LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
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. Reference is
also made to the "Risk Factors" described in the Company's Prospectus dated
November 22, 1995 and the Company's Form 10-K for its fiscal year ended April
30, 1996, as filed with the Securities and Exchange Commission.
(a) 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 nine months ended January 31, 1997
and expects to record a net loss for the fiscal year ending April 30, 1997.
The restructuring actions have resulted and may continue to result in a
substantial reduction in the Company's cash balance. The estimated total
cash requirements associated with the restructuring actions exceed the
Company's cash balances, 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.
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
Publicity concerning the Company's reported loss for the nine months ended
January 31, 1997 and expected loss for fiscal 1997, 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.
In addition, the first quarter of each fiscal year has historically been
comparatively weaker than the fourth quarter of the preceding fiscal year.
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) Prior Losses; Risks Associated with Management of a Changing Business. The
Company experienced losses in fiscal 1994, 1995, 1996 and for nine months
ended January 31, 1997. Based on the loss in the first nine months of
fiscal 1997, management expects that the Company will experience a loss for
the 1997 fiscal year. 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.
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
(d) 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 for development management. 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
management could result in reduced opportunities for sales of process
management products and adversely affect operational results.
(e) 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 successfully to 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. Furthermore,
there can be no assurance that such 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.
(f) Rapid Technological Change. The market for process management tools is
characterized by rapid technological advances, evolving industry standards,
changes 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,
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
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.
(g) Competition. The client/server applications development and specifically
the process 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 development and process management 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 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 client/server applications development
and specifically the process management 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.
(h) 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. Although
the Company currently sells its products through indirect sales channels,
revenue from such sales, in particularly since the restructuring, have been
minimal. There can be no assurance that the Company will be able to
increase revenue from its current 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 could adversely affect
the Company's business, financial
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
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. 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.
(i) 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 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.
(j) 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 recently announced the
appointment of a new Chief Executive Officer and a new Chairman of the
Board. Although these individuals have extensive management experience in
technology based companies, their experience in the Company's specific
process management product line is limited. 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
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LEARMONTH & BURCHETT MANAGEMENT SYSTEMS PLC
will be successful in attracting and retaining the personnel it requires to
develop new and enhanced products and to conduct its operations
successfully.
(k) 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 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 effect on its business,
financial condition and results of operations from fluctuations in foreign
currencies in the future.
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 an earlier SEC filing instead of this 10-Q. 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.
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