2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(D)
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-4882
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
COLORADO 84-0581776
- -------------------------------------------------------------- ---------------------------------
STATE (OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
1801 CALIFORNIA STREET, DENVER, COLORADO 80202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(303) 292-1111
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED FROM LAST
REPORT).
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 X NO
NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE OUTSTANDING AT JULY 31, 1996:
8,648,658
(This form 10-Q includes 14 pages)
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1996 3
AND DECEMBER 31, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE 4
AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 5
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 14
<PAGE>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 30, December 31,
1996 1995
---------- --------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 115 $ 419
Accounts receivable, net of allowance for doubtful
accounts of $3,967 and $3,811 3,873 6,614
Work in progress 4,312 3,008
Other current assets 389 423
--------------
Total current assets 8,689 10,464
Software, net of accumulated amortization and write-down of
$31,924 and $30,924 10,190 10,190
Property and Equipment, net of accumulated depreciation
and amortization of $6,583 and $6,223 1,150 1,416
Other Assets 1,485 1,842
21,514 23,912
========== ==============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable and current portion of long-term obligations - 382
Note payable to bank - 2,870
Accounts payable 2,150 3,375
Accrued salaries and fringe benefits 1,146 1,157
Accrued lease obligations 280 375
Deferred maintenance and other revenue 2,559 2,712
Other current liabilities 1,952 2,684
Total current liabilities 8,087 13,555
---------- --------------
Accrued Lease Obligations 252 333
Long-Term Obligations 262 284
Senior Secured Notes Payable 6,500 -
Convertible Debentures - 1,630
Total Long-Term Liabilities 7,014 2,247
---------- --------------
Redeemable Preferred Stock
Series A Convertible Preferred Stock, $5 par value;
1,200,000 shares authorized, 800,000 shares issued and
outstanding 4,000 4,000
---------- --------------
Stockholders' Equity
Common stock, no par value; $.10 stated value;
25,000,000 shares authorized, 8,649,000 and
8,256,000 shares issued and outstanding 865 825
Paid-in capital 50,213 48,850
Accumulated deficit (48,039) (44,970)
Cumulative foreign currency translation adjustment (626) (595)
---------- --------------
Total stockholders' equity 2,413 4,110
--------------
$ 21,514 $ 23,912
========== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Consulting and training $ 2,833 $3,583 $ 5,810 $ 7,478
Licenses and maintenance 1,725 1,726 3,533 4,521
Other 49 57 156 221
---------- --------
4,607 5,366 9,499 12,220
---------- ------- ---------- --------
COSTS AND EXPENSES
Costs of consulting and training 1,894 2,649 4,403 5,528
Costs of licenses and maintenance,
including software amortization of
$500, $1,375, $1,000 and $2,750 1,160 1,436 3,110 3,333
Costs of other revenue 29 69 93 133
Selling, general and administrative 2,685 1,830 3,707 3,600
Software research and development 85 223 155 300
---------- --------
5,853 6,207 11,468 12,894
---------- ------- ---------- --------
(LOSS) FROM OPERATIONS (1,246) (841) (1,969) (674)
Other (Expense)
Loss contingency (expense) (900) - (900) -
Interest income (expense) (125) (70) (187) (120)
Foreign exchange gains (losses) 11 (27) 7 (31)
---------- ------- ---------- --------
(Loss) Before Income Taxes (2,260) (938) (3,049) (825)
Provision For Income Taxes 10 50 20 100
---------- ------- ---------- --------
NET (LOSS) $ (2,270) $ (988) $ (3,069) $ (925)
========== ======= ========== ========
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 8,476 8,127 8,317 8,114
========== ========
(Loss) Per Common and Common
Equivalent Share $ (0.27) $(0.12) $ (0.37) $ (0.12)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Six Months Ended June 30,
------------ ----- ----------
1996 1995
------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (3,069) $ (925)
------------ ----------
Adjustments:
Depreciation and amortization 1,375 3,110
Provision for losses on accounts receivable 546 (200)
Loss contingency 900 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
and work in progress 891 (803)
Increase in other assets 421 242
(Decrease) in accounts payable and
accrued expenses (1,755) (22)
(Decrease) in accrued lease obligations (176) (404)
Increase (decrease) in deferred revenue (153) 503
------------ ----------
Total adjustments 2,049 2,426
------------ ----------
Net cash (utilized in) operating activities (1,020) 1,501
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software costs (1,000) (2,929)
Purchases of equipment (109) (234)
Net cash (utilized in) investing activities (1,109) (3,163)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock - 228
Bank line of credit borrowings (repayments) (2,870) 1,300
Proceeds from Senior Secured Notes 5,000 -
Proceeds from (repayments of) other obligations (274) 131
Net cash provided by financing activities 1,856 1,659
------------ ----------
Effect of exchange rates on cash (31) (87)
------------ ----------
Net (decrease) in cash and cash equivalents (304) (90)
Cash and cash equivalents at beginning of period 419 588
------------ ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 115 498
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $ 200 $ 137
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM INFORMATION
This report includes the consolidated financial statements of Scientific
Software-Intercomp, Inc., and its wholly-owned subsidiaries. The consolidated
balance sheet as of December 31, 1995 is excerpted from the audited financial
statements for the year then ended. The consolidated financial statements for
the interim periods ended June 30, 1996 and 1995 reflect all normal recurring
adjustments which, in the opinion of the Company, are necessary for a fair
statement of the results of operations, financial position, and cash flows, as
of the dates and for the periods presented. Operating results for the three
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
Except for historical information contained herein, the statements in
this report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks and uncertainties include,
among others, the financial strength and competitive pricing environment of
the oil and gas service industry, product demand, market acceptance and new
product development. Those and other risks are described in the Company's
filings with the Securities and Exchange Commission.
The Notes to Consolidated Financial Statements included in the Company's
1995 Annual Report on Form 10-K should be read in conjunction with these
consolidated financial statements.
NOTE 2 - BANK CREDIT AGREEMENT.
Effective April 1, 1996 the Company completed with Bank One a $1.5
million revolving credit facility that is available through April 15, 1997.
The collateral for the line is the Company's accounts receivable from non-U.S.
domiciled customers to the extent necessary to support the line. All
receivables not necessary for the line and substantially all other assets
except those of the Canadian subsidiary are collateral for The Lindner
Dividend Fund ("Lindner") and Renaissance Capital Partners II, Ltd.
("Renaissance") senior secured notes. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
The credit facility is supported by a $1.5 million guarantee from
EximBank. The Company will pay prime interest rate minus 1.25% on the first
$300,000 borrowed under the line and the prime interest rate on the balance.
The Company pays EximBank a fee equal to 1.5% of the guarantee and is required
to purchase credit insurance for foreign receivables.
As of June 30, 1996 the balances of the revolving credit facility,
amounts of short-term cash borrowings and letters of credit outstanding, and
credit available under the revolving credit facility were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Revolving credit facility limit (limited by insurance coverage and amounts of qualified receivables)
$ 1,500
---------------
Amounts outstanding:
Short-term cash borrowings -0-
Letters of credit 441
441
---------------
Credit available $ 1,059
===============
</TABLE>
The Company at June 30, 1996 was in violation of certain covenants on its
notes payable to Bank One, Lindner and Renaissance. All three parties have
waived these violations as of June 30, 1996.
The Company paid off the outstanding balance of its previous bank line of
credit with the proceeds from the Lindner and Renaissance Senior Secured
Notes. (See Management Discussion and Analysis of Financial Condition and
Results of Operations.)
UNITED KINGDOM LINE OF CREDIT.
The bank line of credit of the Company's United Kingdom subsidiary was
terminated in May 1996 and the outstanding balance of $300,000 was repaid
along with accrued interest. (See Management Discussion and Analysis of
Financial Condition and Results of Operations.)
CANADIAN LINE OF CREDIT.
The bank line of credit of the Company's Canadian subsidiary was also
terminated in May 1996. There were no outstanding borrowings under this
facility.
NOTE 3 - CONTINGENCIES
To the knowledge of management, the only claims pending or threatened
against the Company or any of its subsidiaries which individually or
collectively could have a material adverse effect upon the Company or its
financial condition are the following:
Marshall Wolf, on his behalf and on behalf of all others similarly
situated vs. E. A. Breitenbach, R. J. Hottovy, Jimmy L. Duckworth, and
Scientific Software-Intercomp, Inc. On October 5, 1995, a claim was filed in
the United States District Court for the District of Colorado alleging that
the Defendants, who include the former President and Chief Executive Officer
of the Company, its former Chief Financial Officer and a former Executive Vice
President, violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10(b)-5 promulgated thereunder in issuing financial reports for the first
three quarters of the Company's 1994 fiscal year which failed to comply with
generally accepted accounting principles with respect to revenues recognized
from the Company's contracts with value added resellers. The Plaintiff seeks
to have the Court determine that the lawsuit constitutes a proper class action
on behalf of all persons who purchased stock of the Company during the period
from May 30, 1994 through July 10, 1995, with certain exclusions, and the
Company has not contested whether the claim constitutes a proper class action.
The Defendants and the Plaintiff have reached agreement for settlement of
the claim involving the payment of $1,100,000 in cash, to be provided by the
Company's liability insurer, and the Company's issuance of warrants to
purchase common stock exercisable at the market price of the stock at the time
of completion of the settlement, with the number of warrants to be such that
their aggregate value is $900,000. The Company's Board of Directors has
approved the settlement which has been viewed as an equitable and reasonable
settlement. The Company recorded $900,000 loss contingency in the second
quarter of 1996 relating to the proposed agreement for settlement of the
Marshall Wolf claim. The expense and total transaction has no adverse impact
on total stockholders' equity. Completion of the settlement is subject to the
execution of definitive documents and approval of the fairness of the
settlement by the Court, with such completion anticipated to occur prior to
year-end.
Arbitration Number 70T 181 0038 96 D; Kinesix, a division of Scientific
Software-Intercomp, Inc. and Kinesix (Europe) Ltd., an English Company -
Houston, Texas. The Company, through Kinesix, a division of the Company,
entered into a Territory Distributor Agreement with Kinesix (Europe) Ltd.
("KEL"), an unaffiliated entity located in London, U.K. The Distributor
Agreement required under most circumstances a decision from the American
Arbitration Association ("AAA") before its termination could be effective. On
March 4, 1996 the Company commenced arbitration seeking declaration of
termination of the Distributor Agreement and money due the Company in excess
of $200,000. Thereafter, KEL in writing advised its customer base that it had
ceased to trade in Kinesix products. As a result of this action by KEL and
pursuant to the Distributor Agreement, the Company has declared the
Distributor Agreement terminated without the requirement of arbitration. In
the interim, on April 1, 1996 KEL filed an answer and counterclaim with the
AAA and asserts damages that exceed $1 million without substantiation. It is
the opinion of the Company and its counsel that KEL's claim is without merit
and the Company is vigorously defending the claim.
The Company has filed a claim for costs incurred pursuant to a gas
pipeline project in India. Depending on the amount collected on a claim by
the primary contractor against the ultimate customer the Company could receive
up to $1.4 million. No amount has been accrued related to the potential
settlement.
NOTE 4 - INCOME TAXES
The Company's income tax expense is primarily due to foreign taxes
withheld at the source on sales in some foreign countries. Consequently,
these taxes cause the Company's effective tax rate to vary from the Federal
statutory rate and the Company incurred a current tax provision in spite of a
loss in the current period.
NOTE 5 - NON-CASH ITEMS
Non-cash activities which occurred during the six months ended June 30,
1996 resulted in an increase in common stock and additional paid-in capital of
$1.4 million comprised of the following:
<TABLE>
<CAPTION>
Additional Paid-
Common Stock in Capital Total
------------ ------------ -----
(In Thousands)
<S> <C> <C> <C>
Conversion of Renaissance Debt $ 28 $ 212 $ 240
Loss contingency - 900 900
Employee Stock Ownership Plan/
Employee Stock Ownership Scheme
Contribution & Employee Stock
Purchases 8 180 188
Other 4 71 75
__________ ___________ _________
$ 40 $ 1,363 $ 1,403
========== =========== =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
OVERALL FINANCIAL POSITION. At June 30, 1996, the Company's working capital
ratio was 1.07 to 1, based on current assets of $8.7 million and current
liabilities of $8.1 million. The Company's working capital ratio at December
31, 1995, was .77 to 1.
In April and May 1996 the Company completed the following financing and
restructuring of convertible debentures and bank revolving line of credit:
- - In April 1996 Lindner Funds, a 14% shareholder in the Company, invested
$5 million in the Company in exchange for a senior secured note at 7% payable
in five years and non-detachable warrants to purchase 1.5 million shares of
SSI no par value common stock at $3.00 per share for five years.
- - In April 1996 Renaissance Capital Partners II, Ltd. converted $250,000
of principal of its convertible debentures for 282,218 shares of the Company's
no par value common stock and converted the balance of $1,500,000 principal of
its convertible debentures into a senior secured note at 7% payable in five
years and a non-detachable stock purchase right to acquire 450,000 shares of
SSI no par value common stock at $3.00 per share for five years. The terms of
the secured note and non-detachable stock purchase right are substantially
equal to those issued to Lindner Funds.
- - Effective April 1, 1996 the Company's primary bank and the Export-Import
Bank of the United States restructured and renewed a bank line of credit to
April 15, 1997. Under the terms of the agreement, the Company paid off the
existing $2,870,000 outstanding on the Company's bank revolving line of
credit. The Company's primary bank established a revolving line of credit
pursuant to which the Company may utilize up to $1.5 million for (a)
short-term borrowings for working capital purposes and (b) the issuance of
letters of credit for bid guarantees, performance bonds and advance payment
guarantees.
The Lindner and Renaissance transactions will be accounted for under
Accounting Principles Board (APB) Opinion Number 14 (accounting for
convertible debt and debt issued with stock purchase warrants) whereby the
notes and the non-detachable warrants will be treated as a single obligation
and no separate value is assigned to the warrants.
The Company believes with the completion of the financing and
restructuring of the convertible debentures and bank revolving line of credit
explained above and provided that the Company resumes generating cash flow
from operations that (a) amounts expected to continue to be available under
the Company's revolving credit facility and (b) internally generated funds
should provide the Company with sufficient liquidity and working capital to
meet its anticipated operating needs. There can be no assurance, however,
that the Company will generate sufficient cash flow from operations to meet
its future operating needs or be successful in obtaining any required
additional debt or equity financing.
RESULTS OF OPERATIONS
REVENUE
Total revenues for the three months ended June 30, 1996 decreased 14% to
$4.6 million compared to $5.4 million for the three months ended June 30,
1995. The decrease resulted from lower revenues in both Exploration and
Production (E&P) Consulting and The Petroleum Workbench divisions (a decrease
of $0.5 million and $0.6 million respectively) offset by an increase in
revenues in the Pipeline and Facilities (P&F) Division ($0.1 million) and in
the Kinesix Division ($0.1 million).
Total revenues for the six months ended June 30, 1996 decreased 22% to
$9.5 million compared with $12.2 million for the six months ended June 30,
1995. All divisions except for the Kinesix division which reported a 12%
increase in revenues were below reported revenues for the same period in 1995.
The P&F Division revenues declined 16% from a year ago due primarily to lower
software sales offset by an increase in consulting and training revenue. The
E & P Consulting Division reported a decrease in revenue of 24% due primarily
to the completion of a large consulting project in the African region in 1995.
The Petroleum Workbench Division reported a 33% decrease in sales due
primarily to the award of two large contracts in 1995.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------- ----------- -------
1996 1995 1996 1995
--------- --------- ----------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
E&P Consulting $ 1,819 $ 2,274 $ 3,806 $ 5,022
Workbench 1,054 1,654 2,265 3,373
P&F Division 1,203 1,076 2,375 2,826
Kinesix 531 362 1,053 941
Other - - - 57
Total Revenue $ 4,607 $ 5,366 $ 9,499 $12,219
========= ========= =========== =======
</TABLE>
COSTS FROM OPERATIONS
In the second quarter of 1996, management took steps to reduce overhead
and non-billable staff head count and other costs, and to establish direct
accountability for profitability and cash performance at division management
level. The benefits from these measures will be realized in direct costs in
the third and fourth quarters of 1996.
Direct costs (defined as the sum of costs of consulting and training plus
the cost of licenses and maintenance plus the costs of other revenue) for the
three months ended June 30, 1996 decreased to $3.1 million compared to $4.2
million for the three months ended June 30, 1995. Direct costs were 67% of
total revenue compared to 77% of revenue for the three months ended June 30,
1996 and 1995, respectively.
Direct costs for the six months ended June 30, 1996 decreased to $7.6
million compared with $9.0 million for the six months ended June 30, 1995.
The direct costs were 80% of total revenue in the six months ended June 30,
1996 compared to 74% of revenue in the six months ended June 30, 1995. In
second quarter ended June 30, 1996, the Company recorded a bad debt provision
of $.2 million in compliance with the Company's adopted policy relating to
over six months old receivables.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The benefits from the measures taken by management (discussed above) will
be realized in selling, general and administrative expense in the third and
fourth quarters of 1996.
Selling, general and administrative expenses for the three months ended
June 30, 1996 increased to $2.7 million compared with $1.8 million in the
three months ended June 30, 1995. Provisions for expenses of $0.4 million
relating to severance costs for staff reductions in second quarter and audit
costs are included in second quarter 1996 costs.
Selling, general and administrative expenses for the six months ended
June 30, 1996 were $3.7 million compared with $3.6 million the six months
ended June 30, 1995.
LOSS CONTINGENCY
The Company recorded $900,000 loss contingency in the second quarter of
1996 relating to the proposed agreement for settlement of the Marshall Wolf
claim (See Note 3 - Contingencies). The total settlement value is $2,000,000
with $1,100,000 being paid in cash by the Company's liability insurer and the
Company's issuance of warrants to purchase common stock exercisable at the
market price of the stock at the time of completion of the settlement with the
number of warrants to be such that their aggregate value is $900,000. The
Company's Board of Directors has approved the settlement which has been viewed
as an equitable and reasonable settlement. The expense and total transaction
has no adverse impact on total stockholders' equity.
LOSS FROM OPERATIONS
Loss from operations for the three months ended June 30, 1996 increased
to a $1.2 million loss from a $0.8 million loss for the same period of 1995.
Operational losses, before bad debt provisions and the provisions for expenses
discussed above, were approximately the same in the first quarter of 1996 as
in the second quarter of 1996. The Company showed a loss before income taxes
of $2.3 million in the three months ended June 30, 1996 compared to a loss
before taxes of $.9 million in the three months ended June 30, 1995.
Loss from operations for the six months ended June 30, 1996 increased to
a $2.0 loss from a $.7 million loss for the same reporting period of 1995.
The Company reported a loss before income taxes of $3.0 in the six monthes
ended June 30, 1996 compared to a loss before taxes of $0.8 million in the six
months ended June 30, 1996.
The Company's backlog at June 30, 1996 was $7.9 million.
SOFTWARE RESEARCH AND DEVELOPMENT
The following table summarizes total costs of development and enhancement
of the Company's software products for the three and six months ended June 30,
1996 and 1995, The Company's capitalized costs are accounted for in
accordance with FASB Statement No. 86.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------- ------ ------
1996 1995 1996 1995
--------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Software expenditures
Capitalized software costs $ 500 $ 1,484 $1,000 $2,929
Cost charged directly to operations 85 223 155 300
Total software expenditures $ 585 $ 1,707 $1,155 $3,229
========= ========= ====== ======
Software expenses charged to earnings
Cost charged directly to operations $ 85 $ 223 $ 155 $ 300
Amortization of capitalized software 500 1,375 1,000 2,750
Total software expenses charged to earnings $ 585 $ 1,598 $1,155 $3,050
========= ========= ====== ======
</TABLE>
The Company has continued its commitment to the development and
enhancement of its software products. Management has also developed a new
policy to limit future capitalization of software development costs. It is
anticipated that annual amounts of software capitalization will represent a
substantially lower percentage of total research and development costs and
will approximately equal the annual amortization of capitalized software costs
of approximately $2 million per year.
FOREIGN EXCHANGE GAINS (LOSSES)
The Company's foreign exchange gains and losses relate principally to the
effects of fluctuations in the exchange rate of the British pound on
transactions of the Company's subsidiary in the United Kingdom that are
denominated in other currencies. During the three months ended June 30,
1996, the Company reported a net foreign exchange gain of $11K compared with a
loss of $27K for the three months ended June 30, 1995. The Company reported a
net foreign exchange gain of $7K for the six months ended June 30, 1996
compared with a net loss of $31K for the six months ended June 30, 1995. The
reported exchange gains and losses were principally related to fluctuations
between the British pound and the U.S. dollar.
INTEREST INCOME (EXPENSE)
The following table summarizes the components of interest income
(expense) during the three and six months ended June 30, 1996 and 1995. The
capitalized interest was included as a component of the capitalized cost of
software development projects in progress in accordance with FASB Statement
No. 34.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------- ---------- ----------- ------
1996 1995 1996 1995
---------- ---------- ----------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 6 $ 10 $ 13 $ 17
Interest incurred (161) (130) (255) (237)
Interest capitalized 30 50 55 100
------
Net interest income (expense) $ (125) $ (70) $ (187) $(120)
========== ========== =========== ======
</TABLE>
INFLATION
The Company's results of operations have not been affected by inflation
and management does not expect inflation to have a significant effect on its
operations in the future.
<PAGE>
STOCK BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123) as of January 1,
1996. SFAS No. 123 allows for the Company to account for its stock option
plans in accordance with Accounting Principles Board Opinion No. 25, under the
intrinsic value method. The Company issued 445,000 stock options to employees
during the three months ended June 30, 1996, a portion of which were issued to
terminated officers in conjunction with their severance arrangements.
The following table summarizes the difference between the fair value and
intrinsic value methods and the proforma net loss and loss per share amounts
for the three and six months ended June 30, 1996 had the Company adopted the
fair value based method of accounting for stock-based compensation.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------- --------- ---------- ------
1996 1995 1996 1995
--------- --------- ---------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Difference between fair value
and intrinsic value methods
(additional compensation expense) 695 -0- 974 -0-
Net loss (2,965) (988) (4,043) (925)
(Loss) per share (0.35) (0.12) (0.47) (0.12)
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EX-1 - Financial Data Schedule.
b. Reports on Form 8-K.
The Company filed a Form 8-K on January 15, 1996, announcing the appointment
of George Steel as its President and Chief Operating Officer.
The Company filed a Form 8-K on May 3, 1996 to give notice of the completion
of a financing transaction with the conversion of the Renaissance Capital
Partners II, Ltd. debentures for shares.
The Company filed a Form 8-K on May 14, 1996 announcing the resignation of E.
A. Breitenbach, Chairman and Chief Executive Officer, and Ronald J. Hottovy,
Chief Financial Officer, and the appointment of George Steel as Chairman,
President and Chief Executive Officer, all of which are effective May 15,
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
August 13, 1996 /s/ George Steel
- --------------- --------------------------------------------------------------
Date George Steel, Chairman, President and Chief Executive Officer
(a principal executive officer and director)
August 13, 1996 /s/ Barbara J. Cavallo
- --------------- --------------------------------------------------------------
Date Barbara J. Cavallo, Financial Controller
</TABLE>
<TABLE> <S> <C>
[ARTICLE] 5
[MULTIPLIER] 1,000
[PERIOD-TYPE] 6-MOS
<FISCAL YEAR-END> DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] JUN-30-1996
[CASH] 115
[SECURITIES] 0
[RECEIVABLES] 7,840
[ALLOWANCES] 3,967
[INVENTORY] 0
[CURRENT-ASSETS] 389
[PP&E] 7,733
[DEPRECIATION] 6,583
[TOTAL-ASSETS] 21,514
[CURRENT-LIABILITIES] 8,087
[BONDS] 0
[COMMON] 865
[PREFERRED-MANDATORY] 50,213
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 21,514
[SALES] 9,499
[TOTAL-REVENUES] 9,499
[CGS] 0
[TOTAL-COSTS] 11,468
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 187
[INCOME-PRETAX] (3,049)
[INCOME-TAX] 20
[INCOME-CONTINUING] (3,069)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (3,069)
[EPS-PRIMARY] (0.37)
[EPS-DILUTED] 0
</TABLE>
