UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-27218
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
(Exact name of registrant as specified in its charter)
England None
(Stated or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 West Loop South, 6th Floor
Houston, Texas
77027
(Address of principal executive offices)
(Zip Code)
(713) 625-9300
(Registrant's telephone number, including area code)
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) been subject to such
filing requirements for the past 90 days.
Yes X No________
--------
As of November 30, 1996, 25,538,720 Ordinary Shares of the Registrant's
Common Stock, 10 pence par value, were issued and outstanding.
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
FORM 10-Q
OCTOBER 31, 1996
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Consolidated Balance Sheet as of October 31, 1996 and April 30, 1996 3
Consolidated Statement of Operations for the three and six months ended
October 31, 1996 and October 31, 1995 4
Consolidated Statement of Cash Flows for the six months ended
October 31, 1996 and October 31, 1995 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations 8
---------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
-----------------
Item 5. Other Information 13
-----------------
Item 6. Exhibits and Reports on Form 8-K 13
--------------------------------
SIGNATURE 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
October 31, April 30,
1996 1996
---- ----
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 7,063 $ 10,960
Trade accounts receivable 3,957 9,579
Other current assets 1,394 3,498
-------- --------
Total current assets 12,414 24,037
Furniture, fixture and equipment, net 1,504 2,982
Other assets 160
-------- --------
Total assets $ 13,918 $ 27,179
======== ========
Liabilities and shareholders' deficit
-------------------------------------
Current liabilities:
Current maturities of indebtedness $ 691 $ 1,003
Accounts payable 1,240 1,630
Deferred revenue 3,459 3,691
Accrued liabilities 7,482 5,344
Executive Stock Option Trust indebtedness 976 903
-------- --------
Total current liabilities 13,848 12,571
Indebtedness 518 524
Other liabilities 10,055 2,149
-------- --------
Total liabilities 24,421 15,244
-------- --------
Shareholders' deficit:
Ordinary shares, 10 pence par value 4,255 4,253
Additional paid-in capital 20,282 20,323
Executive Stock Option Trust indebtedness (976) (903)
Cumulative translation adjustment (170) 439
Accumulated deficit (33,894) (12,177)
-------- --------
Total shareholders' deficit (10,503) 11,935
-------- --------
Commitments and contingencies
-------- --------
Total liabilities and shareholders' deficit $ 13,918 $ 27,179
======== ========
The accompanying notes are an integral part of this statement.
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
(UNAUDITED)
Three months ended Six months ended
October 31, October 31,
-------------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
Product licenses $ 2,757 $ 6,464 $ 4,761 $11,840
Services 2,095 4,458 5,345 8,858
-------- ------- -------- -------
Total revenue 4,852 10,922 10,106 20,698
-------- ------- -------- -------
Costs and expenses:
Cost of product licenses 11 232 69 474
Cost of services 921 1,673 2,537 3,342
-------- ------- -------- -------
Total cost of revenue 932 1,905 2,606 3,816
-------- ------- -------- -------
Gross margin 3,920 9,017 7,500 16,882
-------- ------- -------- -------
Sales and marketing 2,217 5,005 6,739 9,219
Research and development 1,016 1,887 3,159 3,789
General and administrative 578 1,368 1,886 2,599
Merger costs 468 468
Restructuring charge 17,621 17,621
-------- ------- -------- -------
Total operating expenses 21,432 8,728 29,405 16,075
-------- ------- -------- -------
Operating income (loss) (17,512) 289 (21,905) 807
Interest income 119 14 242 46
Interest expense (35) (14) (69) (32)
Other income (expense) 11 15
-------- ------- -------- -------
Income (loss) before income taxes (17,417) 289 (21,717) 821
Income taxes (benefit) (85) (158)
-------- ------- -------- -------
Net Income (loss) $(17,417) $ 204 $(21,717) $ 663
======== ======= ======== =======
Income (loss) per Ordinary Share: $ (0.68) $ 0.01 $ (0.85) $ 0.03
======== ======= ======== =======
Income (loss) per ADS: (1) $ (1.36) $ 0.02 $ (1.70) $ 0.06
======== ======= ======== =======
Weighted average Ordinary and Ordinary Share
equivalents outstanding 25,539 23,004 25,537 23,004
======== ======= ======== =======
(1) Adjusted to reflect the ratio of one ADS to two Ordinary Shares.
The accompanying notes are an integral part of this statement.
-4-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six months ended
October 31,
----------------------
1996 1995
---- ----
Cash flow from operating activities:-
Net income (loss) $(21,717) $ 663
Adjustments to reconcile net income (loss) to cash
used by operating activities:
Depreciation and amortization 303 206
Write-off of net assets from restructuring 2,894
Deferred income taxes (148)
Changes in current assets and liabilities, net of
the effect of net asset write-offs from restructuring:
Trade accounts receivable 3,835 922
Other current assets 916 (980)
Accounts payable (390) 684
Accrued restructuring 10,583 (1,612)
Accrued legal settlement (155) (1,073)
Other accrued liabilities (302) 104
Deferred revenue 1,273 75
Other noncurrent assets and liabilities, net (593) (98)
-------- -------
Net cash used by operating activities (3,353) (1,257)
-------- -------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (187) (955)
-------- -------
Net cash used by investing activities (187) (955)
-------- -------
Cash flows from financing activities:
Borrowings on indebtedness 442
Repayments of indebtedness (318) (282)
Issuance of Ordinary Shares, net (39) 69
Distributions to CCI shareholders (7)
-------- -------
Net cash provided (used) by financing activities (357) 222
-------- -------
Increase (decrease) in cash (3,897) (1,990)
Beginning cash and cash equivalents 10,960 5,026
-------- -------
Ending cash and cash equivalents $ 7,063 $ 3,036
======== =======
The accompanying notes are an integral part of this statement.
-5-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
OCTOBER 31, 1996
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles of the United States
for interim financial reporting and in accordance with Form 10-Q and Rule 10.01
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles of the United
States for complete financial statements. In the opinion of management, the
unaudited consolidated financial statements contained in this report reflect all
adjustments, consisting of only normal recurring adjustments considered
necessary for a fair presentation of the financial position and the results of
operations for the interim periods presented. Operating results for interim
periods are not necessarily indicative of results for the full year. These
unaudited consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the financial statements and the
notes thereto included in the Company's annual 10-K filed with the Securities
and Exchange Commission on July 29, 1996.
NOTE 2 - ACQUISITIONS:
In August 1995, the Company acquired Corporate Computing Inc. (CCI), in exchange
for 700,000 Ordinary Shares of the Company. The acquisition was accounted for
as a pooling of interests. CCI's operations have been included in the
consolidated financial statements for all periods presented.
NOTE 3 - SHAREHOLDERS' EQUITY:
In the period May 1, 1996 through October 31, 1996, options to purchase 33,000
Ordinary Shares at exercise prices of .6425 to .85 Pounds Sterling per share
were exercised. At October 31, 1996, there were options to purchase 1,858,750
Ordinary Shares, including 695,400 of options related to Ordinary Shares held by
the Executive Share Option Trust which are currently outstanding for earnings
per share calculation purposes. In August 1996, the Board of Directors granted
approximately 2.5 million options for Ordinary Shares to its various employees.
These options were formally approved by the shareholders on November 15, 1996.
NOTE 4 - EARNINGS PER SHARE AND COMMON EQUIVALENT SHARE:
Earnings per Ordinary Share and earnings per ADS are computed using the weighted
average number of Ordinary Shares and Ordinary Share equivalents outstanding
during the period. Ordinary Share equivalents, to the extent they would be
dilutive, include the number of shares issuable upon exercise of stock options,
less the number of shares that could have been repurchased with the exercise
proceeds using the treasury stock method.
-6-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
OCTOBER 31, 1996
UNAUDITED
NOTE 5 - RESTRUCTURE CHARGE:
On August 2, 1996, the Board of Directors approved a plan to restructure the
Company's operations. Under the approved plan, the Company recorded a
restructuring charge of $17.6 million in the three months ending October 31,
1996. This charge was comprised of approximately $10.6 million in abandoned
lease costs which is payable through 2014, $4.1 million in severance, personnel
and other costs and $2.9 million for the impairment of certain net operating
assets predominantely outside the U.S.
The amount of restructuring charge which remains accrued at October 31, 1996 is
as follows:
Accrued abandoned leaseholds $ 9,943
Personnel and other cost 870
-------
$10,813
Current accrued restructuring costs (3,284)
-------
$ 7,529
=======
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
When used in this discussion, the words "believes", "anticipated", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. See Item 6 - Exhibit
99 "Important Factors Regarding Forward-Looking Statements" which is
incorporated herein by reference. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
OVERVIEW
On August 2, 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 discontinued its direct sales and service
operations outside the US. 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 US. 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 US. 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 US.
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 is comprised primarily of lease costs, severance and
other employee costs and impairment of certain operating assets, principally
outside the U. S. As a result of this charge, the Company recorded a net loss
for the three and six month periods ended October 31, 1996 and expects to record
a net loss for the fiscal year ending April 30, 1997. The implementation of the
Company's restructuring plan has consumed significant amounts of cash during the
three months ended October 31, 1996 and will continue to consume cash over the
remainder of the fiscal year. Management believes the cash requirements related
to the restructuring charge for the remainder of fiscal 1997 could be as much as
$3.5 million. These requirements are to fund anticipated severance costs, lease
costs, costs associated with the elimination of the Company's cost base outside
the U.S. and costs associated with a legal settlement. While management believes
sufficient cash reserves currently exist to sustain the anticipated restructured
operations for the remainder of the fiscal year, there is no assurance that the
Company will have adequate liquidity and capital resources for the current
fiscal year, that it will be allowed to draw on its existing credit facilities
or that it will be able to find alternative credit facilities or capital
resources with terms that management believes are acceptable if so required to
do so. Further, 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.
The Company's restructuring plan is extensive and results in new and increased
responsibilities for management personnel. There will be significant challenges
on the Company's new management as they attempt to implement the restructuring
plan and develop personal knowledge of the Company, its products and markets.
To accommodate these changes, compete effectively and manage potential growth
and changes in the market place, management must continue to implement and
improve the speed and quality of its information decision and reporting systems,
procedures and
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
controls and motivate its workforce. There can be no assurance that the
Company's personnel, procedures, systems, controls and plans will be successful
or adequate to handle the changes. Additionally, the Company faces intense
competition in hiring and retaining skilled management, technical, marketing,
and sales personnel. The loss of the services of one or more of the Company's
key employees could have a materially adverse effect on the Company's business,
operating results and financial condition. See Exhibit 99 for further discussion
of potential risk factors.
As a result of the significant changes in the business, the results of
operations and financial position of the Company as of and for the three and six
month periods ended October 31, 1996 are substantially different than for the
comparative prior periods.
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
Total Revenue
Total revenue decreased 56% from $10.9 million in the three months ended October
31, 1995 to $ 4.9 million in the three months ended July 31, 1996. This
decrease was attributable to the elimination of the direct sales and service
operations outside the U.S. and a decline in Systems Engineer license revenue in
the U.S.
Product Licenses. The Company's product license revenue in the three months
ended October 31, 1996 was predominantly related to its Process Engineer product
line. Product license revenue decreased 57% from $6.4 million in the three
months ended October 31, 1995 to $2.8 million in the three months ended October
31, 1996. This decline, which reflected a reduction in the number of licenses
sold, is due to the elimination of the direct sales and service operations
outside the U.S. and a decline in Systems Engineer license revenue in the U.S.
Services. The Company provides maintenance and implementation services to its
customers. Maintenance services include technical support and access to product
upgrades. Implementation services include product installation, training and
assisting customers with the effective deployment of LBMS products. Overall
services revenue decreased 53% from $4.5 million for the three months ended
October 31, 1995 to $2.1 million for the three months ended October 31, 1996,
primarily due to the elimination of the direct sales and service operations
outside the U.S.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses consists of sublicense
fees, product media and duplication cost, manuals, packaging materials and
shipping expenses. Cost of product licenses was $0.2 million and $11,000 in the
three months ended October 31, 1995 and 1996, respectively, resulting in a gross
margin of 96.4% and 99.6% for each respective period. The increase in margin is
the result of a change in the mix of products from products with license fees
payable to a third party licenser to products without such third party fees.
Cost of Services. Cost of services consists primarily of personnel costs for
implementation, training and customer support. Cost of services was $1.7 million
and $.9 million in the three months ended October 31, 1995 and 1996,
respectively, resulting in a gross margin of 63% and 56% of the related service
revenue in each respective period. The reduction of the gross margin percentage
predominately reflects the reduction in implementation and training revenue
-9-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
without a corresponding decrease in implementation and training costs in the
U.S.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and commissions of sales and marketing personnel, travel and promotional
expenses and related indirect costs. Sales and marketing expenses decreased 56%
from $5.0 million, or 46% of total revenue, in the three months ended October
31, 1995 to $2.2 million, or 46% of total revenue, for the three months ended
October 31, 1996. This decrease of $2.8 million is due to the elimination of
sales and marketing costs outside the U.S. In the U.S. sales expenses increased
slightly, as a result of increased headcount, offset by a decrease in marketing
expenses, as a result of reduced marketing expenditures on products other than
the Process Engineer product line.
Research and Development. Research and development expenses consist primarily
of cost of research and development personnel and related indirect costs.
Research and development expenses were $1.9 million, or 17% of total revenue,
for the three months ended October 31, 1995 compared to $1.0 million, or 21% of
total revenue for the three months ended October 31, 1996. The decrease in
research and development expenses reflect the elimination or substantial
reduction in development efforts related to the Systems Engineer, Insight, GUI
Guidelines and Client Server Guidelines products. Development headcount and
expenses related to the Process Engineer product line were increased in the
three months ended October 31, 1996 compared to the three months ended October
31, 1995.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management personnel and
related indirect costs. General and administrative expenses decreased 58% from
$1.4 million for the three months ended October 31, 1995 to $0.6 million for
the three months ended October 31, 1996. The decrease resulted from the
elimination of general and administrative expenses outside the U.S. and a
reduction of general and administrative expenses, principally leasehold costs,
in the U.S.
Operating Income. The Company generated a loss from operations of $17.5
million, including a restructuring charge of $17.6 million, in the three months
ended October 31, 1996 compared to income from operations of $0.3 million,
including a $0.4 million charge for merger costs, for the comparable period in
1995.
Income taxes. During the three month period ended October 31, 1996, the Company
did not record a tax benefit related to the Company's losses because such
benefit can not be recognized, under the liability method, until future taxable
income is reasonably assured.
SIX MONTHS ENDED OCTOBER 31, 1996 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1995
Total Revenue
Total revenue decreased 51% from $20.7 million in the six months ended October
31, 1995 to $10.1 million in the six months ended October 31, 1996. This
decrease was attributable to the elimination of the direct sales and service
operations outside the U.S. and a decline in Systems Engineer license revenue in
the U.S.
-10-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Product Licenses. The Company's product license revenue in the six months
ended October 31, 1996 was predominantly related to its Process Engineer product
line. Product license revenue decreased 60% from $11.8 million in the six months
ended October 31, 1995 to $4.8 million in the six months ended October 31, 1996.
This decline, which reflected a reduction in the number of licenses sold, is due
to the elimination of the direct sales and service operations outside the U.S.
and a decline in Systems Engineer license revenue in the U.S.
Services. The Company provides maintenance and implementation services to its
customers. Maintenance services include technical support and access to product
upgrades. Implementation services include product installation, training and
assisting customers with the effective deployment of LBMS products. Overall
services revenue decreased 40% from $8.9 million for the six months ended
October 31, 1995 to $5.3 million for the six months ended October 31, 1996,
primarily due to the elimination of the direct sales and service operations
outside the U.S.
Cost of Revenue
Cost of Product Licenses. Cost of product licenses consists of sublicense
fees, product media and duplication cost, manuals, packaging materials and
shipping expenses. Cost of product licenses was $0.5 million and $0.1 million
in the six months ended October 31, 1995 and 1996, respectively, resulting in a
gross margin of 96% and 99% for each respective period. The increase in margin
is the result of a change in the mix of products from products with license fees
payable to a third party licenser to products without such third party fees.
Cost of Services. Cost of services consists primarily of personnel costs for
implementation, training and customer support. Cost of services was $3.3 million
and $2.5 million in the six months ended October 31, 1995 and 1996,
respectively, resulting in a gross margin of 62% and 53% of the related service
revenue in each respective period. The reduction of the gross margin percentage
predominately reflects the reduction in implementation and training revenue
without a corresponding decrease in implementation and training costs in the
U.S.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and commissions of sales and marketing personnel, travel and promotional
expenses and related indirect costs. Sales and marketing expenses decreased 27%
from $9.2 million, or 45% of total revenue, in the six months ended October 31,
1995 to $6.7 million, or 67% of total revenue, for the six months ended October
31, 1996. This decrease of $2.5 million is due to the elimination of sales and
marketing costs outside the U.S. In the U.S. sales expenses increased slightly,
as a result of increased headcount, offset by a decrease in marketing expenses,
as a result of reduced marketing expenditures on products other than the Process
Engineer product line in the three months ended October 31, 1996.
Research and Development. Research and development expenses consist primarily
of cost of research and development personnel and related indirect costs.
Research and development expenses were $3.8 million, or 18% of total revenue,
for the six months ended October 31, 1995 compared to $3.2 million, or 31% of
total revenue for the six months ended October 31, 1996. The decrease in
research and development expenses reflect the elimination or substantial
reduction in development efforts related to the Systems Engineer, Insight, GUI
Guidelines and Client Server Guidelines products in the three months ended
October 31, 1996. Development headcount and expenses related to the Process
Engineer
-11-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
product line were increased in the six months ended October 31, 1996 compared to
the six months ended October 31, 1995.
General and Administrative. General and administrative expenses consist
primarily of salaries of financial, administrative and management personnel and
related indirect costs. General and administrative expenses decreased 27% from
$2.6 million for the six months ended October 31, 1995 to $1.9 million for the
six months ended October 31, 1996. The decrease resulted from the elimination of
general and administrative expenses outside the U.S. and a reduction of general
and administrative expenses, principally leasehold costs, in the U.S. in the six
months ended October 31, 1996.
Operating Income. The Company generated a loss from operations of $21.9
million, including a restructuring charge of $17.6 million, in the six months
ended October 31, 1996 compared to income from operations of $0.8 million,
including a $0.4 million charge for merger costs, for the comparable period in
1995.
Income taxes. During the six month period ended October 31, 1996, the Company
did not record a tax benefit related to the Company's losses because such
benefit can not be recognized, under the liability method, until future taxable
income is reasonably assured.
Liquidity and Capital Resources
At October 31, 1996, the Company had cash and equivalents of $7.1 million and
negative working capital of $1.4 million. The Company generated approximately
$0.8 million in cash for operations for the six months ended October 31, 1996
before payments of approximately $4.1 million related to the Company's
restructuring activities and legal settlement. The Company had capital
expenditures of $0.2 million for the six months ended October 31, 1996 compared
to $1.0 million for the same period in the prior year. The Company does not
currently have any significant capital commitments. The Company has guaranteed
certain indebtedness incurred by the LBMS Executive Share Option Trust (the
Trust) ($976,000 at October 31, 1996) in connection with the Trust's purchase of
Company Ordinary Shares. Additionally, the Company has two revolving line of
credit facilities with a U.S. bank amounting to $2,500,000 and $500,000. At
October 31, 1996, there is $300,000 and $175,000 outstanding under the
respective facilities. The guarantee and the credit facilities subject the
Company to certain restrictive and financial covenants including limitations of
distributions and maintaining certain financial ratios. At October 31, 1996, the
Company is not in compliance with certain restrictive covenants of the guarantee
and the Bank agreements, respectively.
The implementation of the Company's restructuring plan has consumed significant
amounts of cash during the three months ended October 31, 1996 and will continue
to consume cash over the remainder of the fiscal year. Management believes the
cash requirements related to the restructuring charge for the remainder of
fiscal 1997 could be as much as $3.5 million. These requirements are to fund
anticipated severance costs, lease costs, costs associated with the elimination
of the Company's cost base outside the U.S. and costs associated with a legal
settlement. While management believes sufficient cash reserves currently exist
to sustain the anticipated restructured operations for the remainder of the
fiscal year, there is no assurance that the Company will have adequate liquidity
and capital resources for the current fiscal year, that it will be allowed to
draw on its existing credit facilities or that it will be able to find
alternative credit facilities or capital resources with terms that management
believes are acceptable if so required to do so. See Exhibit 99 for further
discussions about potential risk factors.
-12-
LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
PART II. - OTHER INFORMATION
ITEM 1. Legal Proceedings: - From time to time the Company has legal or
administrative proceedings which are generally incidental to its normal
business activities. While the outcome of any such proceeding can not
be accurately predicted, the Company does not believe the ultimate
resolution of any such existing matters should have a material adverse
effect on its financial position or results of operations.
ITEM 5. Other Information: - The London Stock Exchange (the Exchange) has
announced that the Unlisted Securities Market (USM) will be closed at
the end of 1996, by which time companies whose securities are traded on
the USM, including the Company, will be required to obtain a full
listing on the Exchange, a quotation on the Alternative Investment
Market or delist their shares. The Company has decided to rely upon the
Nasdaq National Market as the Company's principal market for its
Ordinary Shares upon the closing of the USM on December 31, 1996.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99 Important Factors Regarding Forward-Looking Statements.
(b) Reports on Form 8-K
Not Applicable.
-13-
SIGNATURES
Pursuant to the requirements 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.
Date: December 16, 1996 LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
By: /s/ Michael S. Bennett
-------------------------------------------
Michael S. Bennett, Chief Executive Officer
By: /s/ Stephen E. Odom
-------------------------------------------
Stephen E. Odom, Chief Financial Officer and
Senior Vice President - Finance and
Administration
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