3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(AS AMENDED AUGUST 12, 1996)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1995
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)
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COLORADO 84-0581776
- -------------------------------- -------------------
STATE (OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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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, 1995:
8,176,518
(THIS FORM 10-Q/A INCLUDES 17 PAGES)
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INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1995 AND
DECEMBER 31, 1994 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1994 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
16
PART II. OTHER INFORMATION
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SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS )
June 30, December 31,
1995 1994
------------ --------------
ASSETS (Unaudited) (Unaudited)
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Current Assets
Cash and cash equivalents $ 498 $ 588
Accounts receivable, net of allowance for doubtful
accounts of $4,443 and $4,617 6,759 6,145
Work in progress 5,362 4,973
Other current assets 826 1,055
Total current assets 13,445 12,761
Software, net of accumulated amortization of 27,838
$28,271 and $25,524 27,656
Property and Equipment, net of accumulated depreciation
and amortization of $6,039 and $5,094 1,788 1,917
Other Assets 2,197 2,210
$ 45,268 $ 44,544
============ ==============
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable and current portion of long-term obligations $ 440 $ 286
Note payable to bank 2,300 1,000
Accounts payable 2,653 2,703
Accrued salaries and fringe benefits 1,440 1,387
Accrued lease obligations 257 570
Deferred maintenance and other revenue 2,513 2,010
Other current liabilities 1,314 1,339
--------------
Total current liabilities 10,918 9,295
Accrued Lease Obligations 628 720
Long-Term Obligations 320 343
Convertible Debentures 1,750 1,750
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;
10,000,000 shares authorized, 8,178,000 and
4,667,000 shares issued and outstanding 818 806
Paid-in capital 48,449 48,233
Accumulated deficit (20,971) (20,046)
Cumulative foreign currency translation adjustment (644) (557)
------------ --------------
Total stockholders' equity 27,652 28,436
45,268 $ 44,544
============ ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
------------ ------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
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REVENUE (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Consulting and training $ 3,583 $ 3,582 $ 7,478 $ 7,121
Licenses and maintenance 1,726 3,286 4,521 6,349
Other 57 67 221 174
------------ ------------
5,366 6,935 12,220 13,644
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Costs of consulting and training 2,649 2,403 5,528 4,862
Costs of licenses and maintenance,
including software amortization of
$1,375, $1,200, $2,750 and $2,400 1,436 1,707 3,333 3,262
Contract cost accruals (reversals) --- --- --- (4)
Costs of other revenue 69 40 133 104
Selling, general and administrative 1,830 1,862 3,600 3,595
Software research and development 223 136 300 314
------------ ------------
6,207 6,148 12,894 12,133
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS (841) 787 (674) 1,511
Other Income (Expense)
Interest income (expense) (70) (182) (120) (329) (43)
Foreign exchange gains (losses) (27) (38) (31) (43)
------------ ------------ ------------ ------------
Income Before Income Taxes (938) 567 (825) 1,139
Provision For Income Taxes 50 120 100 235
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (988) $ 447 $ (925) $ 904
============ ============ ============ ============
Weighted Average Number of Common and
Common Equivalent Shares Outstanding 8,127 5,730 8,114 5,832
============ ============
Income (Loss)Per Common and Common
Equivalent Share $ (0.12) $ $0.08 $ (0.12) $ 0.16
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SCIENTIFIC SOFTWARE-INTERCOMP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended June 30,
------------ ----------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (925) $ 904
------------ ----------------
Adjustments:
Depreciation and amortization 3,110 2,745
Contract cost accruals (reversals) --- (4)
Provision for losses on accounts receivable (200) 30
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
and work in progress (803) (1,697)
(Increase) decrease in other assets ` 242 27
Increase (decrease) in accounts payable and
accrued expenses (22) (976)
Increase (decrease) in accrued lease obligations (404) (277)
Increase (decrease) in deferred revenue 503 (157)
------------ ----------------
Total adjustments 2,426 (309)
------------ ----------------
Net cash provided by operating activities 1,501 595
------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized software costs (2,929) (2,470)
Purchases of equipment (321) (449)
Net cash (utilized in) investing activities (3,163) (2,919)
------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 228 9,109
Bank borrowings 1,300 104
Repayments of bank borrowings --- (5,132)
Proceeds from (repayments of) other obligations 131 (113)
Net cash provided by financing activities 1,659 3,968
------------ ----------------
Effect of exchange rates on cash (87) 45
------------ ----------------
Net increase (decrease) in cash and cash equivalents (90) 1,689
Cash and cash equivalents at beginning of period 588 139
------------ ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 498 $ 1,828
============ ================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized $ 137 $ 334
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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SCIENTIFIC SOFTWARE-INTERCOMP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM INFORMATION
This Form 10-Q/A includes the consolidated financial statements of
Scientific Software-Intercomp, Inc., and its wholly-owned subsidiaries. The
consolidated balance sheet as of December 31, 1994 is excerpted from the
audited financial statements for the year then ended. The original Form 10-Q
was filed before the audited financial statements for the audit for the year
ended December 31, 1994 were available. This Form 10-Q/A is filed to include
the audited balance sheet for the year ended December 31, 1994 and conform the
June 30, 1995 consolidated balance sheet and statement of cash flow.
The Notes to Consolidated Financial Statements included in the Company's 1994
Annual Report on Form 10-K should be read in conjunction with these
consolidated financial statements.
NOTE 2 - BANK CREDIT AGREEMENT
Effective September 21, 1994, the Company established a new primary banking
relationship, which includes a loan agreement with the bank that provides for
a revolving credit facility pursuant to which the Company may utilize up to
$6.0 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.
Borrowings and outstanding letters of credit are collateralized by
substantially all the Company's assets, excluding those of the Company's
Canadian subsidiary. The maximum amount of cash borrowings and letters of
credit that may be outstanding at any time is determined by a borrowing base
formula related to available collateral. The credit facility consists of a
foreign portion under which up to $4.5 million cash borrowings and letters of
credit may be outstanding if sufficient collateral of foreign accounts
receivable is available and a domestic portion under which up to $1.5 million
of cash borrowings and letters of credit may be outstanding if sufficient
collateral of domestic accounts receivable is available.
The foreign portion of the credit facility is supported by a $4.5 million
guarantee by the Export-Import Bank of the United States. The Company has
received approval from its primary bank to extend maturity of the revolving
credit facility to October 15, 1995. The size of the revolving credit
facility will be reduced to $5.0 million, a $4.5 million foreign credit
facility and a $0.5 million domestic credit facility. This extension is
subject to a corresponding extension of the Export-Import Bank's guarantee to
October 15, 1995. In addition, the Company's primary bank has requested the
Export-Import Bank to extend expiration of the guarantee to June 15, 1996 in
anticipation of extending the revolving credit facility to a longer maturity
after the bank has additional time to assess the Company's future performance.
As of June 30, 1995, the borrowing base, amounts of short-term cash borrowings
and letters of credit outstanding, and credit available under the revolving
credit facility were as follows:
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(In thousands)
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Revolving credit facility limit $ 6,000
===============
Borrowing base (limited by insurance
coverage and amount of qualified receivables) $ 3,680
Amounts outstanding:
Short-term cash borrowings $ 2,300
Letters of credit 1,021
---------------
$ 3,321
===============
Credit available as of June 30, 1995 $ 359
===============
</TABLE>
Interest rates applicable to short-term cash borrowings under the foreign
portion of the credit facility are equal to the bank's prime rate of interest.
Interest rates applicable to short-term cash borrowings under the domestic
portion of the credit facility are equal to the bank's prime rate of interest
plus 1.5%. At June 30, 1995, interest rates applicable to short-term cash
borrowings were 9.0% and 10.5% for the foreign and domestic portions of the
line of credit, respectively. The Company pays 2% annually for outstanding
letters of credit. The agreement requires that the Company meet certain
requirements regarding operating results and financial condition, and
prohibits the Company from paying dividends without the bank's prior written
consent.
The Company pays to the Export-Import Bank an annual fee of $67,500, equal to
1.5% of the amount of the guarantee. In addition, the Company is required to
purchase credit insurance for all foreign and certain domestic receivables at
a cost of 0.25% of the amount of the insured receivables.
In January 1995, the Company's United Kingdom subsidiary obtained a bank line
of credit of $300,000 for working capital financing of its projects. This
line of credit is collateralized by a Letter of Credit for $300,000, which was
issued by the Company's primary bank pursuant to the revolving credit facility
described above. Interest related to borrowings on the United Kingdom line of
credit is charged at a rate per annum equal to the bank's prime rate of
interest plus 1.75%. At June 30, 1995, the United Kingdom subsidiary had
approximately $250,000 outstanding under the line of credit.
The Company's Canadian subsidiary has a bank line of credit of approximately
$150,000 for working capital financing of its projects. At June 30, 1995, the
Canadian subsidiary had no outstanding borrowings under this arrangement.
Interest related to borrowings on the Canadian line of credit is charged at a
rate per annum equal to the bank's prime rate of interest plus 1.25%.
NOTE 3 - CONTINGENCIES
Other assets at June 30, 1995 and December 31, 1994 includes $470,000 related
to 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. An
allowance for doubtful accounts of $470,000 has been recorded as of June 30,
1995.
The Company's long-term services contracts generally include provisions for
penalty charges for delay in the completion of contracts. In the first
quarter of 1995, the Company did not complete a contract on a timely basis
that could have resulted in significant penalties if the Company was
determined to be at fault. Management believes failure to complete the
project timely is due to the customer and that no penalties will be incurred.
Subsequent to the second quarter of 1995 the Company received full payment on
the project. The payment by the customer supports management's contention
that the client will not assess penalties on the project. The Company
continues to work with the customer to resolve the matter.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
OVERALL FINANCIAL POSITION. At June 30, 1995, the Company's working capital
ratio was 1.3 to 1 based on current assets to $13.4 million and current
liabilities of $10.9 million. The Company's working capital ratio at December
31, 1994 was 1.4 to 1 based on current assets to $12.7 million and current
liabilities of $9.2 million. Total stockholders' equity was $27.6 million at
June 30, 1995 and $28.4 million at December 31, 1994.
BANK REVOLVING CREDIT FACILITY
Effective September 21, 1994, the Company established a new primary banking
relationship, which includes a loan agreement with the bank that provides for
a revolving credit facility pursuant to which the Company may utilize up to
$6.0 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.
Borrowings and outstanding letters of credit are collateralized by
substantially all the Company's assets, excluding those of the Company's
Canadian subsidiary. The maximum amount of cash borrowings and letters of
credit that may be outstanding at any time is determined by a borrowing base
formula related to available collateral. The credit facility consists of a
foreign portion under which up to $4.5 million cash borrowings and letters of
credit may be outstanding if sufficient collateral of foreign accounts
receivable is available and a domestic portion under which up to $1.5 million
of cash borrowings and letters of credit may be outstanding if sufficient
collateral of domestic accounts receivable is available.
The foreign portion of the credit facility is supported by a $4.5 million
guarantee by the Export-Import Bank of the United States. The Company has
received approval from its primary bank to extend maturity of the revolving
credit facility to October 15, 1995. The size of the revolving credit
facility will be reduced to $5.0 million, a $4.5 million foreign credit
facility and a $0.5 million domestic credit facility. This extension is
subject to a corresponding extension of the Export-Import Bank's guarantee to
October 15, 1995. In addition, the Company's primary bank has requested the
Export-Import Bank to extend expiration of the guarantee to June 15, 1996 in
anticipation of extending the revolving credit facility to a longer maturity
after the bank has additional time to assess the Company's future performance.
As of June 30, 1995, the borrowing base, amounts of short-term cash borrowings
and letters of credit outstanding, and credit available under the revolving
credit facility were as follows:
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(In thousands)
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Revolving credit facility limit $ 6,000
===============
Borrowing base (limited by insurance coverage
and amount of qualified receivables) $ 3,680
Amounts outstanding:
Short-term cash borrowings $ 2,300
Letters of credit 1,021
---------------
$ 3,321
===============
Credit available as of June 30, 1995 $ 359
===============
</TABLE>
Interest rates applicable to short-term cash borrowings under the foreign
portion of the credit facility are equal to the bank's prime rate of interest.
Interest rates applicable to short-term cash borrowings under the domestic
portion of the credit facility are equal to the bank's prime rate of interest
plus 1.5%. At June 30, 1995, interest rates applicable to short-term cash
borrowings were 9.0% and 10.5% for the foreign and domestic portions of the
line of credit, respectively. The Company pays 2% annually for outstanding
letters of credit. The agreement requires that the Company meet certain
requirements regarding operating results and financial condition, and
prohibits the Company from paying dividends without the bank's prior written
consent.
The Company pays to the Export-Import Bank an annual fee of $67,500, equal to
1.5% of the amount of the guarantee. In addition, the Company is required to
purchase credit insurance for all foreign and certain domestic receivables at
a cost of 0.25% of the amount of the insured receivables.
In January 1995, the Company's United Kingdom subsidiary obtained a bank line
of credit of $300,000 for working capital financing of its projects. This
line of credit is collateralized by a Letter of Credit for $300,000, which was
issued by the Company's primary bank pursuant to the revolving credit facility
described above. Interest related to borrowings on the United Kingdom line of
credit is charged at a rate per annum equal to the bank's prime rate of
interest plus 1.75%. At June 30, 1995, the United Kingdom subsidiary had
approximately $250,000 outstanding under the line of credit.
The Company's Canadian subsidiary has a bank line of credit of approximately
$150,000 for working capital financing of its projects. At June 30, 1995, the
Canadian subsidiary had no outstanding borrowings under this arrangement.
Interest related to borrowings on the Canadian line of credit is charged at a
rate per annum equal to the bank's prime rate of interest plus 1.25%.
RESULTS OF OPERATIONS
OVERALL OPERATING RESULTS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Total revenue decreased 23% to $5.4 million in the three months ended June
30, 1995, from $6.9 million in the three months ended June 30, 1994. The
decrease resulted primarily from lower licenses and maintenance revenue from
in the Pipeline and Facilities Division and the Kinesix Division. These
decreases were partially offset by an increase in development and production
software license and maintenance revenue, including a 38% increase in revenue
from The Petroleum WorkBench to $1.3 million in the second quarter of 1995
compared to $956,000 in the three months ended June 30 ,1994. Total
consulting revenue for the quarter was $3.6 million which was essentially the
same as the previous year.
As a result of the decrease in total revenue, during the three months ended
June 30, 1995, the Company's showed a loss before income taxes of ($938,000)
in the three months ended June 30, 1995, as compared to a profit of before tax
$567,000 in the three months ended June 30, 1994.
The Company has already taken actions that it expects to return the Company to
profitability in the near future.
- - Replacing entire management team as well as staff reductions in the
Kinesix Division.
- - Reducing staff in the Pipeline and Facilities Division.
- - Reducing staff in the Development and Production Consulting Division.
- - A total product solution sales approach in Development and Production
Products Division.
The Company's backlog at June 30, 1995 was $17.1 million, which is the highest
in Company history.
REVENUE
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Total Revenue. Total revenue decreased 23% to $5.4 million in the three
months ended June 30, 1995, from $6.9 million in the three months ended June
30, 1994. The decrease resulted from a decrease in license and maintenance
revenue of 47% to $1.7 million in 1995 from $3.3 million in 1994. The reasons
for the decrease in licenses and maintenance revenue is discussed in the
preceding section "Overall Operating Results." Total consulting revenue for
the quarter was $3.6 million which was essentially the same as the previous
year.
Development and Production Products and Services. Total revenue from
development and production products and services decreased 5% to $3.9 million
in the three months ended June 30, 1995, from $4.1 million in the three months
ended June 30, 1994. Consulting and training revenue in this area decreased
2% to $2.6 million in the three months ended June 30, 1995, from $2.7 million
in the three months ended June 30, 1994. Development and production software
license and maintenance revenue decreased 10% to $1.3 million in the three
months ended June 30, 1995, from $1.4 million in the three months ended June
30, 1994. Total revenue from The Petroleum WorkBench increased 38% to $1.3
million in the three months ended June 30, 1995, from $956,000 million in the
three months ended June 30, 1994.
Pipeline and Surface Facilities Products and Services. Total revenue from
pipeline and surface facilities products and services decreased 44% to $1.1
million in the three months ended June 30, 1995, from $1.9 million in the
three months ended June 30, 1994. Consulting and training revenue in this
area increased 50% to $750,000 in the six months ended June 30, 1995, from
$500,000 in the three months ended June 30, 1994. Pipeline and surface
facilities software license and maintenance revenue decreased 79% to $301,000
in 1995 from $1.4 million in 1994. License and maintenance revenue decreased
due to delays in closing pipeline projects in the Pacific Rim areas and the
fact that Company had no revenue from new Value Added Resellers (VARs) in the
quarter ended June 30, 1995.
GUI Products and Services. Total revenue from graphical user interface
("GUI") products and services decreased 59% to $362,000 in the three months
ended June 30, 1995, as compared to $884,000 in the three months ended June
30, 1994, as a result of a decrease to $154,000 in software license and
maintenance revenue in 1995 from $512,000 in 1994. As a result of the
continued poor performance by this Division, the Company changed the
management of the Kinesix Division and reduced staff during May 1995.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Total Revenue. Total revenue decreased 10% to $12.2 million in the six
months ended June 30, 1995, from $13.6 million in the six months ended June
30, 1994. The decrease resulted primarily from a decrease in license and
maintenance revenue of 29% to $4.5 million in 1995 from $6.3 million in 1994.
The reason for the decrease in license and maintenance revenue is discussed in
the preceding section "Overall Operating Results." Consulting and training
revenue increased 5% to $7.5 million in 1995 from $7.1 million in 1994.
Development and Production Products and Services. Total revenue from
development and production products and services increased 8% to $8.4 million
in the six months ended June 30, 1995, from $7.7 million in the six months
ended June 30, 1994. Consulting and training revenue in this area decreased
11% to $5.5 million in the in the six months ended June 30, 1995, from $4.9
million in the six months ended June 30, 1994. Development and production
software license and maintenance revenue increased 3% to $2.8 million in the
six months ended June 30, 1995, from $2.7 million in the six months ended June
30, 1994. Total revenue from The Petroleum WorkBench increased 35% to $2.1
million in the six months ended June 30, 1995, from $1.6 million in the six
months ended June 30, 1994.
Pipeline and Surface Facilities Products and Services. Total revenue from
pipeline and surface facilities products and services decreased 32% to $2.8
million in the in the six months ended June 30, 1995, from $4.2 million in the
six months ended June 30, 1994. Consulting and training revenue in this area
remained essentially level at $1.4 million in the six months ended June 30,
1995 and 1994. Pipeline and surface facilities software license and
maintenance revenue decreased 50% to $1.4 million in 1995 from $2.7 million in
1994. License and maintenance revenue decreased due to delays in closing
pipeline projects in the Pacific Rim areas and the Company had no revenue from
new Value Added Resellers in the quarter ended June 30, 1995.
GUI Products and Services. Total revenue from graphical user interface
("GUI") products and services decreased 46% to $940,000 in the six months
ended June 30, 1995, from $1.7 million in the six months ended June 30, 1994,
as a result of a decrease to $391,000 in software license and maintenance
revenue in 1995 from $930,000 in 1994. As a result of the continued poor
performance by this Division, the Company changed the management of the
Kinesix Division and reduced staff during May 1995.
COSTS OF CONSULTING AND COSTS OF LICENSES AND MAINTENANCE
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Direct costs of consulting and training increased to $2.6 million in the
three months ended June 30, 1995, from $2.4 million in the three months ended
June 30, 1994. Direct costs of consulting and training were 74% of consulting
training revenue in the three months ended June 30, 1995, as compared to 67%
in the three months ended June 30, 1994.
The Company has already put in place a reorganization of the Development and
Production Consulting Division which is aimed at reducing the cost of
consulting revenue. Costs of licenses and maintenance were $1.4 million in
the three months ended June 30, 1995 compared to $1.7 million in the three
months ended June 30, 1994, in spite of increased software amortization of
$1.4 million in 1995 up from $1.2 million in 1994. Total costs of licenses
and maintenance were 83% of license and maintenance revenue in the three
months ended June 30, 1995, as compared to 52% in the three months ended June
30, 1994. The higher cost percentages were the result of poor sales
performance in the recent quarter.
Because of the uncertainty about collectibility of certain fixed fee contracts
in the fourth quarter of 1994, the Company increased its reserve for doubtful
accounts by $2,443,000. The Company recovered bad debt expenses were reduced
by $235,000 in the current quarter for recoveries of items reserved in the
fourth quarter of 1994.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Direct costs of consulting and training increased to $5.5 million in the six
months ended June 30, 1995, from $4.9 million in the six months ended June
30, 1994. Direct costs of consulting and training were 74% of consulting
training revenue in the six months ended June 30, 1995, as compared to 69% in
the six months ended June 30, 1994.
Costs of licenses and maintenance were $3.3 million in the six months ended
June 30, 1995, as compared to $3.3 million in the six months ended June 30,
1994, including software amortization of $2.8 million in 1995 and $2.4 million
in 1994. Total costs of licenses and maintenance were 74% of license and
maintenance revenue in the six months ended June 30, 1995, as compared to 51%
in the six months ended June 30, 1994. As previously indicated, the expenses
were reduced by $235,000 for recoveries of items reserved in the fourth
quarter of 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
Selling, general and administrative expenses were $1.8 million in the three
months ended June 30, 1995, and $1.9 million in the three months ended June
30, 1994.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Selling, general and administrative expenses were $3.6 million in the six
months ended June 30, 1995, and $3.6 million in the six months ended June 30,
1994.
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,
1995 and 1994, the portion of these costs capitalized in accordance with FASB
Statement No. 86, the portion charged to research and development expense, the
portion of capitalized costs amortized, and the total amounts expensed and
amortized.
<TABLE>
<CAPTION>
Total Total
Software Amount Amount Amount Charges to
Expenditures Capitalized Expensed Amortized Earnings
------------- ------------ --------------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Three Months
Ended June 30,
1995 $ 1,707 $ 1,484 $ 223 $ 1,375 $ 1,598
1994 1,358 1,222 136 1,200 1,336
Six Months
Ended June 30,
1995 3,229 2,929 300 2,750 3,050
1994 2,784 2,470 314 2,400 2,714
</TABLE>
The Company has continued its commitment to the development and enhancement of
its software products. Although software research and development costs will
continue, management expects such costs will decrease as a percentage of
revenue in the future. Management expects that the amount of future annual
capitalized software development costs will be less than future annual
software amortization expenses. Accordingly, the net capitalized cost of the
Company's software assets is anticipated to decline in future years.
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.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
During the three months ended June 30, 1995 and 1994, the Company reported
net foreign exchange losses of $27,000 and $38,000, respectively, principally
as a result of the strengthening of the British pound against the U.S. dollar.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
During the six months ended June 30, 1995 and 1994, the Company reported net
foreign exchange losses of $31,000 and $43,000, respectively, principally as a
result of the strengthening of the British pound against 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, 1995 and 1994. 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>
Interest
Interest Interest Interest Income
Income Incurred Capitalized (Expense)
--------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
(In thousands)
Three Months
Ended June 30,
1995 $ 10 $ (130) $ 50 $ (70)
1994 3 (276) 91 (182)
Six Months
Ended June 30,
1995 17 (237) 100 (120)
1994 5 (518) 184 (329)
</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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Not applicable.
b. Reports on Form 8-K. On July 10, 1995 the Company filed a Form 8-K
disclosing that its primary audit firm had resigned without issuing an opinion
on the December 31, 1994 financial statements. The Company has subsequently
filed two amendments to the Form 8-K. The first amendment filed on July 7,
1995 included the explanation of former auditors for their resignation. The
second amendment filed on August 14, 1995 included the Company's comments on
the explanation of former auditors for their resignation
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 12, 1996 /s/ George Steel
- --------------- --------------------------------------------------------------
Date George Steel, Chairman, President and Chief Executive Officer
(a principal executive officer and director)
August 12, 1996 /s/ Barbara J. Cavallo
- --------------- --------------------------------------------------------------
Date Barbara J. Cavallo, Financial Controller
</TABLE>
[DESCRIPTION] Financial Data Schedule
<TABLE> <S> <C>
[ARTICLE] 5
[MULTIPLIER] 1,000
[PERIOD-TYPE] 6-MOS
<FISCAL YEAR-END> DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] JUN-30-1995
[CASH] 498
[SECURITIES] 0
[RECEIVABLES] 11,202
[ALLOWANCES] 4,443
[INVENTORY] 0
[CURRENT-ASSETS] 826
[PP&E] 7,827
[DEPRECIATION] 6,039
[TOTAL-ASSETS] 45,268
[CURRENT-LIABILITIES] 10,918
[BONDS] 0
[COMMON] 818
[PREFERRED-MANDATORY] 48,449
[PREFERRED] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 45,268
[SALES] 12,220
[TOTAL-REVENUES] 12,220
[CGS] 0
[TOTAL-COSTS] 12,894
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (120)
[INCOME-PRETAX] (825)
[INCOME-TAX] 100
[INCOME-CONTINUING] (925)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (925)
[EPS-PRIMARY] (0.12)
[EPS-DILUTED] 0
</TABLE>
