Lernout & Hauspie lowers forecast as co-founders resign

Lernout & Hauspie, the troubled European maker of speech-recognition software, said Thursday that its two founders have stepped down from their positions as co-chairmen and managing directors and that it plans to revise several financial statements.

The company, which has joint headquarters in Ieper, Belgium, and Burlington, Mass., also said Thursday that it expects third-quarter revenue to be at least $40 million below previous targets, which were in the range of $165 million to $185 million.

The Nasdaq on Thursday

Gartner analyst Jackie Fenn says Lernout & Hauspie's financial woes and management shake-up will be unsettling for a time, but may be the stimulus it needs to get back on track. see commentary

halted trading in Lernout & Hauspie at 8:21 a.m. EST (5:21 a.m. PST), pending news and additional information requested from the company. The Nasdaq said in a statement that trading will remain halted until Lernout & Hauspie has "fully satisfied" its request. Shares in the company, which have fallen about 72 percent this year, were last trading at $6.22 per share.

The resignations of founders Jo Lernout and Pol Hauspie from the executive spots come during the course of an audit committee inquiry into the company's recent financial results. The company said that "certain errors and irregularities" will prompt it to restate financial results for 1998, 1999 and the first half of 2000.

Lernout will serve as vice chairman of the company's board, and Hauspie has taken a leave of absence from his responsibilities as board director for medical reasons.

As part of the executive shakeup, the company also said Thursday that managing director Nico Willaert has stepped down from his position but will remain on the board. John Duerden, who was appointed chief executive officer in August, has become sole managing director and has also been asked by the board to strengthen the management team, including the appointment of a new chief financial officer.

Carl Dammekens, Lernout & Hauspie's chief financial officer, will be moving to another position within the company.

The board also established a new executive committee consisting of newly appointed board chairman Roel Pieper, Duerden, Lernout and one other independent director, to be announced. The committee will advise management on a range of issues, the company said.

Problems began to spiral out of control for the software maker after its shares dropped 19 percent Aug. 8 following an article published in The Wall Street Journal that reported the company may have given incorrect financial information about its Korean customers. The article questioned whether the company had penetrated the Korean market at the level it had reported.

In its most recent financial results, Lernout & Hauspie stated that sales fell in each of its markets except for Korea, where they were boosted by an acquisition.

The company's midyear interim audit, which found errors in the specified earnings periods, included its Korean operations. Lernout & Hauspie in late August announced the audit in an effort to allay concerns about its business in Korea. In September, the Securities and Exchange Commission launched an investigation of the company's earlier financial statements.

Lernout & Hauspie said that although the audit committee is working diligently to determine the effects of the discrepancies in its financial statements, it does not expect the audit and necessary restatements to be completed by Nov. 14. Consequently, the company said, its 10-Q filing for the third quarter, ended Sept. 30, is unlikely to be filed with the SEC in a timely manner.

The company's competitors in developing speech-recognition software products include IBM and Philips Electronics. The market for speech-recognition technology, which has slowed somewhat, recently gained back investor enthusiasm with the strong public offerings of SpeechWorks and Nuance Communications.