ENTERPRISE ASSETS AND OTHER EXCLUDED ASSETS

     All of Seller's right, title and interest in its Oracle Financial Systems,
Hyperian, Great Plains and Lotus Notes databases and enterprise software
systems, Seller's name and marks and the names and marks of Seller's
subsidiaries, Seller's and Seller's subsidiaries' website and domain names
(other than those listed on SCHEDULE 2.1.10 of the Disclosure Memorandum), all
assets and rights of Seller used in Seller's businesses other than the Business
and not primarily used in the Business, and those assets and rights of Seller
used in the Business listed on SCHEDULE 2.2.6 of the Disclosure Memorandum.

     2.3  ASSUMPTION OF LIABILITIES

     Upon the terms and subject to the conditions of this Agreement, Buyer
agrees, effective at the time of Closing, to assume, to the extent not paid,
performed or discharged on or prior to the Closing, the following obligations
and liabilities of Seller (the "ASSUMED LIABILITIES") to the extent related to
the Business and not constituting Excluded Liabilities:

          2.3.1 CONTRACT RIGHTS; REAL PROPERTY LEASE

     All Seller's liabilities and obligations arising after the Closing under
the Contracts and the Real Property Lease included in the Assets; provided,
however, that Buyer shall not succeed to or assume, and Seller shall be
responsible for, any liability or obligation arising out of any breach by Seller
of any such Contract or Real Property Lease or any failure by Seller to
discharge or perform any liability or obligation arising on or prior to the
Closing under any such Contract or Real Property Lease;

          2.3.2 PERMITS

     All Seller's liabilities and obligations arising after the Closing under
the Permits transferred to Buyer;

          2.3.3 INTELLECTUAL PROPERTY

     All Seller's liabilities and obligations, if any, arising after the Closing
with respect to Seller's patents, trade names, trademarks, service marks,
copyrights and Seller IP Rights included in the Assets; provided, however, that
Buyer shall not succeed to or assume, and Seller shall be responsible for, any
liability or obligation arising out of any infringement or alleged infringement
relating to such items of Intellectual Property on or prior to the Closing; and


                                       10



          2.3.4 PROFILE

     The liabilities and obligations arising after the Closing described in
SCHEDULE 2.3.4 of the Disclosure Memorandum and relating to the maintenance and
operation of the Profile database.

     2.4  EXCLUDED LIABILITIES

     Buyer shall not assume any obligations or liabilities other than the
Assumed Liabilities, which other obligations and liabilities shall remain
obligations and liabilities of Seller and which include, without limitation, the
following (all obligations or liabilities not assumed by Buyer are called the
"EXCLUDED LIABILITIES"):

          2.4.1 TAXES

     Any and all liabilities of Seller for Taxes and liabilities for Taxes with
respect to the Business, or the ownership, operation or use of the Assets, on or
prior to the Closing.

          2.4.2 LITIGATION

     Any claim, Judgment, penalty, settlement agreement or other obligation to
pay in respect of any Claim that is pending or, to the Knowledge of the Seller,
threatened on or prior to the Closing, including, without limitation, those
listed in SCHEDULE 5.12 to the Disclosure Memorandum.

          2.4.3 CLAIMS

     All claims, liabilities or other obligations that relate to injuries,
actions, omissions, conditions or events that occurred or existed on or prior to
the Closing, whether based on any act or omission of Seller, in connection with
the ownership or use of the Assets or the Assumed Liabilities or the operation
of the Business, including, without limitation, claims based on defective
products or services or other claims relating to products made, installed,
shipped or sold or services rendered by Seller, or missed delivery or
installation dates, on or prior to the Closing, including, without limitation,
any warranty claims.

          2.4.4 ENVIRONMENTAL LIABILITY

     All claims and liabilities arising out of or relating to (a) the treatment,
storage or disposal on or prior to the Closing of Hazardous Materials by Seller
or any other Person (including, without limitation, any previous owner, lessor
or sublessor) on or at the Leased Real Property or any other real property
previously owned, leased, subleased or used by Seller in the operation of the
Business or otherwise; (b) releases of Hazardous Materials on, at or from any
assets or properties (including, without limitation, the Leased Real Property)
owned, leased, subleased or used by Seller in the operation of the Business or
otherwise; (c) generation or transportation of Hazardous Materials by or on
behalf of Seller in the


                                       11



operation of the Business or otherwise; and (d) releases of Hazardous Materials
by any Person (including, without limitation, any previous owner, lessee or
sublessee) on or from the Leased Real Property prior to Seller's ownership or
use thereof; or (e) the violation by Seller of or the noncompliance by Seller
with any applicable Environmental and Safety Laws.

          2.4.5 SEVERANCE COSTS

     All severance obligations and other costs of terminating employees wherever
located resulting from any termination or cessation (or deemed termination or
cessation) by the Seller of employment occurring on or prior to or in connection
with the Closing (including, without limitation, any such termination or
cessation occurring in connection with the transactions contemplated by this
Agreement), from whatever source such obligations and costs arise, including,
without limitation, contractual obligations, notices to employees, employment
manuals, course of dealings, past practices, obligations arising under Law, or
otherwise.

          2.4.6 EMPLOYEE EXPENSES

     All liabilities and obligations with respect to either the continuation or
the termination by Seller of any Employee Benefit Plan for the benefit of
Seller's employees engaged in the Business or otherwise, and all liabilities
with respect to accrued payroll, workers compensation liability, vacation or
sick time liability, fringe benefits and other employee benefits with respect to
or that relate to periods of employment by Seller on or prior to the Closing,
and all liabilities and obligations under retention agreements between Seller
and any of its employees.

          2.4.7 OTHER CURRENT LIABILITIES

     All other current liabilities of Seller.

     2.5  INSTRUMENTS OF SALE AND TRANSFER

     On or prior to the Closing Date, Seller shall deliver to Buyer and Buyer
shall deliver to Seller, as the case may be, such instruments of sale and
assignment as shall, in the reasonable judgment of Buyer and Seller, be
effective to vest in Buyer on the Closing Date all of Seller's right, title and
interest in and to the Assets and to evidence the assumption of the Assumed
Liabilities by Buyer, including, without limitation, a Bill of Sale and
Assignment substantially in the form of EXHIBIT 2.5(A) (the "BILL OF SALE") and
an Assumption Agreement substantially in the form of EXHIBIT 2.5(B) (the
"ASSUMPTION AGREEMENT"). Seller shall take all reasonable additional steps as
may be necessary to put Buyer in possession and operating control of the Assets
at the Closing, and Buyer shall take all reasonable additional steps as may be
necessary for it to assume the Assumed Liabilities at the Closing.


                                       12



3.   PURCHASE PRICE

     3.1  PURCHASE PRICE

     Subject to Section 11.3, the aggregate purchase price for the Assets (the
"PURCHASE PRICE") is $2,500,000. The Purchase Price is payable as provided in
Sections 4.2(b).

     3.2 ALLOCATION OF PURCHASE PRICE

     The parties shall cooperate in determining, prior to February 28, 2007, the
fair market values of the Assets as of the Closing Date and on the allocation of
the Purchase Price, together with the Assumed Liabilities, for federal, state,
local and other Tax purposes in accordance with Section 1060 of the Code. Each
party agrees to report the federal, state, local and other Tax consequences of
the transactions contemplated by this Agreement and the Transaction Documents in
a manner consistent with such allocation and shall not take any position
inconsistent therewith upon examination of any Tax return, in any refund claim,
or in any litigation, investigation or otherwise. Any subsequent adjustments to
the Purchase Price in accordance with the terms of Section 13 of this Agreement
shall be reflected in such allocation in a manner consistent with Treasury
Regulation Section 1.1060-1(e). Each party shall cooperate with the other party
in the filing of Form 8594 with the U.S. Internal Revenue Service.

     3.3  PRICE FOR RESTRICTIVE COVENANTS

     Buyer and Seller agree that $100,000 of the Purchase Price shall be
allocated to the covenants set forth in Section 12.

     3.4  WITHHOLDING

     Buyer shall be entitled to deduct and withhold from any amounts payable
under this Agreement such amounts as may be required to be deducted or withheld
therefrom under applicable Law. To the extent that any amounts are so deducted
and withheld, those amounts shall be treated as having been paid to the Persons
to whom such amounts would otherwise have been paid.

4.   CLOSING

     4.1  CLOSING DATE

     Subject to the terms and conditions of this Agreement, the Closing shall
take place at the offices of Perkins Coie LLP, 1120 NW Couch St., Tenth Floor,
Portland, at 10:00 a.m., local time, on February 20, 2007, or at such other
location or time or on such other date as the parties may agree, and shall be
effective as of 11:59 p.m. of the Closing Date.


                                       13



     4.2  CLOSING PAYMENTS AND DELIVERIES

     (a)  At the Closing, Seller shall deliver or cause to be delivered to
          Buyer:

          (i) a receipt for the Purchase Price; and

          (ii) the certificates, opinion and other documents and items required
     to be delivered to Buyer pursuant to Section 8.

     (b)  At the Closing, Buyer shall deliver to Seller:

          (i) the Purchase Price, by wire transfer in immediately available
     funds to an account designated by Seller; and

          (ii) the certificates, opinion and other documents required to be
     delivered to Seller pursuant to Section 9.

5.   REPRESENTATIONS AND WARRANTIES OF SELLER

     To induce Buyer to enter into and perform this Agreement, Seller represents
and warrants to Buyer (which representations and warranties shall survive the
Closing as provided in Section 13) as follows in this Section 5, except as set
forth in the Disclosure Memorandum, dated as of the date of this Agreement:

     5.1  ORGANIZATION, VALID EXISTENCE, ETC.

     Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Seller has all requisite
corporate power and authority to own, operate and lease the Assets and to carry
on the Business as now being conducted. Seller is duly qualified or has been
duly licensed, and is authorized to do business and is in good standing in each
state in the United States and in each other jurisdiction (each such state and
jurisdiction is listed in SCHEDULE 5.1 to the Disclosure Memorandum) where it is
required due to (a) the ownership or lease of real or personal property for use
in the operation of the Business (other than the lease of real property other
than the Leased Real Property), (b) the nature of the business conducted by
Seller or (c) otherwise, except where the failure to be so qualified, licensed,
authorized or in good standing could not reasonably be expected to have a
Material Adverse Effect.

     5.2  CORPORATE AUTHORITY

     Seller has full corporate power and authority to execute and deliver this
Agreement and the Transaction Documents to which it is a party and perform its
obligations hereunder and thereunder. The execution and delivery by Seller of
this Agreement and the Transaction Documents to which it is a party, the
performance by Seller of its obligations hereunder and thereunder and the
consummation by Seller of the transactions contemplated hereby and


                                       14



thereby have been duly authorized by all necessary corporate action. The
stockholders of Seller are not required to approve this Agreement or the
transactions contemplated hereby. This Agreement constitutes a valid and binding
obligation of Seller, enforceable against Seller in accordance with its terms,
and the Transaction Documents to which Seller is a party, when executed and
delivered by Seller, will constitute valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except, in
each such case, as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other similar laws relating to or limiting
creditors' rights generally and by equitable principles.

     5.3  NO CONFLICT

     Except as set forth in SCHEDULE 5.3 of the Disclosure Memorandum, the
execution, delivery and performance of this Agreement and the Transaction
Documents by Seller and the consummation of the transactions contemplated hereby
and thereby do not and will not (a) violate, conflict with, or result in any
breach of, any provision of Seller's certificate of incorporation or bylaws (or
similar charter documents); or (b) violate, conflict with, result in any breach
of, or constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under any Contract or Judgment to which Seller
is a party or by which it is bound or which relates to the Assets, the Assumed
Liabilities or the Business; or (c) result in the creation of any Encumbrance on
any of the Assets; or (d) violate any applicable Law; or (e) violate or result
in the suspension, revocation, modification, invalidity or limitation of any
Permits relating to the Assets or the Business; or (f) give any party with
rights under any Contract, Judgment or other restriction to which Seller is a
party or by which it is bound or which relates to the Assets, the Assumed
Liabilities or the Business, the right to terminate, modify or accelerate any
rights, obligations or performance under such Contract, Judgment or restriction.

     5.4  CONSENTS AND APPROVALS

     Except as set forth in SCHEDULE 5.4 to the Disclosure Memorandum, (a) no
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Body is required for the execution, delivery and
performance by Seller of this Agreement and the Transaction Documents to which
it is or will be a party and for the consummation by Seller of the transactions
contemplated hereby and thereby and (b) no consent, approval or authorization of
any third party is required for the execution, delivery and performance by
Seller of this Agreement and the Transaction Documents to which it is or will be
a party and the consummation by Seller of the transactions contemplated hereby
and thereby.

     5.5  FINANCIAL INFORMATION

     With respect to historical revenue and volume information included as Item
9.A.1 in Seller's electronic data room and relating to the Business, such
historical revenue and volume information is true and correct in all material
respects.


                                       15


     5.6  ABSENCE OF CERTAIN CHANGES OR EVENTS

     Except as set forth in SCHEDULE 5.6 to the Disclosure Memorandum, since
January 1, 2007, and through the Closing Date, Seller has conducted the Business
in the ordinary course consistent with Seller's past practice, and has not, with
respect to the Assets, the Assumed Liabilities or the Business and without the
prior written consent of Buyer:

     (a) taken any action or entered into any transaction, Contract or
commitment (other than this Agreement and matters related thereto) not in the
ordinary course of business;

     (b) cancelled, compromised, waived or released any valuable right or claim
not in the ordinary course of business;

     (c) disposed of any assets or made any capital expenditures, except in the
ordinary course of business, or created or suffered to be created any
Encumbrance on any assets;

     (d) granted any license or sublicense of any rights under or with respect
to any Intellectual Property not in the ordinary course of business;

     (e) delayed or postponed payment of any material accounts payable or of
other material liabilities, or accelerated the collection of a material accounts
receivable, in each case outside the ordinary course of business;

     (f) changed the compensation, benefits or terms of employment provided to
any of the Business' officers, employees or consultants, except for any changes
required by Law;

     (g) entered into any transaction, Contract or commitment, suffered the
occurrence of any event or events or experienced any change that, in the
aggregate, has (i) interfered with the normal and usual operations of the
Business or its prospects or (ii) resulted in a Material Adverse Effect or could
reasonably be expected to result in a Material Adverse Effect;

     (h) modified or amended any Contract included in the Assets;

     (i) changed any method of accounting or accounting practice employed by
Seller and affecting the Business, except for any change after the date hereof
required by reason of a concurrent change in GAAP;

     (j) increased any customer discounts or changed its pricing terms; or

     (k) agreed or committed to do any of the things or take any of the actions
described in this Section 5.6.

     5.7  TAXES

     (a) Seller, and any affiliated group within the meaning of Section 1504 of
the Code (or comparable provision of state, local or foreign Law) ("AFFILIATED
GROUP") of which


                                       16



Seller is or has been a member (but only for the taxable period during which
Seller has been a member thereof), (i) has filed or caused to be filed all
federal, state, local and foreign Tax returns, notices, reports, statements or
other information or documentation, including any schedule or attachment
thereto, and any amendment thereof ("TAX RETURNS"), required to be filed by or
with respect to it under applicable federal, state, local or foreign Law, and
(ii) has timely paid or caused to be paid in full all Taxes owed (whether or not
shown or required to be shown on such Tax Returns). All such Tax Returns are
(and were at the time they were filed) true, correct and complete in all
material respects.

     (b) There are no liens for Taxes on any of the Assets other than liens for
Taxes not yet due and payable. Seller has no liability for any Taxes with
respect to the Business, or the ownership, operation or use of the Assets,
except Taxes that, if not timely paid by Seller, could not result in (i) an
Encumbrance on any of the Assets or (ii) the commencement of a Claim against
Buyer.

     (c) All deficiencies asserted or assessments made by any Tax authority
against Seller, and any Affiliated Group of which Seller is or has been a member
(but only for the taxable period during which Seller has been a member thereof),
have been fully paid, and there are no audits, investigations or examinations by
any Tax authority with respect to Taxes relating to the Business or the assets
in progress, pending or, to the Knowledge of Seller, threatened. Seller
currently is not the beneficiary of any extension of time within which to file
any Tax Return, and has not waived any statute of limitation with respect to any
Tax or agreed to any extension of time with respect to a Tax assessment or
deficiency.

     (d) In respect of the Business, no claim has ever been made by a Tax
authority in any jurisdiction where Seller does not file Tax Returns that Seller
is or may be subject to taxation by that jurisdiction. Seller is not a party to
any Tax allocation, sharing, indemnity or similar agreement. Seller (i) has not
been a member of an Affiliated Group (other than the Affiliated Group of which
Seller is the common parent), and (ii) has no liability for the Taxes of any
Person under Treasury Regulation Section 1.1502-6 (or any corresponding
provision of state, local or foreign Law), or as a transferee or successor, or
by contract, or otherwise.

     (e) Seller has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, stockholder,
independent contractor, creditor or other third party. None of the Assumed
Liabilities is an obligation to make a payment that may not be deductible under
Section 280G of the Code.

     (f) Seller has made available to Buyer copies of all income and other
material Tax Returns filed by Seller with respect to Taxes relating to the
Business or the Assets, and all audit or examination reports, statements of
deficiencies and closing or other agreements relating thereto, with respect to
each of Seller's taxable years ended on or after December 31, 2003.


                                       17



     5.8  PROPERTY; ASSETS

     (a) SCHEDULE 2.1.2 to the Disclosure Memorandum is a complete and accurate
list of all personal property (the "PERSONAL PROPERTY") to be transferred by
Seller to Buyer. Seller has furnished to Buyer true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
of any portion of the Leased Real Property and the Personal Property.

     (b) Except as set forth in SCHEDULE 5.8(B) to the Disclosure Memorandum,
Seller has good and marketable title to all Personal Property owned by it, and
valid leasehold interests in the Leased Real Property, free and clear of all
Encumbrances except Permitted Encumbrances.

     (c) Except as set forth in SCHEDULE 5.8(C) to the Disclosure Memorandum, to
Seller's Knowledge, there are no applicable adverse zoning, building or land use
codes or rules, ordinances, regulations or other restrictions relating to zoning
or land use that currently or may prospectively prevent, or cause the imposition
of material fines or penalties as the result of, the use of all or any material
portion of the Leased Real Property for the conduct thereon of the Business as
presently conducted.

     (d) The Assets to be transferred to Buyer pursuant to this Agreement and
the Transaction Documents include all the assets and rights used by Seller, and
sufficient to permit Buyer, to operate the Assets and the Business in
substantially the same manner as currently operated by Seller, other than (i)
for leased real property other than the Leased Real Property, (ii) the assets
and rights of the Seller listed on SCHEDULES 2.2.4 AND 2.2.6 of the Disclosure
Memorandum, and (iii) hardware and "off-the-shelf" software maintenance and
support services as provided in the Transition Services Agreement.

     (e) Each lease of any portion of the Leased Real Property to which Seller
is a party is, to Seller's Knowledge, valid, subsisting and in full force and
effect, and Seller has performed in all material respects the obligations
imposed on it thereunder, and neither Seller nor, to the Knowledge of Seller,
any other party thereto is in default thereunder, nor is there any event that
with notice or lapse of time, or both, would constitute a default thereunder by
Seller or, to the Knowledge of Seller, any other party thereto. Seller has not
received notice, and Seller has no Knowledge, that any party to any such lease
intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or other right thereunder.

     (f) Seller has no Knowledge of any material physical defect in the Leased
Real Property or the Facilities.

     5.9  EQUIPMENT

     The machinery, equipment, furniture and other physical assets included in
the Assets are in good operating condition and repair (ordinary wear and tear
excepted) and are adequate


                                       18



for the conduct of the Business as currently conducted. Except as set forth on
SCHEDULE 5.14(O), since January 1, 2006 there has not been any significant
interruption in the conduct of the Business due to the malfunctioning of any
such Assets.

     5.10 ENVIRONMENTAL AND SAFETY MATTERS

     (a) Seller has conducted the Business and owned and operated the Assets,
and is using and operating the Assets and the Facilities and conducting the
Business, in compliance with all Environmental and Safety Laws.

     (b) Seller has not received notice from any Governmental Body alleging that
it, the Business, the Assets or the Facilities are not in compliance with
Environmental and Safety Laws.

     (c) To Seller's Knowledge, there is no Claim by any Person alleging
potential liability of Seller (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on, or
resulting from the presence or release into the Environment of any Hazardous
Materials at the Facilities or any other premises currently or previously owned,
operated or leased by Seller in connection with the Business, that is pending
or, to the Knowledge of the Seller, threatened against Seller, any Assets or any
such premises.

     (d) To Seller's Knowledge, it has not used, treated, stored, disposed of,
or released any Hazardous Materials in violation of any Environmental and Safety
Laws on or from any premises currently or previously owned, leased or operated
by it in connection with the Business.

     (e) Seller is not currently undertaking any remedial or response action
relating to any disposal, release or threatened release of Hazardous Materials,
whether or not required by Environmental and Safety Laws.

     (f) Seller does not own, lease or operate any underground storage tanks,
below ground-level liquids collection or storage sumps, or any treatment,
storage or disposal facilities under the Resource Conservation and Recovery Act,
as amended, or any solid waste disposal facility, in each case in connection
with the Business.

     (g) To Seller's Knowledge, on the Leased Real Property there are no
polychlorinated biphenyls in a form or condition prohibited by Environmental and
Safety Laws or any asbestos in a friable or otherwise unencapsulated form that
represents a health hazard.

     (h) Seller has made available to Buyer all records and files (including any
assessments, reports, studies, audits, analyses, tests and monitoring) in the
possession of or available to Seller pertaining to the existence of Hazardous
Materials at the premises


                                       19



currently leased or operated by it in connection with the Business or concerning
compliance with or liability under any Environmental and Safety Laws relating to
any of such premises.

     5.11 CONTRACTS

     SCHEDULE 2.1.5 to the Disclosure Memorandum is an accurate and complete
list of the Contracts included in the Assets in effect as of the date hereof,
including, without limitation:

     (a) all Contracts for the purchase or sale by Seller, in connection with
the Business, of services or Products, supplies, machinery, equipment, or other
tangible or intangible property, in each case involving the payment or receipt
by Seller of $10,000 or more in the case of any single Contract, or providing
for performance, regardless of dollar amount, over a period of one year or more;

     (b) all sales, agency or distributorship Contracts or franchises, and all
reseller Contracts for the sale, distribution or resale of the Products;

     (c) all Contracts providing for the services of consultants or independent
contractors, including, without limitation, Contracts relating to research,
design, development, advertising or promotion;

     (d) all Contracts relating to patents, trade names, trademarks, service
marks, copyrights, or applications for any of the foregoing, or software
development, inventions, formulas, processes, technology, know-how, trade
secrets, technical information or other intellectual property rights, including,
without limitation, the Intellectual Property;

     (e) all Contracts relating to real property or any interest therein or to
personal property located at the Facilities; and

     (f) all other Contracts relating to the Assets, the Assumed or the Business
that involve the payment or receipt by Seller of $10,000 or more in the case of
any single Contract, or providing for performance, regardless of dollar amount,
over a period of one year or more.

     Except as set forth on SCHEDULE 5.11 of the Disclosure Memorandum, all such
Contracts are valid and in full force and effect and are enforceable against
Seller and Seller has no Knowledge of any reasonable basis on which such
Contracts would not be enforceable against the other parties thereto, in
accordance with their respective terms, except, in each such case, as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, and other similar laws relating to or limiting creditors' rights
generally and by equitable principles. Seller has performed in all material
respects the obligations required to be performed by it under all such
Contracts, and no material breach or default by Seller of any provision thereof,


                                       20



nor any condition or event that, with notice or lapse of time or both, would
constitute such a breach or default, has occurred. Further, to Seller's
Knowledge, no material breach or default by any other party to any such Contract
of any provision thereof, nor any condition or event that, with notice or lapse
of time or both, would constitute such a breach or default, has occurred. Except
as set forth on SCHEDULE 5.6 of the Disclosure Memorandum, Seller has not
received any notice of any modification, termination or cancellation of any such
Contract and knows of no intent to effect the same or any reasonable basis
therefor. Except as set forth in SCHEDULE 5.4 to the Disclosure Memorandum, no
consent, approval or authorization of any third party is required for the
assignment of any such Contract to Buyer. Seller has no reason to believe that
any obligations that remain to be performed by Seller under any such Contract
cannot be fulfilled. To Seller's Knowledge, no such Contract, together with all
other such Contracts, will likely result in a Material Adverse Effect, and there
is no material dispute with any party under any such Contract.

     Except for the oral agreement described in SCHEDULE 2.1.5 to the Disclosure
Memorandum and except for Employee Confidentiality and Non-Competition
Agreements with respect to former TDS employees, Seller has delivered to Buyer
or made available in the Seller's electronic data room, true, correct and
complete copies of each Contract included in the Assets.

     5.12 CLAIMS AND LEGAL PROCEEDINGS

     Except as specifically set forth in SCHEDULE 5.12 to the Disclosure
Memorandum, there are no Claims pending or, to Seller's Knowledge, threatened
against Seller with respect to the Assets, the Assumed Liabilities or the
Business, before or by any Governmental Body or nongovernmental department,
commission, board, bureau, agency or instrumentality or any other Person. Seller
has no Knowledge of any valid basis for any such Claim. There are no outstanding
or unsatisfied Judgments to which Seller is a party or by which it or any of its
properties is bound, that involve the transactions contemplated herein or that
affect the Business, the Assets or the Assumed Liabilities.

     5.13 EMPLOYEES; LABOR MATTERS

     (a) SCHEDULE 5.13 to the Disclosure Memorandum lists all employees of
Seller engaged in the Business as of the date hereof (the "TDS EMPLOYEES"), and
sets forth their title, starting date with Seller and compensation levels. To
Seller's Knowledge, no officer or key employee of Seller engaged in the Business
as of the date hereof intends to terminate his or her involvement with the
Business.

     (b) There are no disputes, material employee grievances or material
disciplinary actions pending or, to Seller's Knowledge, threatened between
Seller and any of the TDS Employees. Seller has complied in all material
respects with all provisions of applicable Laws relating to the employment of
the TDS Employees (including, without limitation, all applicable federal, state,
local and foreign Laws regarding employment, wages, hours, equal opportunity,
collective bargaining, payment of Social Security and other taxes and
occupational safety and health standards) and has no material liability for any
arrears of wages or Taxes or penalties for failure to comply with any such Laws
and has not received any complaints from any Governmental Body alleging
violations thereof. Seller has not


                                       21



experienced, nor does Seller know of any basis for, any strike, labor troubles
or strife, work stoppages, slow downs, or other similar interference with or
impairment of the Business. Seller has not experienced, nor does it know of any
union or collective bargaining organization efforts or negotiations, or requests
for negotiations, for any representation or any labor contract relating to any
of its employees engaged in the Business.

     (c) Except as specifically set forth in SCHEDULE 5.13 to the Disclosure
Memorandum, the employment of all TDS Employees is terminable at will without
any penalty or severance obligation of any kind on the part of Seller or any
successor thereto. All sums due for employee compensation and benefits and all
vacation time owing to any TDS Employee have been duly and adequately accrued on
the accounting records of Seller. All TDS Employees are either United States
citizens or resident aliens specifically authorized to engage in employment in
the United States in accordance with all applicable Laws.

     (d) Except as specifically set forth in SCHEDULE 5.13 to the Disclosure
Memorandum, with respect to the Business Seller is not a party to any:

          (i) management, employment or other contract providing for the
employment or rendition of executive services;

          (ii) bonus, incentive, deferred compensation, severance pay, pension,
profit-sharing, retirement, stock purchase, stock option, employee benefit or
similar plan, agreement or arrangement, other than those plans agreements,
arrangements and benefits generally offered to Seller's full-time employees;

          (iii) collective bargaining agreement or other agreement with any
labor union or other employee organization (and no such agreement is currently
being requested by, or is under discussion by management with, any group of
employees or others); or

          (iv) other employment contract or other compensation agreement or
arrangement, oral and written, affecting or relating to TDS Employees.

     All such contracts and other agreements and arrangements set forth in
SCHEDULE 5.13 to the Disclosure Memorandum are valid, in full force and effect,
Seller has performed all material obligations imposed on it thereunder, and
there are, under any of such contracts, agreements or arrangements, no defaults
or events of default by Seller or, to its Knowledge, any other party thereto.

     5.14 INTELLECTUAL PROPERTY

     (a) Seller (i) owns and has independently developed the Seller-Owned IP
Rights; and (ii) has the valid right or license to exercise all Intellectual
Property Rights in the Seller-Licensed IP Rights that have been exercised by the
Business as at the Closing Date, including all Intellectual Property Rights used
in connection with the development, licensing, use, and sale of the Products and
provision of services relating to the Business by or for Seller, and the


                                       22



use or application of the Products by customers in accordance with the
promotions or recommendations of Seller. Except as set forth on SCHEDULE 5.14(A)
of the Disclosure Memorandum and except for those services to be provided
pursuant to the Transition Services Agreement, the Seller IP Rights are
sufficient for the conduct of the Business as it is conducted as of the Closing.

     (b) Except as set forth on SCHEDULE 5.14(B), neither the execution,
delivery and performance of this Agreement or the Transaction Documents, nor the
consummation of the transactions contemplated by this Agreement or the
Transaction Documents shall: (i) constitute a breach of or default under any
instrument, license or other agreement governing Seller IP Rights; (ii) cause
the forfeiture or termination of, or give rise to a right of forfeiture or
termination of, any Seller IP Right; or (iii) impair the right of the Buyer, as
successor-in-interest to Seller, to use, possess, sell or license any
Seller-Owned IP Right or portion thereof, or exercise any Seller-Licensed IP
Right to the extent such rights were exercised by Seller prior to the Closing
Date. Except to the extent disclosed in SCHEDULE 5.14(B) of the Disclosure
Memorandum, there are no royalties, honoraria, fees or other payments payable by
the Seller to any third person (other than salaries payable to employees and
independent contractors not contingent on or related to use of their work
product, and ordinary course payments due to any governmental authorities in
order to maintain any registrations of Intellectual Property Rights) as a result
of the ownership, use, possession, license-in, sale, marketing, advertising or
disposition of any Seller IP Rights by the Seller to the extent necessary for
the conduct of the Business or the use, sale, licensing or distribution of the
Products, and none shall become payable by Seller, or by Buyer as
successor-in-interest to Seller, as a result of the consummation of the
transactions contemplated by this Agreement. After the Closing, all Seller-Owned
IP Rights will be fully transferable, alienable or licensable by Buyer without
restriction and without payment of any kind to any third party. Except as set
forth on SCHEDULE 5.14(B) of the Disclosure Memorandum, the Seller IP Rights may
be transferred to Buyer hereunder without the consent or approval of any other
Person or Governmental Body.

     (c) SCHEDULE C of the Disclosure Memorandum sets forth a list of each of
the Products currently produced, manufactured, marketed, licensed, sold,
furnished or distributed by the Seller in connection with the Business and each
product and service currently under development by the Seller in connection with
the Business. Except to the extent related to Seller not having obtained
consents to assignment for certain licenses as set forth on SCHEDULE 5.14(E),
neither the operation of the Business, nor the use, development, manufacture,
marketing, license, sale or furnishing of any of the Products (or any component
or portion thereof), nor the use or application of the Products by customers in
accordance with the promotions or recommendations of Seller (i) violates or will
violate any license or other Contract between Seller and any third party, or
(ii) infringes or misappropriates or will infringe or misappropriate any
Intellectual Property right of any other party. There is no pending or, to the
Knowledge of the Seller, threatened claim or litigation made or brought against
Seller contesting the validity, ownership or right of the Seller to exercise any
Seller IP Right, nor to the Knowledge of Seller is there any legitimate basis
for any such claim, nor has


                                       23



Seller received any notice asserting that any Seller IP Right or the proposed
use, sale, license or disposition thereof conflicts with or infringes or shall
conflict with or infringe the rights of any other Person, nor is there any
legitimate basis for any such assertion. The Seller has not received any notice
from any third party with regard to any Seller IP Right offering a license under
any third party patents. Except for restrictions contained in any Contracts
identified in Part II of SCHEDULE 2.1.1 of the Disclosure Memorandum, none of
the Seller IP Rights or the Products is subject to any proceeding or outstanding
order, Contract or stipulation (i) restricting in any manner the use,
distribution, transfer or licensing by the Seller of the Seller IP Rights or the
Products, or which may affect the validity, use or enforceability of any such
Seller IP Rights or Products, or (ii) restricting the conduct of the Business in
order to accommodate Intellectual Property rights of a third party.

     (d) Except as set forth in SCHEDULE 5.14(D) of the Disclosure Memorandum,
no current or former employee, consultant or independent contractor of Seller:
(i) is, to the Knowledge of Seller, in violation of any term or covenant of any
employment contract, patent disclosure agreement, invention assignment
agreement, nondisclosure agreement, noncompetition agreement or any other
agreement with any other Person by virtue of such employee's, consultant's or
independent contractor's being employed by, or performing services for, Seller
in connection with the Business or in connection with the development of any of
the Products or using trade secrets or proprietary information of others without
permission in the Business or in connection with the development of any of the
Products; or (ii) to the Knowledge of Seller, has developed any technology,
software or other copyrightable, patentable or otherwise proprietary work for
Seller in connection with the Business or in connection with the development of
any of the Products that is subject to any agreement under which such employee,
consultant or independent contractor has assigned or otherwise granted to any
third party any rights (including Intellectual Property) in or to such
technology, software or other copyrightable, patentable or otherwise proprietary
work.

     (e) Seller has taken reasonable steps under the circumstances to protect,
preserve and maintain the secrecy and confidentiality of the Seller IP Rights
and to preserve and maintain all Seller's trade secrets in the Seller IP Rights.
Except as set forth in SCHEDULE 5.14(E) of the Disclosure Memorandum, all
current officers, employees, consultants and independent contractors of the
Seller having access to trade secrets or confidential or proprietary information
of the Seller relating to the Business or the Products or its customers or
business partners with regard to the Business or the Products have executed and
delivered to the Seller an agreement regarding the protection of such trade
secrets or confidential or proprietary information (in the case of trade secrets
or confidential or proprietary information of the Seller's customers and
business partners, to the extent required by such customers and business
partners); and copies of all such agreements have been delivered to Buyer's
legal counsel. Seller, to Seller's Knowledge, is not aware that any such
employee, independent contractor, consultant or officer is in violation of any
such agreement. Except as set forth in SCHEDULE 5.14(E) of the Disclosure
Memorandum, Seller has secured valid written assignments from all of the
Seller's current consultants, independent contractors, employees and officers
who were involved in, or who contributed to, the creation or development of any


                                       24



Seller-Owned IP Rights, of the rights to such contributions that may be owned by
such Persons or that Seller would not already own by operation of Law. No
current or former employee, officer, director, consultant or independent
contractor of the Seller has any right, license, claim or interest whatsoever in
or with respect to any Seller-Owned IP Rights. To the extent that any
technology, software or Intellectual Property developed or otherwise owned by a
third party is incorporated into, integrated or bundled with any of the Products
("THIRD PARTY PRODUCT TECHNOLOGY"), Seller has a written license from or
agreement with such third party with respect thereto pursuant to which the
Seller, unless otherwise described in SCHEDULE 5.14(E) of the Disclosure
Memorandum, either (i) is the exclusive owner thereof, or (ii) has obtained,
licenses (sufficient for the conduct of the Business and the sale, licensing or
distribution of the Products) to, all such third party's Intellectual Property
in such Third Party Product Technology by operation of Law or by valid contract.
SCHEDULE 5.14(E) of the Disclosure Memorandum sets forth a list and description
of all Third Party Product Technology.

     (f) SCHEDULE 2.1.1 of the Disclosure Memorandum contains a true and
complete list of (i) all registrations made by or on behalf of Seller of any
patents, copyrights, mask works, trademarks and service marks with any
Governmental Body, (ii) all applications, registrations, filings and other
formal written governmental actions made or taken pursuant to applicable law by
Seller to secure, perfect or protect its interest in the Seller-Owned IP Rights,
including all patent applications, copyright applications, mask work
applications and applications for registration of trademarks and service marks,
and where applicable the jurisdiction in which each of the items of the
Seller-Owned IP Rights has been applied for, filed, issued or registered. All
registered patents, trademarks, service marks, copyrights and mask work rights
on SCHEDULE 2.1.1 are, to the Knowledge of Seller, valid, enforceable and
subsisting, and the Seller is the record owner thereof. The Seller is the
exclusive owner of all trademarks and trade names listed on SCHEDULE 2.1.1 of
the Disclosure Memorandum. Other than any copyrighted works included in
Seller-Licensed IP Rights, the Seller owns exclusively, and has good title to,
all copyrighted works that are included or incorporated into Products. SCHEDULE
2.1.11 of the Disclosure Memorandum contains a true and complete list of the
Internet domain names or Internet or World Wide Web URLs or addresses necessary
to the operation of the Business, and such Internet domain names or Internet or
World Wide Web URLs or addresses are valid, enforceable and subsisting, and
Seller is the record owner thereof. SCHEDULE 5.14(F) of the Disclosure
Memorandum sets forth all inter partes proceedings or actions before any court
or tribunal (including, without limitation, the United States Patent and
Trademark Office or equivalent authority anywhere else in the world) related to
any of the Seller-Owned IP Rights.

     (g) Seller owns all right, title and interest in and to all Seller-Owned IP
Rights free and clear of all Encumbrances (other than licenses and rights listed
in SCHEDULE 5.14(H)-1 of the Disclosure Memorandum and Permitted Encumbrances).
The right, license and interest of the Seller in and to all Seller-Licensed IP
Rights are free and clear of all Encumbrances (other than Permitted Encumbrances
and Encumbrances set forth in the terms and conditions of the Contracts under
which Seller-Licensed IP Rights are licensed to the


                                       25



Seller, all of which Contracts are listed in SCHEDULE 5.14(H)-2 of the
Disclosure Memorandum, and complete and correct copies of such agreements have
been provided to counsel to Buyer).

     (h) SCHEDULE 5.14(H)-1 of the Disclosure Memorandum contains a true and
complete list of all licenses, sublicenses and other Contracts in effect on the
date hereof to which the Seller is a party and pursuant to which any Person is
authorized to use any Seller-Owned IP Rights. SCHEDULE 5.14(H)-2 of the
Disclosure Memorandum contains a true and complete list of all licenses,
sublicenses and other Contracts in effect on the date hereof to which the Seller
is a party and pursuant to which the Seller is authorized to use any
Seller-Licensed IP Rights (other than licenses of software generally available
to the public at a per copy license fee of less than $2,500 per copy). None of
the licenses or other Contracts listed in SCHEDULE 5.14(H)-1 of the Disclosure
Memorandum grants any third party exclusive rights to or under any Seller-Owned
IP Rights or grants any third party the right to sublicense any of such
Seller-Owned IP Rights. The Seller has not made confidential Intellectual
Property relating to the Business public, except for the publication of
applications or registrations relating to such Intellectual Property as required
by applicable law.

     (i) Except as disclosed in SCHEDULE 5.14(I) of the Disclosure Memorandum,
neither the Seller nor any other Person acting on its behalf has disclosed or
delivered to any other Person, or permitted the disclosure or delivery to any
other Person of, any Seller Source Code (as defined below). No event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time, or both) shall, or would reasonably be expected to, result in
the disclosure or delivery by the Seller or any Person acting on its behalf to
any other Party of any Seller Source Code. SCHEDULE 5.14(I) of the Disclosure
Memorandum identifies each Contract (whether written or oral) pursuant to which
the Seller has deposited, or is or may be required to deposit, with an escrow
agent or other party, any Seller Source Code and further describes whether the
execution of this Agreement or the Transaction Documents or the consummation of
the transactions contemplated hereby or thereby, in and of itself, would
reasonably be expected to result in the release from escrow of any Seller Source
Code. As used in this Section 5.14(i), "SELLER SOURCE CODE" means, collectively,
any human readable software source code that constitutes Seller-Owned IP Rights.
Seller has not authorized any other Person to prepare any versions of Seller's
Products for commercial use.

     (j) As at the Closing Date there is no unauthorized use, disclosure,
infringement or misappropriation of any Seller-Owned IP Rights by any third
party, including any employee or former employee of the Seller.

     (k) All software developed by Seller and licensed by the Seller to
customers and all Products provided by or through the Seller to customers on or
prior to the Closing Date conform in all material respects to applicable
contractual commitments, express and implied warranties (to the extent not
expressly disclaimed in Contracts with such customers) and to any
representations provided to customers, except to the extent that Seller's
liability for breach of applicable contractual commitments, express and implied
warranties and


                                       26



representations would not exceed $50,000 in the aggregate. Seller has made
available to Buyer all documentation and notes relating to the testing of the
Products and plans and specifications for products currently under development
by Seller in connection with the Business. The Seller has a policy and procedure
for tracking bugs, errors and defects of which it becomes aware in any of the
Products and maintains a database covering the foregoing. For all software used
by Seller in providing Products, or in developing or making available any of the
Products, Seller has implemented any and all security patches or upgrades that
are generally available for that software and that would be material to the
sale, licensing or distribution of any Products.

     (l) No government funding, facilities of a university, college, or other
educational institution or research center was used in the development of the
Products. No current or former employee, consultant or independent contractor of
Seller who was involved in, or who contributed to, the creation or development
of any Seller-Owned IP Rights has performed services for the government, for a
university, college or other educational institution or for a research center
during a period of time during which such employee, consultant or independent
contractor was also performing services for the Seller in connection with the
Business.

     (m) Except as set forth in SCHEDULE 5.14(M) of the Disclosure Memorandum,
and notwithstanding any disclosure regarding Public Software in SCHEDULE 5.14(E)
of the Disclosure Memorandum, no software covered by any Seller-Owned IP Right
has been distributed in whole or in part or used with, or is being used in
conjunction with any Public Software in a manner which would require that such
software be disclosed or distributed in source code form or made available at no
charge. As used in this Section 5.14(m), "PUBLIC SOFTWARE" means any software
that (i) contains, or is derived in any manner (in whole or in part) from, any
software that is distributed as free software, open source software (e.g.,
Linux) or (ii) requires as a condition of its use, modification or distribution
that it be disclosed or distributed in source code form or made available at no
charge. Public Software includes, without limitation, software licensed under
the GNU's General Public License (GPL) or Lesser/Library GPL, the Mozilla Public
License, the Netscape Public License, the Sun Community Source License, the Sun
Industry Standards License, the BSD License, and the Apache License.

     (n) Except as disclosed in SCHEDULE 5.14(N) of the Disclosure Memorandum,
as of the Closing, Seller has not received any notice of any pending action or
opposition with respect to any Seller-Owned IP Rights that is the subject of an
application, certificate, filing registration or other document issued, filed
with or recorded by any Governmental Body or any non-governmental registrar or
administrative entity, anywhere in the world (such Seller-Owned IP Rights being
"REGISTERED IP RIGHTS"). SCHEDULE 5.14(N) of the Disclosure Memorandum contains
a complete and accurate list of all actions that must be taken within 90 days
after the Closing Date relating to the payment of any Taxes, fees or other
amounts, or the filing of any documents necessary or appropriate to maintain any
Registered IP Rights


                                       27



with the appropriate official office or registry (e.g., patent or trademark
office or the appropriate Governmental Body or non-governmental registrar).

     (o) SCHEDULE 5.14(O) of the Disclosure Memorandum contains a complete and
accurate list of all downtime experienced by the Business since January 1, 2006
as a result of any software included in the Seller-Owned IP Rights (including,
without limitation, due to malfunctions or "bugs" of or in such software). As
used in this Section, "downtime" means any (x) occurrence scheduled by Seller
and lasting over 2 hours or (y) unscheduled occurrence in which the operation of
the software or the performance of its functions is impaired.

     5.15 INVENTORY

     Seller has no inventory related to the Business.

     5.16 PERMITS

     All Permits that are required for the ownership or operation of the Assets
or the Facilities or the conduct of the Business have been obtained by Seller,
are in full force and effect and are listed in SCHEDULE 2.1.4 to the Disclosure
Memorandum. Seller is and has been in compliance in all material respects with
all such Permits, and Seller has not received any notice of any alleged
violation (whether past or present and whether remedied or not) of, nor any
threat of the suspension, revocation, modification, invalidity or limitation of,
any such Permit, nor does Seller have any Knowledge of any basis for any claim
of any such violation or any such threat.

     5.17 WARRANTIES

     SCHEDULE 5.17 to the Disclosure Memorandum sets forth Seller's warranties
currently made with respect to the services rendered and Products provided by
the Business. Except as set forth in SCHEDULE 5.17 to the Disclosure Memorandum,
Seller has not made any warranties in connection with the Business. Since
January 1, 2006, there have been no warranty Claims made or threatened against
Seller that relate to the Business or its services or Products and that exceed
$10,000 individually or $50,000 in the aggregate.

     5.18 COMPLIANCE WITH LAW

     Except as set forth on SCHEDULE 5.18 of the Disclosure Memorandum, Seller
is and has been in compliance in all material respects with all Laws (including,
without limitation, all Environmental and Safety Laws) and all Judgments
applicable to the ownership or operation of the Assets or the Facilities, or the
conduct of the Business. Except as set forth on SCHEDULE 5.18, Seller has not
received any notice of any alleged violation (whether past or present and
whether remedied or not), and Seller has no Knowledge of any basis for any claim
of any such violation, of any such Law or Judgment. To Seller's Knowledge, there
is no Law or any Judgment that materially and adversely affects, or could
reasonably be


                                       28



expected to materially and adversely affect, the ownership or operation of the
Assets or the Facilities or the conduct of the Business.

     5.19 INSURANCE

     Seller has, with respect to the Business, maintained adequate insurance
protection against all liabilities, Claims and risks against which it is
customary for corporations engaged in the same or a similar business similarly
situated to insure. SCHEDULE 5.19 to the Disclosure Memorandum lists each policy
of insurance in force as of the date of this Agreement that Seller maintains
with respect to the Business.

     5.20 EMPLOYEE PLANS

          (a) Neither Seller nor any ERISA Affiliate sponsors, maintains or
contributes to, or has ever sponsored, maintained or contributed to (or been
obligated to sponsor maintain or contribute to), any (i) "multiemployer plan,"
as defined in Sections 3(37) or 4001(a)(3) of ERISA, (ii) multiple employer
plan, within the meaning of Section 4063 or 4064 of ERISA or Section 413 of the
Code, (iii) employee pension plan that is subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA, or (iv) "voluntary employees
beneficiary association," as defined in Section 501(c)(9) of the Code.

          (b) Each Employee Benefit Plan was properly and legally established
and at all time since inception has been maintained, administered, operated and
funded in all material respects in accordance with its terms and in compliance
with all applicable Laws, including, without limitation, ERISA and the Code.
Seller, each ERISA Affiliate and each other Person (including, without
limitation, each fiduciary) has, at all times and in all material respects,
properly performed all of its, his or her duties and obligations (whether
arising by operation of Law or by contract) under or with respect to each
Employee Benefit Plan, including, without limitation, all reporting, disclosure
and notification obligations. Seller has not incurred, and there exists no
condition or set of circumstances in connection with which Seller or the Buyer
could incur, directly or indirectly, any material liability or expense under
ERISA, the Code or any other applicable Law, or pursuant to any indemnification
or similar agreement, with respect to any Employee Benefit Plan.

          (c) Each Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and its related trust and/or group
annuity contract is exempt from taxation under Section 501(a) of the Code.
Nothing has occurred, or is reasonably expected by Seller or any ERISA Affiliate
to occur, that could adversely affect the qualification or exemption of any such
Employee Benefit Plan or its related trust or group annuity contract.

          (d) Each "group health plan," as defined in Section 607(1) or
733(a)(1) of ERISA or Section 5000(b)(1) of the Code, sponsored, maintained,
provided, administered or contributed to by Seller or any ERISA Affiliate is,
and at all times since inception has been, maintained, administered and operated
in compliance with all applicable requirements of


                                       29



Parts 6 and 7 of Subtitle B of Title I of ERISA, Section 4980B(f), 9801, 9802
and 9803 of the Code and all other applicable laws, statutes, orders, rules and
regulations relating to the provision or continuation of health insurance
coverage or other welfare benefits (within the meaning of Section 3(1) of
ERISA). Seller, each ERISA Affiliate and each other Person has, at all times and
in all material respects, properly performed all of his, her or its duties and
obligations (whether arising by operation of law or by contract) under or with
respect to each such group health plan, including, without limitation, any
notification obligations imposed under Parts 6 or 7 of Subtitle B of Title I of
ERISA or Section 4980B(f) or 9801(e) of the Code.

          (e) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to the Knowledge of Seller, threatened with respect to
(or against the assets of) any Employee Benefit Plan, nor, to the Knowledge of
Seller, is there a basis for any such action, suit or claim. No Employee Benefit
Plan is currently under investigation, audit or review, directly or indirectly,
by any Governmental Body, and, to the Knowledge of Seller, no such action is
contemplated or under consideration by any Governmental Body.

     5.21 BROKERAGE

     Seller has not retained any broker or finder in connection with the
transactions contemplated by this Agreement or the Transaction Documents. Any
brokerage or finder's fee due to any broker or finder in violation of the
foregoing representation shall be paid by Seller.

     5.22 ABSENCE OF QUESTIONABLE PAYMENTS

     Neither Seller nor, to Seller's Knowledge, any director, officer, agent,
employee or other Person acting on behalf of Seller has used any of Seller's
funds for improper or unlawful contributions, payments, gifts or entertainment,
or made any improper or unlawful expenditures relating to political activity to
any government official or other Person. Neither Seller nor, to Seller's
Knowledge, any director, officer, agent, employee or other person acting on
behalf of Seller has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures in connection with the operation
of the Business.

     5.23 CUSTOMERS AND SUPPLIERS

     Except as set forth on SCHEDULE 5.23 of the Disclosure Memorandum, Seller
has not received any notice that any material customer or supplier of Seller
relating to the Business intends to terminate or adversely modify its
relationship with Seller. Except as set forth on SCHEDULE 5.23 to the Disclosure
Memorandum, no customer or supplier of the Business has, since January 1, 2007,
decreased or limited materially, or to the Knowledge of Seller, threatened to
decrease or limit materially, its purchase of Seller's services or Products, or
its supply of materials or services to Seller, as the case may be.


                                       30


     5.24 CONTROLS

     Seller maintains accurate books and records reflecting its assets and
liabilities and maintains proper and adequate internal accounting controls which
provide reasonable assurance that, with respect to the Business, (a)
transactions are executed with management's authorization; (b) transactions are
recorded as necessary to permit preparation of the consolidated financial
statements of Seller and to maintain accountability for the assets relating to
the Business; and (c) access to such assets is permitted only in accordance with
management's authorization.

     5.25 FULL DISCLOSURE

     Neither the statements made in this Agreement or the other Transaction
Documents, taken as a whole, contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained herein and
therein not misleading. There is no fact to Seller's Knowledge that Seller has
not disclosed to Buyer in writing that has had or could reasonably be expected
to have a Material Adverse Effect.

6.   REPRESENTATIONS AND WARRANTIES OF BUYER

     To induce Seller to enter into this Agreement, Buyer and Vesta Corporation
jointly and severally represent and warrant to Seller (which representations and
warranties shall survive the Closing as provided in Section 13) all as follows
in this Section 6:

     6.1  ORGANIZATION, VALID EXISTENCE, ETC.

     Buyer and Vesta Corporation are each corporations duly organized and
validly existing under the laws of the State of Oregon. Buyer and Vesta
Corporation have all requisite power and authority to own or lease and operate
their assets and to carry on their business as it is now conducted.

     6.2  TRANSACTION DOCUMENTS

     Buyer and Vesta Corporation have full corporate power and authority to
execute and deliver this Agreement and the Transaction Documents to which they
are a party and perform their obligations hereunder and thereunder. The
execution and delivery by Buyer and Vesta Corporation of this Agreement and the
Transaction Documents to which they are a party, the performance by Buyer and
Vesta Corporation of their obligations hereunder and thereunder and the
consummation by Buyer and Vesta Corporation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and binding obligation of Buyer and Vesta
Corporation, enforceable against Buyer and Vesta Corporation in accordance with
its terms, and the Transaction Documents to which Buyer and Vesta Corporation
are a party, when executed and delivered by Buyer and Vesta Corporation, will
constitute valid and binding obligations


                                       31



of Buyer and Vesta Corporaiton, enforceable against Buyer and Vesta Corporation
in accordance with their terms.

     6.3  NO CONFLICT

     Neither the execution and delivery by Buyer or Vesta Corporation of this
Agreement or the Transaction Documents to which Buyer or Vesta Corporation is a
party, the performance by Buyer and Vesta Corporation of their obligations
hereunder or thereunder, nor the consummation of the transactions contemplated
hereby or thereby will (a) violate, conflict with or result in any breach of any
provision of Buyer's or Vesta Corporation's articles of incorporation or bylaws;
or (b) violate, conflict with, result in any breach of, or constitute a default
(or an event that, with notice or lapse of time or both, would constitute a
default) under any Contract or Judgment to which Buyer of Vesta Corporation is
party or by which they are bound; or (c) violate any applicable Law.

     6.4  CLAIMS AND LOCAL PROCEEDINGS

     There are no Claims pending or, to the Knowledge of Buyer or Vesta
Corporation, threatened against Buyer or Vesta Corporation or affecting the
transactions contemplated herein, before or by any Governmental Body or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, and there are no outstanding or
unsatisfied Judgments or stipulations to which Buyer or Vesta Corporation is a
party or that involve the transactions contemplated herein.

     6.5  BROKERAGE

     Neither Buyer nor Vesta Corporation has retained any broker or finder in
connection with the transactions contemplated by this Agreement or the other
Transaction Documents. Any brokerage or finder's fee due to any broker or finder
in violation of the foregoing representation shall be paid by Buyer or Vesta
Corporation.

7.   CERTAIN COVENANTS

     7.1  ACCESS

     (a) Prior to the Closing Date, Seller shall (i) give Buyer and its
accounting, legal, business, environmental, engineering, intellectual property
and other authorized representatives and advisors full access, during normal
business hours, to all facilities and properties of Seller relating to the
Assets, the Assumed Liabilities and the Business, (ii) furnish Buyer and its
authorized representatives and advisors with all documents and information
relating to the Assets, the Assumed Liabilities and the Business as may be
reasonably requested by Buyer and its authorized representatives and advisors,
(iii) permit Buyer and its authorized representatives and advisors to review all
books, records and Contracts relating to the Assets, the Assumed Liabilities and
the Business as may be reasonably requested by Buyer and its authorized
representatives and advisors, and make


                                       32



copies thereof, (iv) make available Seller's employees and advisors, including
those responsible for the management of the Business, and cause Seller's
employees and advisors to furnish Buyer and its authorized representatives and
advisors with data and other information with respect to the Assets, the Assumed
Liabilities and the Business as may be reasonably requested by Buyer and its
authorized representatives and advisors, and discuss with Buyer and its
authorized representatives and advisors the affairs of the Business, (v)
facilitate Buyer or its authorized representatives and advisors in conversations
with customers of the Business for the purpose of assisting Buyer in determining
whether it will be able or given the opportunity to conduct the Business after
the Closing with respect to such customers in the manner heretofore conducted by
Seller or otherwise to qualify itself or its products or facilities for the
purpose of so conducting the Business, and (vi) cooperate with Buyer and its
authorized representatives and advisors in their investigation and examination
of the Assets and the affairs of the Business. No investigation or receipt of
information provided by or on behalf of Seller or review thereof by Buyer or its
representatives or advisors shall diminish or obviate, or relieve Seller from,
or affect Buyer's ability or right to rely on, any of the representations,
warranties, covenants and agreements of Seller contained in this Agreement or
the Transaction Documents.

     (b) If the Closing under this Agreement shall not occur, Buyer and Vesta
Corporation shall keep confidential and not use or disclose to any party any
confidential information acquired by Buyer or Vesta Corporation from Seller
pursuant to this Section 7.1 or otherwise disclosed in connection with the
negotiation of this Agreement, unless Seller shall give its written consent to
the contrary; provided, however, that the foregoing obligations of
confidentiality and non-use shall not apply to any information which (i) at the
time of disclosure is, or thereafter becomes, available to the public through no
breach of this Agreement by Buyer or Vesta Corporation; or (ii) was known to, or
otherwise in the possession of, Buyer or Vesta Corporation prior to the receipt
of such information from Seller; or (iii) is obtained by Buyer or Vesta
Corporation from a source other than Seller and other than one who would be
breaching a commitment of confidentiality to Seller by disclosing the
information to Buyer or Vesta Corporation; or (iv) is developed by Buyer or
Vesta Corporation or its Affiliates independently of Seller's confidential
information; or (v) is required to be disclosed by Buyer or Vesta Corporation in
connection with a pending Claim; and, provided further, that in the event Buyer
or Vesta Corporation becomes required in connection with a pending Claim to
disclose any of the information acquired from Seller in connection with this
Agreement, then Buyer or Vesta Corporation shall provide Seller with reasonable
notice so that Seller may seek a court order protecting against or limiting such
disclosure or any other appropriate remedy; and in the event such protective
order or other remedy is not sought, or is sought but not obtained, Buyer or
Vesta Corporation shall furnish only that portion of the information which is
required and shall endeavor, at Seller's expense, to obtain a protective order
or other assurance that the portion of the information furnished by Buyer or
Vesta Corporation will be accorded confidential treatment.


                                       33



     7.2  ASSIGNMENT OF CONTRACTS

     If any Contract constituting any of the Assets is not assignable by Seller
to Buyer without the consent of a third party, or will not continue in effect
after the Closing, then Seller shall use commercially reasonable efforts to
provide Buyer with such third-party consent prior to the Closing Date to the
satisfaction of Buyer (but if Seller's assignment or attempted assignment of any
such Contract prior to obtaining the third-party consent would constitute a
breach of such Contract, then such assignment or attempted assignment shall not
be or be deemed effective unless and until the third-party consent is obtained).
For any licenses associated with the Contracts listed on Part A of SCHEDULE
ANNEX 5.14(E) of the Disclosure Memorandum for which consent is not obtained
prior to the Closing, Seller shall, at Seller's expense, use commercially
reasonable efforts to provide Buyer with such third-party consents as soon as
practicable after the Closing Date. For the avoidance of doubt, nothing in this
Section 7.2 or Section 10.1 shall obligate the Seller to obtain consent with
regards to the transfer of licenses associated with the Contracts listed in Part
B of SCHEDULE ANNEX 5.14(E).

     Until Buyer's receipt of any such consent not obtained as of the Closing,
Seller and Buyer shall reasonably cooperate so that Buyer shall enjoy the
benefits and rights of Seller under any such Contract and Buyer shall be
responsible for the obligations arising thereunder after the date hereof
pursuant to the express terms of such Contract in the ordinary course of
business; provided, however, that, with respect to the licenses associated with
each Contract listed on Part A of SCHEDULE ANNEX 5.14(E) of the Disclosure
Memorandum, if, prior to (a) Seller's obtaining the related consent for
assignment of such Contract to Buyer and (b) assignment of such Contract to
Buyer, Seller fails to provide to Buyer the benefits and rights of Seller under
such Contract (as such benefits and rights are determined prior to the Closing),
Seller shall, to extent such license is still required for purposes of the
Business, promptly pay to Buyer the amount indicated in Part A of SCHEDULE ANNEX
5.14(E) of the Disclosure Memorandum as the estimated per copy license fee
applicable to such Contract for each copy licensed by Seller immediately prior
to the Closing. Seller agrees to be solely responsible for any other obligations
or liabilities arising under or related to such Contract prior to receipt of
such consent.

     7.3  CONDUCT OF BUSINESS PRIOR TO CLOSING

     Except for actions taken with the prior written consent of Buyer, from the
date of this Agreement until the Closing Date, Seller shall conduct the Business
in the ordinary course consistent with Seller's past practice, Seller shall not
take or permit to exist any action or condition specified in Sections 5.6(a)
through 5.6(k), and Seller shall:

     (a) use commercially reasonable efforts to maintain the Business intact, to
market, promote, sell and distribute the Products of the Business consistently
with Seller's past practice, and to preserve the goodwill of the Business and
present relationships with the


                                       34



customers and suppliers of the Business and others with whom the Business has
business relations;

     (b) maintain the improvements and machinery and equipment constituting any
of the Assets in good operating condition and repair (ordinary wear and tear
excepted);

     (c) meet the contractual obligations of the Business and perform and pay
its obligations as they mature, and conduct its accounts receivable collection
efforts relating to the Business, in each case in the ordinary course of
business;

     (d) make payments and filings required to continue the Intellectual
Property and continue to prosecute and maintain all pending applications
therefor in all jurisdictions in which such applications are pending;

     (e) comply with all Judgments, all Laws and all Permits applicable to the
conduct of the Business or the ownership or operation of the Assets or the
Facilities, and maintain and prosecute applications for such Permits and pay all
Taxes, assessments and other charges applicable thereto;

     (f) promptly advise Buyer in writing of the occurrence of any Material
Adverse Effect or of any change, condition or event that could reasonably be
expected to result in a Material Adverse Effect;

     (g) not take any action, or omit to take any action, that would result in
any of Seller's representations and warranties made herein being materially
inaccurate at the time of such action or omission as if made at and as of such
time;

     (h) give notice to Buyer promptly upon becoming aware of any material
inaccuracy of any of Seller's representations or warranties made herein or in
the Disclosure Memorandum or of any event or state of facts that would result in
any such representation or warranty being materially inaccurate at the time of
such event or state of facts as if made at and as of such time (any such notice
to describe such material inaccuracy, event or state of facts in reasonable
detail);

     (i) not solicit, approach or furnish information to any prospective buyer,
or negotiate with any third party concerning the sale or transfer of any of the
Assets, the Business or any part thereof, whether any of such actions are taken
directly or indirectly, through a director, officer, employee or other
representative or otherwise; and

     (j) immediately notify Buyer regarding any contact between Seller or any of
its directors, officers, employees or any other representative and any other
Person or any offer, proposal or inquiry regarding any sale or transfer
described in Section 7.3(i).


                                       35



     7.4  EMPLOYEES

     (a) Unless otherwise agreed by Seller and Buyer or Vesta Corporation, Buyer
or Vesta Corporation will offer employment on an "at-will" basis to those
employees of Seller set forth on SCHEDULE 7.4 (which Schedule Buyer shall
provide to Seller prior to or at the Closing) (the "OFFEREE EMPLOYEES"), with
such employment to become effective immediately after the Closing, unless
otherwise set forth on SCHEDULE 7.4. Seller shall use commercially reasonable
efforts to assist Buyer and Vesta Corporation in their efforts to hire the
Offeree Employees and, prior to the Closing, shall release those employees who
accept employment with Buyer or Vesta Corporation from their obligations under
any non-competition or confidentiality agreement in favor of Seller, to the
extent necessary to allow them to be employed by Buyer or Vesta Corporation.
Nothing contained herein shall require (or be deemed to require) Buyer or Vesta
Corporation to continue after the Closing Date (i) the employment of any
employee of Seller employed by Buyer or Vesta Corporation after the Closing or
(ii) the salary or benefits paid or provided to any such employee.

     (b) On the Closing Date Seller shall pay all current liabilities owing as
of the Closing Date to employees who accept employment with Buyer or Vesta
Corporation, including, without limitation, any and all accrued vacation and
sick time and bonuses.

     (c) Seller agrees and acknowledges that the selling group (as defined in
Treasury Regulation Section 54.4980B-9, Q&A-3(a)) of which it is a part (the
"SELLING GROUP") will continue to offer a group health plan to employees after
the Closing Date and, accordingly, that Seller and the Selling Group will be
solely responsible for providing continuation coverage in accordance with
Section 4980B(f) of the Code ("COBRA"), to those individuals who are M&A
qualified beneficiaries (as defined in Treasury Regulation Section 54.4980B-9,
Q&A-4(a)) with respect to the transactions contemplated by this Agreement
(collectively, the "M&A QUALIFIED BENEFICIARIES"). Seller and the Selling Group
shall indemnify, defend and hold harmless Buyer and the buying group (as defined
in Treasury Regulation Section 54.4980B-9, Q&A-3(b)) for, from and against any
and all Losses relating to, arising out of, or resulting from any and all COBRA
obligations, liabilities and claims related to M&A Qualified Beneficiaries.
Seller and the Selling Group further agree and acknowledge that in the event
that the Selling Group ceases to provide any group health plan to any employee
prior to the expiration of the continuation coverage period for all M&A
Qualified Beneficiaries (pursuant to Treasury Regulation Section 54.4980B-9,
Q&A-8(c)), then Seller or a member of the Selling Group shall provide Buyer with
(i) written notice of such cessation as far in advance of such cessation as is
reasonably practicable (and in any event, at least thirty (30) days prior to
such cessation), and (ii) all information necessary or appropriate to enable
Buyer to offer continuation coverage to such M&A Qualified Beneficiaries if
Buyer determines it is legally obligated to do so.


                                       36



     7.5  COVENANTS TO SATISFY CONDITIONS

     Each party shall proceed with all reasonable diligence and use commercially
reasonable efforts to satisfy or cause to be satisfied all of the conditions
precedent to the other party's obligation to purchase or sell the Assets that
are set forth in Section 8 or 9, as the case may be; provided, however, that
this provision shall not impose upon any party any obligation to incur
unreasonable expenses under the circumstances in order to fulfill any condition
contained in such Sections.

     7.6  PRE-CLOSING ACCOUNTS RECEIVABLE

     Seller agrees that, without the prior written consent of Buyer, it will not
transfer to a third party or engage a collection agent to collect any accounts
receivable arising from transactions relating to the Business that have occurred
prior to the date hereof or that occur prior to the Closing.

8.   CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

     The obligation of Buyer to purchase the Assets and assume the Assumed
Liabilities at the Closing shall be subject to the satisfaction at or prior to
the Closing of each of the following conditions, any one or more of which may be
waived by Buyer:

     8.1  NO INJUNCTION OR LITIGATION

     As of the Closing Date, there shall not be any Claim or Judgment of any
nature or type threatened, pending or made by or before any Governmental Body
that questions or challenges the lawfulness of the transactions contemplated by
this Agreement or the Transaction Documents under any Law or seeks to delay,
restrain or prevent such transactions.

     8.2  REPRESENTATIONS, WARRANTIES AND COVENANTS

     (a) The representations and warranties of Seller made in this Agreement and
the other Transaction Documents (i) that are qualified by materiality shall be
true, complete and correct on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, and (ii) that are not
qualified by materiality shall be true, complete and correct in all material
respects on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date;

     (b) Seller shall have performed and complied in all material respects with
the covenants and agreements required by this Agreement to be performed and
complied with by it on or prior to the Closing Date; and

     (c) Seller shall have delivered to Buyer a certificate dated the Closing
Date to the foregoing effects, signed by a duly authorized executive officer of
Seller.


                                       37



     8.3  NO MATERIAL ADVERSE EFFECT

     From January 1, 2007 to the Closing Date, there shall not have occurred any
Material Adverse Effect, and Seller shall have no Knowledge of any change,
condition or event that could reasonably be expected to result in a Material
Adverse Effect; and Seller shall have delivered to Buyer a certificate dated the
Closing Date to the foregoing effects signed by a duly authorized executive
officer of Seller.

     8.4  CONSENTS AND APPROVALS

     Any authorizations of Seller's stockholders required for the consummation
of the transactions contemplated by this Agreement and the Transaction Documents
shall have been obtained and shall be in full force and effect. All consents,
approvals or authorizations of, or declarations, filings or registrations with,
all Governmental Bodies required for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents shall have been
obtained or made on terms satisfactory to Buyer, in its sole discretion, and
shall be in full force and effect. Without limiting the generality of the
foregoing, all consents, approvals and authorizations necessary for the transfer
to Buyer of all Permits of all Governmental Bodies held by Seller with respect
to the Business, as listed in SCHEDULE 2.1.4 to the Disclosure Memorandum, shall
have been obtained and such consents, approvals and authorizations shall be in
full force and effect or shall, in Buyer's reasonable judgment, be obtainable
after the Closing Date upon compliance with applicable recording, registration
or filing procedures and without additional liability to Buyer. Buyer shall have
been granted all Permits of all Governmental Bodies substantially equivalent to
those held by Seller with respect to the Business, as listed in Schedule 2.1.4
to the Disclosure Memorandum, without having to accept any significantly more
burdensome conditions than are now imposed on Seller under such Permits.
Furthermore, except as set forth on SCHEDULE 5.4, all consents, approvals or
authorizations of any other third parties required for the consummation of the
transactions contemplated by this Agreement and the Transaction Documents,
including, without limitation, all consents of any third parties required for
the assignment to Buyer of any Contracts that constitute any of the Assets and
the continuation in effect of such Contracts following the Closing and such
assignment, and all Permits (including but not limited to all certifications,
endorsements and qualifications) of any third parties required in connection
with the conduct by Buyer of the Business following the Closing in the manner
heretofore conducted by Seller, shall have been obtained on terms satisfactory
to Buyer, in its sole discretion, and shall be in full force and effect. In
addition, the originals of all the consents, approvals, authorizations and
Permits referenced in this Section 8.4 shall have been delivered to Buyer.

     8.5  TAXES

     All Taxes and other assessments applicable to the Assets or the Business
that are due and owing as of the Closing Date shall have been paid, except for
Taxes and assessments to


                                       38



be apportioned between the parties as of the Closing pursuant to Section 11.3 or
paid pursuant to Section 11.1.

     8.6  DELIVERY OF DOCUMENTS AND BUSINESS SOFTWARE

     Seller shall deliver the following documents, agreements and other items to
Buyer at the Closing, and the delivery of each shall be a condition to Buyer's
performance of its obligations to be performed at the Closing:

     (a) a counterpart of the Bill of Sale executed by Seller;

     (b) a counterpart of the Assumption Agreement executed by Seller;

     (c) Lease Assignment and Assumptions, each in substantially the form of
EXHIBIT 8.6(C), duly executed by all parties thereto (other than Buyer) with
respect to the Leased Real Property;

     (d) executed counterparts of one or more Assignments of Trademarks in
substantially the form of EXHIBIT 8.6(D) hereto covering each of the trademarks
described in SCHEDULE 2.1.1 to the Disclosure Memorandum, in due form for
recordation with the appropriate Governmental Body;

     (e) executed counterparts of one or more Assignments of Patents in the form
of EXHIBIT 8.6(E) covering each of the patents and patent applications described
in SCHEDULE 2.1.1 to the Disclosure Memorandum, in due form for recordation with
the appropriate Governmental Body;

     (f) any and all certificates of title relating to Personal Property
included within the Assets;

     (g) one master copy of all the Business Software in both source and object
code formats, including, without limitation, source and object code formats for
(i) all versions of the Business Software that Seller is obligated to support
and maintain as of the Closing Date and (ii) prior releases of the Business
Software that Seller has in its possession that are not currently supported or
maintained by Seller, together with all access codes, login IDs, activation keys
and similar items required to use the Business Software in all applicable
environments;

     (h) an executed Certificate of Non-Foreign Status in accordance with
Treasury Regulations Section 1.1445-2; and

     (i) a Transition Services Agreement, in substantially the form of EXHIBIT
8.6(I), duly executed by Seller.


                                       39



     8.7  SATISFACTION OF CONDITIONS

     All agreements and other documents required to be delivered by Seller
hereunder on or prior to the Closing Date shall be satisfactory in the
reasonable judgment of Buyer and its counsel. Buyer shall have received such
other agreements, documents and information as it may reasonably request in
order to establish satisfaction of the conditions set forth in this Section 8.

9.   CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

     The obligation of Seller to sell the Assets to Buyer at the Closing shall
be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any one or more of which may be waived by Seller:

     9.1  NO INJUNCTION OR LITIGATION

     As of the Closing Date, there shall not be any Claim or Judgment of any
nature or type threatened, pending or made by or before any Governmental Body
that questions or challenges the lawfulness of the transactions contemplated by
this Agreement or the Transaction Documents under any Law or seeks to delay,
restrain or prevent such transactions.

     9.2  REPRESENTATIONS, WARRANTIES AND COVENANTS

     (a) The representations and warranties of Buyer and Vesta Corporation made
in this Agreement or in the Transaction Documents shall be true, complete and
correct on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date;

     (b) Buyer and Vesta Corporation shall have performed and complied in all
material respects with the covenants and agreements required by this Agreement
to be performed and complied with by it on or prior to the Closing Date; and

     (c) Each of Buyer and Vesta Corporation shall have delivered to Seller a
certificate dated the Closing Date to the foregoing effects signed by a duly
authorized executive officer of Buyer.

     9.3  DELIVERY OF DOCUMENTS

     Buyer shall have executed and delivered to Seller the Bill of Sale, the
Assumption Agreement and, for each of the Leased Real Property parcels, Lease
Assignment and Assumptions, substantially in the forms of EXHIBITS 2.5(A),
2.5(B) and 8.6(C), respectively.


                                       40



     9.4  SATISFACTION OF CONDITIONS

     All agreements and other documents required to be delivered by Buyer and by
Vesta Corporation hereunder on or prior to the Closing Date shall be
satisfactory in the reasonable judgment of Seller and its counsel. Seller shall
have received such other agreements, documents and information as it may
reasonably request in order to establish satisfaction of the conditions set
forth in this Section 9.

     9.5  CONSENTS AND APPROVALS

     All material consents, approvals or authorizations of, or declarations,
filings or registrations with, all Governmental Bodies required for the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents shall have been obtained and shall be in full force and
effect. Furthermore, except as set forth on SCHEDULE 5.4 of the Disclosure
Memorandum, all material consents, approvals or authorizations of any other
third parties required for the consummation of the transactions contemplated by
this Agreement and the Transaction Documents, including, without limitation, all
consents of any third parties required for the assignment to Buyer of any
Contracts or Permits that constitute any of the Assets shall have been obtained
and shall be in full force and effect. To the extent that any of the Assets to
be transferred to the Buyer on the Closing, or any claim, right or benefit
arising under or resulting from such Assets (collectively, the "RIGHTS") is not
capable of being transferred without the approval, consent or waiver of any
third person, or if the transfer of a Right would constitute a breach of any
obligation under, or a violation of, any applicable law unless the approval,
consent or waiver of a third person is obtained, then, except as expressly
otherwise provided in this Agreement and without limiting the rights and
remedies of Buyer contained elsewhere in this Agreement, this Agreement shall
not constitute an agreement to transfer such Rights unless and until such
approval, consent or waiver has been obtained.

10.  CERTAIN POST-CLOSING COVENANTS

     10.1 FURTHER ASSURANCES

     For a period of two years after the Closing Date, Seller shall from time to
time at Buyer's request execute and deliver, or cause to be executed and
delivered, such further instruments of conveyance, assignment and transfer or
other documents, and perform such further acts and obtain such further consents,
approvals and authorizations, as Buyer may reasonably require in order to fully
effect the conveyance and transfer to Buyer of, or perfect Buyer's right, title
and interest in, any of the Assets, to assist Buyer in obtaining possession of
any of the Assets, or to otherwise comply with the provisions of this Agreement
and consummate the transactions contemplated by this Agreement and the
Transaction Documents including, without limitation, obtaining at Seller's
expense those third party consents and assignments specifically identified in
Part A of SCHEDULE 5.14(E) of the Disclosure Memorandum as consents and
assignments to be delivered after the Closing.


                                       41


     10.2 BOOKS AND RECORDS

     Within ten Business Days after the Closing, Seller shall deliver to Buyer
(a) all of the technical information and data and other Intellectual Property
rights to be transferred hereunder (including, without limitation, all of the
assets referenced in Section 2.1.1) which have been reduced to writing, (b)
except as set forth on SCHEDULE 5.14(B), all of the original Contracts
referenced in Section 2.1.5, (c) all of the books and records referenced in
Section 2.1.7, and (d) all of Seller's information and materials referenced in
Section 2.1.8.

     10.3 SERVICES REQUESTS AND PRODUCT ORDERS

     Seller shall promptly forward to Buyer all requests for services and orders
for Products, and other inquiries from customers or prospective customers of the
Business that are received by Seller within one year after the Closing Date.

     10.4 WARRANTY CLAIMS

     Seller shall promptly notify Buyer of all warranty claims, and other
warranty-related inquiries from customers or former customers received by Seller
after the Closing Date in regard to services rendered or products sold on or
prior to the Closing Date.

     10.5 POST-CLOSING COOPERATION

     For a period of two years after the Closing Date, each party shall provide
the other party with such reasonable assistance (without charge) as may be
requested by the other party in connection with any Claim or audit of any kind
or nature whatsoever or the preparation of any response, demand, inquiry,
filing, disclosure or the like (including, without limitation, any tax return or
form) relating to the Assets, the Assumed Liabilities or the Business. Such
assistance shall include, but not be limited to, permitting the party requesting
assistance to have reasonable access to the employees, books and records of the
other party.

     10.6 PAYMENT OF BUSINESS EXCLUDED LIABILITIES

     After the Closing Date, Seller shall pay when due the Excluded Assets that
relate to the Business.

     10.7 CUSTOMER PAYMENTS

     (a) No later than March 16, 2007, Seller shall deliver to Buyer a true and
complete list and accounting of all services rendered by Seller to customers of
the Business for which invoices were not issued on or prior to the Closing Date.
Buyer shall, in the ordinary course of the Business, issue to customers of the
Business invoices for services indicated on the list provided to Buyer pursuant
to this Section 10.7. Such invoices may also cover services rendered by Buyer
following the Closing. Upon receipt of any payments


                                       42



relating to such invoices and services rendered by Seller prior to the Closing,
Buyer shall promptly pay to Seller an amount equal to such payments.

     (b) Seller shall promptly pay to Buyer any payments it receives relating to
services rendered by Buyer following the Closing.

     10.8 DATA MANAGEMENT.

     In connection with the sale of the Assets hereunder (but without such data
and information constituting Assets), Seller has provided Buyer and Vesta
Corporation with data and information ("DATA") as described on SCHEDULE 10.8 of
the Disclosure Memorandum. Such Data shall be stored, maintained and used by
Buyer on behalf of Seller only as described in SCHEDULE 10.8 of the Disclosure
Memorandum. After the Closing, Buyer and Vesta Corporation shall use
commercially reasonably efforts, at Seller's expense, to assist Seller with
respect to the Data as described in SCHEDULE 10.8 of the Disclosure Memorandum.

     10.9 CONFIDENTIALITY OBLIGATIONS OF BUYER FOLLOWING THE CLOSING.

     From and after the Closing, Buyer and Vesta Corporation shall not disclose
or cause to be disclosed in any manner any Seller Confidential Information (as
hereinafter defined) or any part thereof, to any Person, or use or permit the
use of any Seller Confidential Information on its own behalf or for the benefit
of others, for any reason or purpose, except as otherwise set forth in this
Agreement, without the express prior written consent of the Seller. For purposes
of this Agreement, "SELLER CONFIDENTIAL INFORMATION" shall mean any written,
unwritten or electronic information relating to the Excluded Liabilities,
Excluded Assets or Data; provided, however, that "Seller Confidential
Information" shall not include information which: (i) is now, or hereafter
becomes, through no act on the part of the Buyer or Vesta Corporation, generally
known or available to the public; or (ii) is required to be disclosed by the
Buyer or Vesta Corporation by judicial action after all reasonably available
legal remedies to maintain the confidentiality of such information have been
exhausted at Seller's expense.

11.  TAXES AND COSTS; APPORTIONMENTS

     11.1 TRANSFER TAXES

     Seller shall be responsible for the payment of all transfer, sales and use
and documentary taxes, filing and recordation fees and similar charges relating
to the sale or transfer of the Assets hereunder. Buyer shall furnish Seller with
any necessary certificates of Tax exemption. The parties shall cooperate with
each other to minimize any such Taxes.

     11.2 TRANSACTION COSTS

     Each party shall be responsible for its own costs and expenses incurred in
connection with the preparation, negotiation and delivery of this Agreement and
the Transaction


                                       43



Documents, including but not limited to attorneys', accountants' and brokers'
fees and expenses.

     11.3 APPORTIONMENTS

     Any and all personal property taxes, assessments, lease rentals, prepaid
items, unbilled receivables, open purchase orders, and other charges applicable
to the Assets will be pro-rated to the Closing Date, and shall be allocated
between the parties by adjustment at the Closing, or as soon thereafter as the
parties may agree. All such taxes shall be allocated on the basis of the fiscal
year of the tax jurisdiction in question. Any security deposits relating to the
Assets shall be transferred to Buyer at the Closing and the Purchase Price shall
be increased by the amount thereof.

     11.4 EMPLOYMENT TAXES

     Seller shall prepare and furnish to each of the Offeree Employees employed
by Buyer following the Closing a Form W-2 that shall reflect all wages and
compensation paid to such employee for such portion of the calendar year
preceding the Closing Date in which such employee was in fact employed by
Seller, and shall file with the Social Security Administration Forms W-2 (Copy
A) that report all wages and compensation in fact paid by Seller with respect to
such employees. Buyer shall prepare and furnish to each of the Offeree Employees
employed by Buyer following the Closing a Form W-2 that shall reflect all wages
and compensation paid to such employee for such portion of the calendar year
following the Closing Date in which such employee is in fact employed by Buyer,
and shall file with the Social Security Administration Forms W-2 (Copy A) that
report all wages and compensation in fact paid by Buyer with respect to such
employees. Buyer will obtain new Forms W-4 and W-5, as applicable, from each of
the Offeree Employees employed by Buyer following the Closing Date. It is the
intent of the parties hereunder that the obligations of Buyer and the Seller
under this Section 11.4 shall be carried out in accordance with Section 4 of
Revenue Procedure 2004-53.

12.  COVENANTS NOT TO COMPETE

     12.1 COVENANTS

     In consideration of the payment of a portion of the Purchase Price, as
described in Section 3.3, to the covenants set forth in this Section, Seller
covenants and agrees as follows:

     (a) During the three-year period commencing on the Closing Date, Seller
shall not engage in any Restricted Activities (as such term is defined below),
whether directly or indirectly, for its account or otherwise, or as a
shareholder, owner, partner, manager, member, principal, agent, joint venturer,
consultant, advisor, franchisor or franchisee, independent contractor or
otherwise, in, with or of any Person that engages directly or indirectly in any
Restricted Activities. As used herein, "RESTRICTED ACTIVITIES" shall mean the
following types


                                       44



of activities relating to or contemplated by the Business as of the Closing,
which Restricted Activities are conducted anywhere in the world: transaction
processing services for consumer credit qualification and service activation.
Subject to Sections 12.1(b) and (c) below, nothing contained herein shall
prohibit Seller from being acquired by any Person even if such Person is engaged
in the Restricted Activities, whether by asset or stock purchase, merger,
consolidation or otherwise, or in any manner inhibit or limit an acquiring
Person or any of its Affiliates from making any further acquisitions in the
Restricted Activities after the consummation of such acquisition.

     (b) During the three-year period commencing on the Closing Date, Seller
shall not, directly or indirectly, hire, or solicit or encourage to leave the
employment of Buyer or any of its Affiliates, any TDS Employee hired by Buyer or
its Affiliates, or any employee of Buyer or its Affiliates, or have any
arrangement (financial, consulting or otherwise) with any such individual.

     (c) During the three-year period commencing on the Closing Date, Seller
shall not, directly or indirectly, solicit, direct, encourage, induce or in any
way divert any customer of the Business to terminate such customer's
relationship with the Business or Buyer or to do business with any competitive
business.

     12.2 MINOR INVESTMENTS

     Notwithstanding the provisions of Section 12.1(a) above, Seller may at any
time own in the aggregate, directly or indirectly, for investment purposes only,
5% or less of any class of securities of any entity engaged in any Restricted
Activities traded on any national securities exchange.

     12.3 REMEDIES

     Seller acknowledges that compliance with the provisions of this Section 12
is necessary and proper to preserve and protect the Assets acquired by Buyer
under this Agreement and to assure that the parties receive the benefits
intended to be conveyed pursuant to this Agreement. Seller agrees that any
failure by Seller or any of its Affiliates to comply with the provisions of this
Section 12 shall entitle Buyer and its Affiliates, in addition to such other
relief and remedies as may be available, to equitable relief, including, without
limitation, the remedy of injunction. Resort to any remedy shall not prevent the
concurrent or subsequent employment of any other remedy, or preclude the
recovery by Buyer and its Affiliates of monetary damages and compensation.

13.  SURVIVAL AND INDEMNIFICATION

     13.1 SURVIVAL

     All representations and warranties of Seller and Buyer contained in this
Agreement or in the Transaction Documents or in any certificate delivered
pursuant hereto or thereto shall


                                       45



survive the Closing for a period of one year after the Closing Date (provided,
however, that Sections 5.2 (Corporate Authority), 5.7 (Taxes) and 5.8(b)
(Property; Assets) shall survive until the expiration of the applicable statute
of limitations, plus sixty (60) days, and Section 5.10 (Environmental and Safety
Matters) shall survive for five years after the Closing Date), and shall not be
deemed waived or otherwise affected by any investigation made or any Knowledge
acquired with respect thereto. The covenants and agreements of Seller and Buyer
contained in Sections 3.2, 7.1(b), 7.2, 7.4(c), 7.6, 10, 11, 12 and 15 and this
Section 13 of this Agreement and in the Transaction Documents shall survive the
Closing and shall continue until (i) all obligations with respect thereto shall
have been performed, satisfied or waived or (ii) expire or have been terminated
in accordance with their terms.

     13.2 INDEMNIFICATION BY SELLER

     From and after the Closing Date, Seller shall indemnify and hold Buyer and
its Affiliates harmless from and against, and shall reimburse Buyer and its
Affiliates for, any and all Losses arising out of or in connection with:

     (a) any inaccuracy in any representation or warranty made by Seller in this
Agreement or in the Transaction Documents or in any certificate delivered
pursuant hereto or thereto;

     (b) any failure by Seller to perform or comply with any covenant or
agreement in this Agreement or in the Transaction Documents;

     (c) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by such Person directly or indirectly with Seller or any of its
officers, directors or employees in connection with any of the transactions
contemplated by this Agreement or the Transaction Documents;

     (d) the conduct of the Business or the ownership or operation of the Assets
or the Assumed Liabilities on or prior to the Closing; or

     (e) any Claim relating to any Excluded Assets or Excluded Liabilities.

     13.3 INDEMNIFICATION BY BUYER

     From and after the Closing Date, Buyer and Vesta Corporation, jointly and
severally, shall indemnify and hold harmless Seller and its Affiliates from and
against, and shall reimburse Seller and its Affiliates for, any and all Losses
arising out of or in connection with:

     (a) any inaccuracy in any representation or warranty made by Buyer or Vesta
Corporation in this Agreement or in the Transaction Documents or in any
certificate delivered pursuant hereto or thereto;


                                       46



     (b) any failure by Buyer or Vesta Corporation to perform or comply with any
covenant or agreement in this Agreement or the Transaction Documents;

     (c) any Claim by any Person for brokerage or finders' fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by such Person directly or indirectly with Buyer or Vesta Corporation
or any of its officers, directors or employees in connection with any of the
transactions contemplated by the Agreement or the Transaction Documents; or

     (d) the Assumed Liabilities or, to the extent relating exclusively to
periods after the Closing, the conduct by Buyer of the Business or the ownership
or operation by Buyer of the Assets.

     13.4 THRESHOLD AND TIME LIMITATIONS

     Neither party or its Affiliates shall be entitled to receive any
indemnification payment with respect to Claims for indemnification made under
Section 13.2(a) or Sections 13.3(a), as the case may be, until the aggregate
Losses that such party and its Affiliates would be otherwise entitled to receive
indemnification for with respect to such Claims under all such relevant Sections
exceed $50,000 (the "THRESHOLD"); provided, however, that once such aggregate
Losses exceed the Threshold, such party and its Affiliates shall be entitled to
receive indemnification payment for the aggregate Losses that they would be
entitled to receive without regard to the Threshold; and, provided further, that
Buyer or any of its Affiliates shall be entitled to indemnification for all
Losses arising in connection with Sections 5.2 (Corporate Authority), 5.7
(Taxes) and 5.8(b) (Property; Assets), or 5.22 (Brokerage) or based upon a claim
of fraud, in each case without regard to the Threshold, and Seller or any of its
Affiliates shall be entitled to indemnification for all Losses arising in
connection with Section 6.5 (Brokerage) or based upon a claim for fraud without
regard to the Threshold. Furthermore, neither party or its Affiliates shall be
entitled to assert any right of indemnification with respect to any Claim under
Section 13.2 or 13.3, as the case may be, of which neither such party or its
Affiliates have given written notice to the other party on or prior to the end
of the applicable survival period set forth in Section 13.1 above, except that
if such party or its Affiliates have given written notice of any such Claim to
the other party on or prior to the end of such survival period, then they shall
continue to have the right to be indemnified with respect to such pending Claim,
notwithstanding the expiration of such survival period. Notwithstanding anything
to the contrary, except for Claims based upon fraud, the aggregate
indemnification obligation of Seller under this Section 13 shall not exceed the
Purchase Price.

     13.5 PROCEDURE

     (a) Any party hereto or any of its Affiliates seeking indemnification
hereunder (in this context, the "INDEMNIFIED PARTY") shall notify the other
party (in this context, the "INDEMNIFYING PARTY") in writing reasonably promptly
after the assertion against the indemnified party of any Claim by a third party
(a "THIRD-PARTY CLAIM") in respect of which


                                       47



the indemnified party intends to base a Claim for indemnification hereunder, but
the failure or delay so to notify the indemnifying party shall not relieve the
indemnifying party of any obligation or liability it may have to the indemnified
party except to the extent, and only to the extent, that the indemnifying party
demonstrates that its ability to defend or resolve such Third Party Claim is
adversely affected thereby.

     (b) (i) Subject to the provisions of Section 13.5(c) below, the
indemnifying party shall have the right, upon written notice given to the
indemnified party within 30 days after receipt of the notice from the
indemnified party of any Third Party Claim, to assume the defense or handling of
such Third Party Claim, at the indemnifying party's sole expense, in which case
the provisions of Section 13.5(b)(ii) below shall govern.

          (ii) The indemnifying party shall select counsel reasonably acceptable
to the indemnified party in connection with conducting the defense or handling
of such Third Party Claim, and the indemnifying party shall defend or handle the
same in consultation with the indemnified party, and shall keep the indemnified
party timely apprised of the status of such Third Party Claim. The indemnifying
party shall not consent to any settlement or to the entry of any judgment with
respect to any Third Party Claim which does not include a complete release of
the indemnified party from all liability with respect thereto or which imposes
any liability or obligation on the indemnified party without the prior written
consent of the indemnified party The indemnified party shall cooperate with the
indemnifying party and shall be entitled to participate in the defense or
handling of such Third Party Claim with its own counsel and at its own expense.
Notwithstanding the foregoing, in the event the indemnifying party fails to
conduct the defense or handling of any Third Party Claim in good faith after
having assumed such defense or handling, then the provisions of Section
13(c)(ii) below shall govern.

     (c) (i) If the indemnifying party does not give written notice to the
indemnified party, within 30 days after receipt of the notice from the
indemnified party of any Third Party Claim, of the indemnifying party's election
to assume the defense or handling of such Third Party Claim, the provisions of
Section 13(c)(ii) below shall govern.

          (ii) The indemnified party may, at the indemnifying party's expense,
select counsel in connection with conducting the defense or handling of such
Third Party Claim and defend and handle such Third Party Claim in such manner as
it may deem appropriate, provided, however, that the indemnified party shall
keep the indemnifying party timely apprised of the status of such Third Party
Claim and shall not settle such Third Party Claim without the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld. If the indemnified party defends or handles such Third Party Claim,
the indemnifying party shall cooperate with the indemnified party and shall be
entitled to participate in the defense or handling of such Third Party Claim
with its own counsel and at its own expense.


                                       48



     (d) If the indemnified party intends to seek indemnification hereunder,
other than for a Third Party Claim, then it shall notify the indemnifying party
in writing within 90 days after its discovery of facts upon which it intends to
base its Claim for indemnification hereunder, but the failure or delay so to
notify the indemnifying party shall not relieve the indemnifying party of any
obligation or liability that the indemnifying party may have to the indemnified
party except to the extent, and only to the extent, that the indemnifying party
demonstrates that the indemnifying party's ability to defend or resolve such
Claim is adversely affected thereby.

     (e) The indemnified party may notify the indemnifying party with respect to
a Claim even though the amount thereof plus the amount of other Claims
previously notified by the indemnified party aggregate less than the Threshold.

     13.6 EXCLUSIVE REMEDY

     The sole recourse and exclusive remedy of the Buyer against the Seller and
the for indemnifiable Claims, and the sole recourse and exclusive remedy of the
Seller against the Buyer and Vesta Corporation for indemnifiable Claims, in each
case arising out of this Agreement, the Transaction Documents or any
certificate, instrument or document delivered in connection with this Agreement,
or otherwise arising from the transactions contemplated hereby, whether in
contract, tort or otherwise, shall be to assert indemnification as provided in
this Section 13.

     In the event that any party or any of its Affiliates alleges that it is
entitled to indemnification hereunder, and that its Claim is covered under more
than one provision of this Section 13, such party or Affiliate shall be entitled
to elect the provision or provisions under which it may bring a claim for
indemnification.

     13.7 SPECIFIC PERFORMANCE

     The parties to this Agreement acknowledge that it may be impossible to
measure in money the damages that a party would incur if any covenant or
agreement contained in this Agreement were not performed in accordance with its
terms and agree that each of the parties hereto shall be entitled to obtain an
injunction to require specific performance of, and prevent any violation of the
terms of, this Agreement, in addition to any other remedy available under this
Agreement or applicable Law. In any such action specifically to enforce any
provision of this Agreement, each party hereby waives any claim or defense
therein that an adequate remedy at law or in damages exists.

14.  TERMINATION

     14.1 TERMINATION

     This Agreement may be terminated upon written notice given at any time
before the Closing:


                                       49



     (a) by the mutual written consent of Seller and Buyer;

     (b) by Seller or Buyer, if the Closing shall not have occurred prior to
February 28, 2007 (the "EXPIRATION DATE"); provided, however, that the right to
terminate this Agreement under this Section 14.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or shall have resulted in, the failure of the Closing to
occur prior to such date;

     (c) by Seller, in the event of a material breach by Buyer of any
representation, warranty, covenant or agreement of Buyer contained herein that
has not been cured or is not curable by the Expiration Date; or

     (d) by Buyer, in the event of a material breach by Seller of any
representation, warranty, covenant or agreement of Seller contained herein that
has not been cured or is not curable by the Expiration Date.

     14.2 EFFECT OF TERMINATION

     In the event of the termination of this Agreement pursuant to Section 14.1
above, (a) each party shall return or destroy all documents containing
confidential information of the other party (and, upon request, certify as to
the return or destruction thereof), and (b) no party hereto shall have any
liability or further obligation to the other party hereunder, except for
liabilities or obligations relating to any willful breach by Seller or Buyer of
any representation, warranty, covenant or agreement set forth herein.

15.  MISCELLANEOUS

     15.1 CONFIDENTIALITY OBLIGATIONS OF SELLER FOLLOWING THE CLOSING

     From and after the Closing, Seller shall not disclose or cause to be
disclosed in any manner any Confidential Information (as hereinafter defined) or
any part thereof, to any Person, or use or permit the use of any Confidential
Information on its own behalf or for the benefit of others, for any reason or
purpose, except as otherwise set forth in this Agreement, without the express
prior written consent of the Buyer. For purposes of this Agreement,
"CONFIDENTIAL INFORMATION" shall mean any written, unwritten or electronic
information relating to the Business, the Assets or the Assumed Liabilities on
or prior to the Closing Date, including, without limitation, its products,
services, processes, equipment, customer lists, vendor lists, intellectual
property, source code, know-how and trade secrets regardless of how such
information was developed or acquired; provided, however, that "Confidential
Information" shall not include information which: (i) had been published and was
generally available to the public prior to the date of this Agreement; (ii) had
been published and became generally available to the public after the date of
this Agreement, unless such publication results from the breach of this
Agreement by the Seller, (iii) is now, or hereafter becomes, through no act on
the part of the Seller, generally known or available to the public; (iv) is
hereafter rightfully furnished to the Seller by a third party without
restriction and


                                       50



without any breach of this Agreement or any other confidentiality agreement by
such third party; or (v) is required to be disclosed by the Seller by judicial
action after all reasonably available legal remedies to maintain the
confidentiality of such information have been exhausted at Buyer's expense.

     15.2 PUBLIC ANNOUNCEMENTS

     Each party agrees not to make any public announcement in regard to the
transactions contemplated by this Agreement and the Transaction Documents
without the other party's prior consent, except as may be required by law, in
which case the parties shall use reasonable efforts to coordinate with each
other with respect to the timing, form and content of such required disclosures.

     15.3 SEVERABILITY

     If any court determines that any part or provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement shall not be affected
thereby and shall be given full force and effect and remain binding upon the
parties. Furthermore the court shall have the power to replace the invalid or
unenforceable part or provision with a provision that accomplishes, to the
extent possible, the original business purpose of such part or provision in a
valid and enforceable manner. Such replacement shall apply only with respect to
the particular jurisdiction in which the adjudication is made. Without in any
way limiting the generality of the foregoing, it is understood and agreed that
this Section 15.3 shall apply to the provisions of Section 12 and that the
provisions of Section 12, as they relate to each jurisdiction within their
geographical scope, constitute separate and distinct covenants.

     15.4 MODIFICATION AND WAIVER

     This Agreement may not be amended or modified in any manner, except by an
instrument in writing signed by each of the parties hereto. The failure of any
party to enforce at any time any of the provisions of this Agreement shall in no
way be construed to be a waiver of any such provision, or in any way affect the
right of such party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be deemed to be a waiver of any
other or subsequent breach.

     15.5 NOTICES

     All notices and other communications required or permitted to be given
under this Agreement shall be in writing and shall be sent by facsimile
transmission, or mailed postage prepaid by first-class certified or registered
mail, or by a nationally recognized express courier service, or hand-delivered,
addressed as follows:


                                       51



     if to Buyer:              Vesta Consumer Credit Services, Inc.
                               11950 SW Garden Place
                               Portland, OR 97223
                               Facsimile: (503) 790-2525
                               Attention: General Counsel

     with a copy to:           Perkins Coie LLP
                               1120 NW Couch Street, Tenth Floor
                               Portland, OR 97209
                               Facsimile: (503) 727-2222
                               Attention: David S. Matheson

     if to Seller:             Lightbridge, Inc.
                               30 Corporate Drive
                               Burlington, Massachusetts 01803
                               Facsimile: (781)359-4500
                               Attention: General Counsel

     with a copy to:           Foley Hoag LLP
                               Seaport World Trade Center West
                               155 Seaport Boulevard
                               Boston, Massachusetts 02210
                               Facsimile: (617)832-7000
                               Attention: John D. Patterson, Esq.

     if to Vesta Corporation   Vesta Corporation
                               11950 SW Garden Place
                               Portland, OR 97223
                               Facsimile: (503) 790-2525
                               Attention: General Counsel

     with a copy to:           Perkins Coie LLP
                               1120 NW Couch Street, Tenth Floor
                               Portland, OR 97209
                               Facsimile: (503) 727-2222
                               Attention: David S. Matheson

     Either party may change the persons or addresses to which any notices or
other communications to it should be addressed by notifying the other party as
provided above. Any notice or other communication, if addressed and sent, mailed
or delivered as provided above, shall be deemed given or received three days
after the date of mailing as indicated on the certified or registered mail
receipt, or on the next business day if delivered by express courier service, or
on the date of delivery if hand-delivered, or on the date of transmission if
sent by facsimile transmission and received on or before 5:00 pm local time.
Facsimile


                                       52



transmissions received after 5:00 pm local time will be deemed given or received
on the next business day after the date of transmission.

     15.6 ASSIGNMENT

     Neither Seller nor Buyer may assign any of its rights or obligations
hereunder without the prior written consent of the other party. Notwithstanding
the foregoing, Buyer may assign its rights and obligations under this Agreement
to any Affiliate of Buyer, and furthermore Buyer may assign its rights and
obligations hereunder to any successor of Buyer in the conduct of the Business
after the Closing; provided, however, that any such assignment by Buyer shall
not relieve Buyer from its obligations hereunder. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. Seller shall use commercially reasonable
efforts to cause any acquirer of substantially all its assets to agree to be
bound by its obligations hereunder as a condition to such acquisition. To the
extent such acquirer does not agree to be bound by Seller's obligations under
this Agreement, Seller and Buyer shall negotiate in good faith to provide
assurance to Buyer that those obligations will be satisfied.

     15.7 CAPTIONS

     The captions and headings used in this Agreement have been inserted for
convenience of reference only and shall not be considered part of this Agreement
or be used in the interpretation thereof.

     15.8 ENTIRE AGREEMENT

     This Agreement constitutes the entire agreement and understanding between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations, representations and statements,
whether oral, written, implied or expressed, relating to such subject matter.

     15.9 NO THIRD-PARTY RIGHTS

     Nothing in this Agreement is intended, nor shall be construed, to confer
upon any Person other than Buyer and Seller (and, to the extent expressly
provided herein, their respective Affiliates) any right or remedy under or by
reason of this Agreement or the Transaction Documents.

     15.10 COUNTERPARTS

     This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, each of which shall be deemed to be
an original, but all of which shall constitute one agreement. To expedite the
process of entering into this Agreement, the parties acknowledge that
Transmitted Copies of this Agreement will be equivalent to original documents
until such time as original documents are completely executed and delivered.


                                       53



"TRANSMITTED COPIES" will mean copies that are reproduced or transmitted via
photocopy, facsimile or other process of complete and accurate reproduction and
transmission.

     15.11 GOVERNING LAW; JURISDICTION AND VENUE

     This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Oregon as though made and to be fully performed in that
State.

                [Remainder of This Page Intentionally Left Blank]


                                       54



     IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement
to be duly executed by their respective representatives hereunto authorized as
of the day and year first above written.

                                        LIGHTBRIDGE, INC.


                                        By: /s/ Timothy C. O'Brien
                                            ------------------------------------
                                        Name: Timothy C. O'Brien
                                        Title: Chief Financial Officer


                                        VESTA CONSUMER CREDIT SERVICES, INC.


                                        By: /s/ Douglas M. Fieldhouse
                                            ------------------------------------
                                        Name: Douglas M. Fieldhouse
                                        Title: President


                                        VESTA CORPORATION


                                        By: /s/ Douglas M. Fieldhouse
                                            ------------------------------------
                                        Name: Douglas M. Fieldhouse
                                        Title: President

EX-10.37

                                                                   Exhibit 10.37

                               [LIGHTBRIDGE LOGO]

                             FY 2007 INCENTIVE PLAN

                                JANUARY 1, 2007










                         2007 LIGHTBRIDGE INCENTIVE PLAN
I.    OBJECTIVE

      THE OBJECTIVE OF THE LIGHTBRIDGE INCENTIVE PLAN (THE "PLAN") is to reward
      eligible members of the business unit team for their contributions to the
      success of Lightbridge, Inc. (the "Company"). The Lightbridge Incentive
      Plan is the incentive plan for eligible employees of the Company
      ("Participants") for the 2007 fiscal year.

II.   PURPOSE

      The Plan is aimed at motivating Participants to achieve key business
      objectives or to achieve the financial or operating performance of
      Lightbridge.

III.  BONUS PLAN ELEMENTS

            A.    EFFECTIVE DATE
                  This Plan is effective for the calendar year 2007
                  beginning January 1, 2007 through December 31, 2007.
                  Business objectives and performance goals will reflect the
                  entire plan year.

            B.    ELIGIBILITY, INTERPRETATION
                  Participants in this Plan are selected by the Chief Executive
                  Officer ("CEO"), or, in the case of the CEO, the Compensation
                  Committee.

                  All Participants must be employed in an eligible role prior to
                  October 1st of the Plan year to qualify for any pro-rata bonus
                  payout. Participants have no rights under any other incentive
                  plans.

                  A Participant must be employed in a bonus eligible position at
                  least for the stated timeframe above for a bonus payout and be
                  employed on the final day of the applicable Plan year to be
                  eligible.

                  Elements not addressed in this plan will be managed or
                  interpreted at the discretion of the CEO or CEO's designee or,
                  in the case of a matter affecting the CEO, the Compensation
                  Committee of the Board of Directors.

                                                                               1



                  The Company will issue all Participants a notice of their
                  eligibility and their individual Plan components by providing
                  a document in the form of Appendix A to each eligible
                  Participant.

            C.    2007 ANNUAL BONUS PERCENTAGE TARGETS
                  A Participant's bonus target is based on market indicators
                  for the Participant's role and is set as a percentage of the
                  Participant's 2007  annual base salary. The
                  Participant's 2007 annual base salary, including any
                  base adjustments approved during the first quarter of the
                  year, represents the basis for the bonus calculation.

            D.    PLAN GOALS AND MEASUREMENT

                  For purposes of the Plan, all Participants are grouped into
                  designated business units or the Company.

                  FINANCIAL PERFORMANCE - For each of the business units or the
                  Company, financial performance is measured by revenue and
                  EBITDA. In order for a Participant to receive a bonus, revenue
                  and EBITDA for the business unit or Company, as the case may
                  be, must exceed minimum amounts as described in Paragraph E
                  below.

                  EBITDA is defined as earnings before interest, taxes,
                  depreciation, amortization, share-based compensation,
                  restructuring, and asset impairment charges. In the event of
                  an acquisition, divestiture or other significant non-cash or
                  non-recurring expenditure, the EBITDA metric may be adjusted.
                  Payout under this Plan requires that Lightbridge, Inc. meet
                  certain minimum EBITDA performance, as described in Paragraph
                  E below.

                  INDIVIDUAL PERFORMANCE - A portion of the bonus pool will be
                  based on, and individual payouts will be calculated according
                  to, performance against pre-determined management goals and
                  objectives (MBOs). Individual MBOs will be weighted to reflect
                  their relative importance to Company's overall business plan
                  and will be reviewed on a quarterly basis by the Business Unit
                  President/GM or the CEO, as the case may be. All individual
                  MBOs must be documented in writing and approved by the
                  Business Unit President/GM, or in case of the Business Unit
                  President/GM or other Company personnel, the CEO, or in the
                  case of the CEO, the Compensation Committee.

                                                                               2


            E.    BONUS PAYMENTS
                  Once the applicable financial threshold performance
                  is achieved, payouts will be determined as provided
                  below. The percentage of the Participant's total
                  bonus pool allocated to each performance element is set forth
                  on Appendix A.

                  The payments for performance at threshold and between
                  threshold and target (100%) will be calculated according to
                  the schedule below:

                  -     FY 2007 Budgeted Business Unit or Company Revenue

                        -     90% of budgeted business unit or Company revenue
                              funds a 50% pool.

                        -     90.1-100% of budgeted business unit or Company
                              revenue funds a pool that is interpolated on a
                              straight line from the 50% level up to 100%.

                              Ninety per cent (90%) of Business Unit or Company
                              Revenue goal must be achieved to fund this pool.

                  -     FY 2007 Business Unit or Company EBITDA

                        -     90% of budgeted business unit or Company EBITDA
                              funds a 50% pool.

                        -     90.1%-100% of budgeted EBITDA funds a pool that is
                              interpolated on a straight line from the 50% level
                              up to 100%.

                              Ninety per cent (90%) of Business Unit or Company
                              EBITDA goal must be achieved to fund this pool.

                  -     MBO Achievement

                        -     Business unit or Company EBITDA attainment of 50%
                              of FY 2007 budget will fund a 25% pool.

                        -     Business unit or Company EBITDA attainment of
                              50.1% -100% of FY 2007 budget will fund a pool
                              that is interpolated on a straight line beyond the
                              25% level up to 100%.

                              Fifty per cent (50%) of FY 2007 Business Unit or
                              Company EBITDA target must be achieved to fund
                              this element of the bonus pool.

                  The metrics above may be adjusted for an acquisition,
                  divestiture, or other significant non-cash or non-recurring
                  expenditures.

            F.    PLAN PAYMENT

                                                                               3


      Payments under the Plan will be determined after the Company's financial
      results for FY 2007 are publicly released, which is typically within the
      first quarter of the following year.

G.    CHANGES IN PLAN
      The Company reserves the right to modify or terminate the Plan in total
      or in part, at any time. Any such modification or termination must be
      approved by the Compensation Committee and must be in writing and signed
      by the CEO or Compensation Committee designee.

H.    ENTIRE AGREEMENT
      This Plan is the entire agreement between Lightbridge and the executive
      regarding the subject matter of this Plan and supersedes all prior
      compensation, bonus or incentive plans or any written or verbal
      representations regarding the subject matter of this Plan. This Plan does
      not affect any existing employment agreements or employee retention
      agreements between Plan participants and Lightbridge.

J.    EMPLOYMENT AT WILL
      Except as may be set forth in any applicable employment agreements or
      employee retention agreements between the participants and
      Lightbridge, the employment of all Plan participants is for an indefinite
      period of time and is terminable at any time by either party, with or
      without cause being shown or advance notice by either party. This Plan
      shall not be construed to create a contract of employment for a specified
      period of time between Lightbridge and any plan participant.

K.    PLAN ACCEPTANCE

      I have read the complete 2007 Plan and understand its content. My
      signature below acknowledges receipt of the Plan.

      Participant Signature:__________________________  Date:___________

      Print Name:_____________________________________

                                                                               4


                                   APPENDIX A

                       FY 2007 LIGHTBRIDGE INCENTIVE PLAN

                          PARTICIPANT INFORMATION FORM

Participant Name:____________________________________

Job Title:_______________

Business unit group or
Company:_______________________

Target Bonus Percentage:______

THE TARGET PAYOUT IS ALLOCATED AS FOLLOWS:

Business Unit or Company Revenue:______%

Business Unit or Company EBITDA:______%

Individual/MBO:______%

FOR UPSIDE ELIGIBLE EMPLOYEES ONLY

You are also eligible for an incremental bonus if FY 2007 Total Company
Operating Income exceeds budget. The bonus pool will be funded as follows and
interpolated on a straight line basis:



PERFORMANCE                   ABOVE BUDGET           FUNDING $ TO POOL
                              (PERCENT OF FUNDING)
                                               
On budget                               0%           none
$1.00 to $2,000,000                     5%           Up to $100,000
$2,000,000.01 to $8,000,000            10%           Up to $600,000


Maximum Incremental Bonus Pool is $700,000.

The incremental bonus pool will be distributed on an individual basis according
to the Participant's actual bonus as a percent of the total incremental bonus
pool.

NOTE: Budgeted Company Operating Income will be adjusted accordingly for any
      acquisitions or divestitures.
      Total Company Operating Income is defined as Company Operating Income
      before share-based compensation, restructuring and asset
      impairment charges.

                                                                               5

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-21585, 333-23937, 333-39817, 333-43586, 333-43588, 333-56772, 333-56774,333-67881, 333-71890, 333-101600, 333-119707, and 333-119708 on Form S-8 of our reports dated March 15, 2007, relating to the financial statements of Lightbridge, Inc. and subsidiaries, (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s change in its method of accounting for share based payments upon the adoption of Statement of Financial Standards No. 123(R), “Share-Based Payment ”, effective January 1,2006) and management’s report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of Lightbridge, Inc. for the year ended December 31, 2006.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 15, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,    Robert E. Donahue, President and 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 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007

/s/ Robert E. Donahue

Robert E. Donahue

President, Chief Executive Officer and Director

(Principal Executive Officer)     

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,    Timothy C. O’Brien, 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 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007

/s/ Timothy C. O’Brien

Timothy C. O’Brien

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report on Form 10-K of Lightbridge, Inc. (the “Company”) for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on March 15^TH, 2007 (the “Report”), each of the undersigned Chief Executive Officer and Chief Financial Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert E. Donahue	/s/ Timothy C. O’Brien
Robert E. Donahue	Timothy C. O’Brien
President and Chief Executive Officer	Chief Financial Officer
Date: March 15, 2007	Date: March 15, 2007