Learmonth & Burchett Management Systems PLC/England – ‘10-Q’ for 10/31/97 – EX-99

As of:  Thursday, 12/11/97   ·   For:  10/31/97   ·   Accession #:  899243-97-2360   ·   File #:  33-97454

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Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                      12     57K 
 2: EX-10       Bennett Letter                                         3     14K 
 3: EX-27       Financial Data Schedule                                2      8K 
 4: EX-99       Miscellaneous Exhibit                                  7     35K 

EX-99   —   Miscellaneous Exhibit

EX-99
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                                                                      Exhibit 99

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS                          

The Private Securities Litigation Reform Act of 1995 provides a new "safe       
harbor" for forward-looking statements to encourage companies to provide        
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by    
meaningful cautionary statements identifying important factors that could cause 
actual results to differ materially from those projected in the statement.  The 
Company desires to take advantage of the new " safe harbor" provisions of the   
Private Securities Litigation Reform Act of 1995 and is including this exhibit  
in order to do so.  Accordingly, the Company hereby identifies the following    
important factors which could cause the Company's actual financial results to   
differ materially from any such  results which might be projected, forecast or  
estimated by the Company in forward-looking statements.                         

The following factors, among others, could cause actual results to differ       
materially from those contained in forward-looking statements made in this      
report and presented elsewhere by management from time to time in Company       
filings with the Securities and Exchange Commission.                            

(a) Restructuring - In August 1996, the Board of Directors approved a plan to   
restructure the Company's operations and made changes to executive      
management. Included in the restructuring was a shift in the Company's  
  development and marketing efforts to focus substantially all its resources
    on the Company's Process Engineer product line, eliminating or substantially
 reducing its development and marketing investment in the System Engineer,
  Insight, GUI Guidelines and Client Server Guidelines product lines, and to
 discontinue its direct sales and service operations outside the U.S.  The
Company replaced its non-U.S. operations with third-party distributor   
relationships. There is no assurance that such distributors will be     
   successful.  Also, the Company discontinued its telesales operations in the
 U.S.  The Company's future ability to generate sustained profitability is
  dependent on the Company's Process Engineer product line and the Company's
   direct sales operations in the U.S.  There is no assurance that the Company
will be able to generate or sustain profitability.   The Company has not
 historically been successful in selling its Process Engineer product line
outside the U.S.                                                        

   In connection with the Company's restructuring plan, the Company recorded a
$17.6 million restructuring charge in the three months ended October 31,
1996. The restructuring charge was comprised primarily of lease costs,  
severance and other employee costs and impairment of certain operating  
    assets, principally outside the U.S. The restructuring actions may result in
a substantial reduction in the Company's                                

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cash balance. The estimated total cash requirements associated with the 
restructuring actions is substantial, however, currently, such cash     
requirements extend over several years. Additionally, the Company's     
 restructuring plan could result in additional claims or liabilities which
the Company has not anticipated or included in the restructuring charge.
 Unanticipated claims or liabilities could result in additional cash needs
for the Company.                                                        

   Publicity concerning the Company's reported loss for fiscal 1997 and losses
   reported in previous years, could adversely affect the Company's operations
  and financial position including the ability to complete product sales and
retain or attract key management and other personnel.                   

(b) Fluctuations in Operating Results; Seasonality. The Company has experienced 
substantial fluctuations in quarterly operating results in the past, and
  future operating results could vary substantially from quarter to quarter.
  Fluctuations in operating results may result in volatility in the price of
   the ADSs. The Company generally fulfills orders as received and as a result
 typically has little or no product license backlog. Quarterly revenue and
operating results therefore depend on the volume and timing of orders   
  received during the quarter, which are difficult to forecast. In addition,
    the Company historically has recognized a substantial portion of its revenue
in the last weeks of a quarter. To the extent this trend continues, the 
  failure to achieve such revenue in the last weeks of any given quarter may
  have a material adverse effect on the Company's financial results for that
  quarter. The timing of sales and related revenue recognition is influenced
  by a number of other factors, including seasonal customer buying patterns,
changes in product development and sales and marketing expenditures, and
   compensation incentives for sales teams. Because the Company's staffing and
operating expenses are based on anticipated revenue levels and a high   
percentage of the Company's costs are fixed in the short-term, small    
variations in timing of recognition of specific revenue can cause       
significant variations in operating results from quarter to quarter.    
Results from quarter to quarter may not be indicative of future results.
There can be no assurance that the Company will be able to sustain      
profitability on an annual or quarterly basis.                          

(c) Need for Market Acceptance of Process Management. The Company's product     
   lines are designed specifically for process management in the client/server
    environment. The Company's future financial performance will depend in large
part on continued growth in the number of organizations using process   
    management tools to manage their development processes. The Company believes
  that while the market for process management tools is growing, it is still
immature. Even if broader market acceptance is achieved, there can be no
   assurance that the market will continue to grow or that the Company will be
   able to respond effectively to the evolving requirements of the market. The
Company's reduced focus and investment on products other than process   

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management could result in reduced opportunities for sales of process   
  management products and adversely affect the Company's business, financial
condition and results of operations.                                    

(d) Risks Relating to New Product Releases and Product Enhancements. The        
Company's future success will depend, in large part, upon the Company's 
  ability to enhance its current process management product line and develop
   and introduce new products to meet customers' process management tool needs
  as well as emerging industry standards. There can be no assurance that the
 Company will be able to successfully develop and market a broader line of
    such products or that the Company will not encounter unexpected difficulties
   and delays in enhancing its existing products. The Company has introduced a
  new product, Deliverables Manager, which has required and will continue to
    require substantial development, marketing, management and other investment.
    There can be no assurance that Deliverables Manager or other new products or
product enhancements will meet the requirements of the marketplace or   
achieve market acceptance.                                              

Software products such as the products offered by the Company often     
  encounter development delays and may contain undetected errors or failures
    when introduced or when new versions are released. Because of the complexity
of the Company's products and the possibility of unforeseen technical   
problems in the development process, the Company risks missing announced
   delivery dates for new products or product enhancements. The Company has in
   the past and may in the future experience delays in the introduction of new
products and product enhancements. There can be no assurance that the   
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of a new product or  
   product enhancement or its functioning after release. Substantial delays in
the availability of any of the Company's products could have a material 
    adverse effect on the Company's business, financial condition and results of
  operations. Furthermore, products such as those offered by the Company may
contain undetected or unresolved software errors when they are first    
  introduced or as new or enhanced versions are released. The Company has in
the past discovered software errors in certain of its new products and  
   product enhancements. Although the Company has not experienced any material
adverse effects resulting from any such errors to date, there can be no 
   assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after   
    commencement of commercial shipments resulting in loss of or delay in market
acceptance, which could have a material adverse effect on the Company's 
business, financial condition and results of operations.                

(e) Rapid Technological Change. The market for process and asset management     
 tools is characterized by rapid technological advances, evolving industry
standards, changes                                                      

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in customer requirements and frequent new product introductions and     
enhancements. The Company's future success will depend in part on its   
ability to enhance its existing products and introduce new products that
    address changing customer requirements and emerging industry standards, such
  as new operating systems, including Windows 95. Any failure by the Company
   to anticipate or respond adequately to technology developments and customer
requirements, or any significant delays in product development or       
introduction, could result in a loss of competitiveness or revenue. In  
addition, from time to time the Company or others may announce products,
   features or technologies which have the potential to shorten the life cycle
  or replace the Company's existing products. Such announcements could cause
customers to defer the decision to buy, or determine not to buy, the    
Company's products, which would have a material adverse effect on the   
Company's business, financial condition and results of operations.      

(f) Competition. The process and asset management tools market is extremely     
    competitive, fragmented and rapidly changing, and is characterized by a lack
  of standards and numerous competitors in the areas of tools, methodologies
 and services. The Company believes that its ability to compete depends on
    many factors both within and outside of its control, including corporate and
product reputation, product architecture, functionality and features,   
   product quality, performance, ease-of-use, quality of support, availability
of product implementation and training services, and price.             

  In addition, because of the complexities inherent in software development,
software companies and the information technology departments of other  
business organizations may determine that it is more cost effective to  
develop their own software tools offering similar solutions to those    
products offered by the Company. Furthermore, the Company faces the risk
that vendors of tools, databases and other elements of the client/server
development market may add to their products some or all of the         
functionality that the Company's products provided to customers, thereby
reducing the number of prospective customers in need of the Company's   
    products. There can be no assurance that the loss of customers will not have
    a material adverse effect on the Company's business, financial condition and
results of operations.                                                  

   The Company expects competition from existing and additional competitors to
 increase. Many of the Company's competitors have, and new competitors may
have, larger technical staffs, more established and larger marketing and
    sales organizations, better developed distribution systems and significantly
    greater financial resources than the Company. There can be no assurance that
either existing or new competitors will not develop products that are   
superior to the Company's products or that achieve greater market       
   acceptance. There can be no assurance that future competition will not have
    a material adverse effect on the Company's business, financial condition and

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results of operations. In addition, distribution channels, technical    
  requirements and levels and bases of competition may differ as the Company
    introduces new products, and there can be no assurance that the Company will
be able to compete favorably. In addition, a proliferation of software  
   products to meet the needs of the process and asset management tools market
  may have a downward pressure on the prices of such products. Such downward
  pressure on product prices could have an impact on the Company's operating
   margins. There can be no assurance that the Company could avoid these price
pressures.                                                              

(g) Risks Relating to Indirect Sales Channels.  An important aspect of the      
Company's future sales and marketing strategy is to increase the        
effectiveness of current indirect sales channels outside the U.S. and   
develop indirect channels inside the U.S. Although the Company currently
    sells its products through indirect sales channels outside the U.S., revenue
from such sales, particularly since the restructuring, has been minimal.
   There can be no assurance that the Company will be able to increase revenue
from its current indirect sales channels or establish new indirect sales
channels. There can be no assurance that any current distributor of the 
 Company's products will continue to represent the Company's products, and
the inability to improve the effectiveness of current indirect sales    
    channels or establish new indirect sales channels could adversely affect the
Company's business, financial condition and results of operations. The  
Company's strategy of marketing its products directly  to end-users and 
indirectly through distributors  may result in distribution channel     
  conflicts, particularly in the U.S. The Company's direct sales efforts may
compete with those of its indirect channels and to the extent different 
distributors target the same customers, distributors may also come into 
conflict with each other. Although the Company attempts to allocate the 
markets for its products among its distribution channels in a manner to 
  avoid potential conflicts, there can be no assurance that channel conflict
will not materially and adversely affect its relationships with existing
distributors.                                                           

(h) Dependence on Proprietary Technology. The Company's success is heavily      
  dependent upon proprietary technology. The Company's products are licensed
    to customers under signed license agreements containing, among other things,
   provisions protecting against the unauthorized use, copying and transfer of
 the licensed program. In addition, the Company relies on a combination of
 trade secret, copyright and trademark laws, non-disclosure agreements and
    contractual provisions to protect its proprietary rights in its products and
  technology. The Company has no patents or patent applications pending, and
 existing trade secrets and copyright laws afford only limited protection.
Despite the Company's efforts to protect its proprietary rights,        
  unauthorized parties may attempt to copy aspects of the Company's products
 or to obtain and use information that the Company regards as proprietary.
   Policing unauthorized use of the Company's products is difficult, and while
the Company is                                                          

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unable to determine the extent to which piracy of its software products 
exists, software piracy can be expected to be a persistent problem,     
   particularly in international markets and as a result of the growing use of
    the Internet. In addition, the laws of some foreign countries do not protect
 the Company's proprietary rights to the same extent as do the laws of the
U.K. and the U.S. There can be no assurance that the steps taken by the 
Company  to protect its proprietary rights will be adequate or that the 
  Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.     

The Company is not aware that any of its products, trademarks or other  
proprietary rights infringe the proprietary rights of third parties.    
However, there can be no assurance that third parties will not assert   
infringement claims against the Company in the future with respect to   
    current or future products. As the number of software products in the market
   increases and the functionality of these products further overlap, software
   developers may become increasingly subject to infringement claims. Any such
  claims against the Company, with or without merit, could be time-consuming
and expensive to defend, cause product shipment delays or require the   
Company to enter into royalty or licensing agreements. Such royalty     
agreements, if required, may not be available on terms acceptable to the
Company, or at all, which could have a material adverse effect on the   
Company's business, financial condition and results of operations.      

(i) Dependence on Key Personnel. The Company's future success depends to a      
significant extent on the performance of a number of key management and 
  technical personnel, the loss of one or more of whom could have a material
 adverse effect on the Company.  The Company's success will also depend in
    part on its ability to attract and retain qualified professional, technical,
   managerial, sales and marketing and customer support personnel. Competition
for such personnel in the software industry is intense. There can be no 
 assurance that the Company will be successful in attracting and retaining
the personnel it requires to develop new and enhanced products and to   
conduct its operations successfully.                                    

(j) Risks Associated with Global Operations. Although the Company's             
    restructuring strategy (discussed in (a) above) relies primarily on the U.S.
  marketplace, the Company's current and future efforts outside the U.S. are
  subject to risks inherent in international business activities, including,
    in particular, general economic conditions in each such country, overlapping
 of differing tax structures, managing an organization spread over various
   jurisdictions, unexpected changes in regulatory requirements and  complying
   with a variety of foreign laws and regulations. Other risks associated with
  operations outside the U.S. in general include import and export licensing
 requirements, trade restrictions and changes in tariff and freight rates.
There can be no assurance that these factors will not have a material   
adverse effect on the                                                   

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Company's business, financial condition and results of operations.      

  The Company's non-U.S. sales have historically been denominated in foreign
currencies. To date, the Company has not established an exchange rate   
   hedging policy and has not engaged in any significant exchange rate hedging
   activities to minimize the risks of exchange rate fluctuations. The Company
  may seek to implement hedging techniques in the future with respect to its
 foreign currency transactions. There can be no assurance that the Company
will be successful in such hedging activities. Gains and losses on the  
   translation and/or conversion of foreign transactions into U.S. dollars may
   contribute to fluctuations in the Company's results of operations. Although
the Company has not experienced any material adverse impact to date from
fluctuations in foreign currencies, there can be no assurance that the  
Company will not experience a material adverse affect on its business,  
  financial condition and results of operations from fluctuations in foreign
currencies in the future.                                               

(k) Prior Losses; Risks Associated with Management of a Changing Business.  The 
  Company experienced losses in fiscal 1994, 1995, 1996 and 1997.  While the
Company has refocused its strategy, there can be no assurance that such 
reorientation will result in sustained profitability. Furthermore, in   
connection with such reorientation, the Company has experienced and will
  continue to experience a period of transition. This transition has placed,
   and may continue to place, a significant strain on its resources, including
its personnel. If Company management is unable to manage these changes  
effectively, the Company's business, financial condition and results of 
operations will be materially adversely affected.                       

Many of the foregoing factors discussed have been discussed in the Company's    
prior SEC filings and, had the Act become effective at a different time, would  
have been discussed in earlier SEC filings.  The foregoing review of factors    
pursuant to the Private Litigation Securities Reform Act of 1995 should not be  
construed as exhaustive or as any admission regarding the adequacy of           
disclosures made by the Company prior to the effective date of said Act.        

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-Q’ Filing		Date		First		Last			Other Filings
Filed on:		12/11/97
For Period End:		10/31/97
		10/31/96		1					10-Q
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