SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): September 11,
1997
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-4882 84-0581776
(State or other (Commission File Number) (IRS Employer
jurisdiction Identification
of incorporation) No.)
633 17th Street, Suite 1600, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 292-1111
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)<PAGE>
Item 5. Other Events.
On September 11, 1997, Scientific Software-Intercomp,
Inc. (the "Company") resolved the investigation by the Securities
and Exchange Commission ("SEC") of the Company's disclosures and
financial statements for the years ended December 31, 1993, 1994
and 1995. Without admitting or denying any of the allegations of
the SEC, the Company settled the matter by consenting to the entry
of a permanent injunction prohibiting future violations by the
Company of Section 17(a) of the Securities Act of 1933, and
Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1,
13a-11 and 13a-13 thereunder and to an order to restate the
Company's financial statements for the years ended December 31,
1993, 1994 and 1995. The SEC Staff has advised the Company that,
with the entry of the permanent injunction, the investigation in
this matter as to the Company has been concluded.
Attached as exhibits hereto are copies of the SEC's
Complaint, the Company's Consent and Undertaking, and the Company's
press release and SEC release related thereto.
Item 7. Financial Statements and Exhibits.
(a)-(b). Not Applicable.
(c) Exhibits. The following exhibits are filed as
part of this Current Report on Form 8-K.
Exhibit 99.1 Complaint against Scientific Software-
Intercomp, Inc. filed by the Securities
and Exchange Commission in the U.S.
District Court for the District of
Columbia on September 11, 1997
Exhibit 99.2 Consent and Undertaking of Scientific
Software-Intercomp, Inc. dated September
5, 1997 with annexed Final Judgment of
Permanent Injunction
Exhibit 99.3 Scientific Software-Intercomp, Inc. Press
Release dated September 11, 1997
Exhibit 99.4 Securities and Exchange Commission
Litigation Release No. 15485 and
Accounting and Auditing Enforcement
Release No. 956 dated September 11, 1997<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
Date: September 17, 1997 By: /S/ GEORGE STEEL
George Steel, Chairman, President and
Chief Executive Officer
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549,
Plaintiff,
v.
CIVIL ACTION NO.
SCIENTIFIC SOFTWARE-INTERCOMP, INC.,
633 17th Street, Suite 1600
Denver, Colorado 80202,
Defendant.
COMPLAINT
Plaintiff Securities and Exchange Commission ("Commission")
alleges:
SUMMARY
1. During 1993, 1994 and 1995, Scientific Software
Intercomp, Inc. ("SSI") materially overstated its revenue and
earnings by backdating or misdating contracts, booking revenue
without contracts, overaccruing project revenues and providing
confidential side letters modifying payment obligations. As a
result of these practices, SSI reported false and misleading
information in its Annual Reports for fiscal 1993 and 1994, its
Quarterly Reports for the first three quarters of fiscal 1994 and
the first quarter of fiscal 1995. In addition, SSI conducted an
offering of 2 million shares of common stock from which it
obtained more than $8 million on a registration statement that
materially overstated revenue, net income and earnings per share
for the 1993 fiscal year and the first quarter of 1994. By
engaging in such conduct, SSI violated Section 17(a) of the
Securities Act of 1933, and Sections 10(b), 13(a), 13(b)(2)(A)
and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules
10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.
JURISDICTION
2. The Court has jurisdiction pursuant to Section 22
of the Securities Act of 1933 ("Securities Act") [15 U.S.C. Section
77u] and Section 21 and 27 of the Securities Exchange Act of 1934
("Exchange Act") [15 U.S.C. Sections 78u and 78aa].
3. The defendant made use of the means or
instrumentalities of interstate commerce, of the mails, or of the
facilities of a national securities exchange in connection with
the acts, transactions, practices and courses of business alleged
herein.
PARTIES
4. The Commission brings this action pursuant to
Sections 20(b) and (e) of the Securities Act [15 U.S.C. Sections 77t(b)
and (e)] and Sections 21(d) and (e) of the Exchange Act [15
U.S.C. Sections 78u(d) and (e)].
5. Defendant Scientific Software-Intercomp, Inc., a
Colorado corporation with its principal place of business in
Denver, Colorado, develops, sells and provides software and
consulting services for the oil and gas industry. SSI's common
stock was registered with the Commission pursuant to Section
12(g) of the Exchange Act [15 U.S.C. Section 781(g)] and during the
relevant period was listed on NASDAQ. On June 30, 1994, SSI
conducted an offering of common stock pursuant to a registration
statement filed with the Commission on Form S-1, and sold 2
million newly issued common shares, receiving net proceeds of
$8.1 million. SSI's annual revenues during 1994 were
approximately $28 million.
FIRST CLAIM
Violations of Section 17(a) of the Securities Act and
Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder
6. During the relevant period, SSI's Pipeline and
Facilities Division ("P&F Division"), headquartered in Houston,
Texas, provided software and consulting services for oil and gas
companies, principally in the areas of pipeline monitoring and
simulation and leak detection. For 1994, the P&F Division
contributed approximately 26% of the total revenues of the
company as a whole.
7. Beginning in the early 1990's, the P&F Division
began a marketing program using value added resellers ("VAR"s) to
sell its software products. Under a typical VAR arrangement, SSI
entered an agreement with the VAR to purchase and sell SSI's
software, and the VAR would market the software. The typical
agreement provided that the VAR's purchase would be
unconditional.
8. The American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position on Software
Revenue Recognition 91-1 ("SOP 91-1") on December 12, 1991, to
provide guidance on applying generally accepted accounting
principles ("GAAP") to software license revenue. SOP 91-1
established that revenue from sales of software generally cannot
be recognized until the software is delivered, collectibility is
probable and the vendor has no significant obligations remaining
under the sales arrangement. It is also established the
following rules: (1) for software licenses intended to be
evidenced by a written contract signed by the vendor and the
customer, revenue should not be recognized until persuasive
evidence of the agreement exists; usually a signed contract
provides such evidence; (2) revenue from cancelable licenses
should not be recognized until the cancellation privileges lapse;
and (3) if, after delivery, there is significant uncertainty
about customer acceptance of the software, license revenues
should not be recognized until the uncertainty becomes
insignificant.
9. Beginning in the third quarter of 1993 through the
first quarter of 1995, SSI materially overstated its revenues,
which came primarily from the P&F Division, contrary to GAAP and
SOP 91-1.
Side Letters
10. Beginning in at least 1993, SSI began booking
revenues on contracts to VARs that included confidential side-
letters given by SSI either excusing payment to SSI until the
VARs received a resale payment from a third-party, or rendering
the contract ineffective and cancelable until a specified future
event, normally the sale of SSI's software to the VAR's
customers.
11. In the third and fourth quarters of 1993 and the
first quarter of 1994, SSI gave several side letters to ABB, a
VAR, that excused payment until ABB resold SSI's product to end
users with whom contracts were pending. Despite the fact that
ABB had not sold the product by year-end, and in at least one
instance the contract was signed after year-end, the revenue on
these contracts, amounting to more than $575,000, was booked in
the second half of 1993.
12. SSI gave a side letter to Valmet Automation,
another VAR, that excused payment until Valmet completed a sale
of SSI's product to another party. The full amount of this
contract, $200,000, was booked in the first quarter 1993 and
remained on SSI's books throughout 1993 even though Valmet had
not sold any of SSI's products by the end of 1993 and thus was
not obligated to pay SSI under the contract.
13. In the first quarter of 1994, SSI booked $160,000
for a purported sale to Controles Texas, another VAR, despite the
fact that SSI gave Controles Texas a side letter excusing payment
to SSI until Controles Texas was paid by a specified end user.
No payment was made to Controles Texas by the end user by the end
of the quarter. Thus Controles Texas had no obligation to pay
SSI under the contract.
14. In the first quarter of 1994, SSI booked $500,000
for a contract it had with Envirotech Controls, Inc., another VAR
to whom SSI had given a side letter. At the time the revenue was
booked, Envirotech had not made any sales of SSI's software as
required by the side letter for the contract to commence, and
thus Envirotech had no obligation to make payment to SSI under
the contract.
15. In all, in the third and fourth quarters of 1993
and throughout 1994, SSI booked revenue of over $2 million from
at least nine agreements with VARs that had been given side
letters either excusing payment or rendering the contract
ineffective, contrary to GAAP.
Backdating or Misdating of Contracts and Shipping Documents
16. During the period from 1993 through June 1995, SSI
backdated a significant percentage of its contracts by signing
them "effective" as of the last day of the quarter, even though
the actual contracts were signed and became binding after the
quarter-end. These contracts were booked as revenue in the prior
quarter contrary to GAAP.
17. In addition to the backdating of contracts,
throughout the same period, SSI booked revenue from sales of
software in quarters where it was shipped after the quarter-end,
and often backdated shipping documentation.
18. In still other instances, revenues from sales of
software were booked where the shipped software was unusable.
Lack of Written Contracts
19. On numerous occasions, SSI recognized revenue
before persuasive evidence of an agreement existed, and where no
written contract existed, contrary to GAAP and SOP 91-1. In
certain instances, the sales and accounting personnel within SSI
were instructed not to bill or otherwise seek payment from the
customer.
20. Specifically, in the first quarter of 1995, SSI
booked $700,000 on a contract with the United States Navy for
which no documentation existed except a request for pricing that
had been exchanged between the SSI sales man and the agency.
Despite the fact that there was no written contract at
quarter-end, SSI booked $700,000 in that period.
Advance Booking of Project Revenues
21. SSI also booked project revenues contrary to GAAP,
which generally requires companies to recognize revenue on
project agreements as the work is performed or over the life of
the agreement. During the period from 1993 through June 1995,
SSI booked revenues on long-term contracts in excess of the
contemplated revenues of the contracts. In certain instances,
SSI booked the full amount of revenue on a long-term contract
where little or no work had been completed and was not
anticipated in the near term.
22. By the end of 1994 and into early 1995, the
various accounting improprieties within the P&F Division,
including side letters, backdated contracts, nonexistent written
contracts and advance booking of project revenue, resulted in
revenues booked contrary to GAAP and SOP 91-1 amounting to more
than $3 million, roughly 33% of the annual revenues of the entire
Division.
23. On April 6, 1995, SSI issued a press release
announcing that, because certain of its VAR contracts "did not
meet all of the necessary requirements to be recognized as
revenue" it would post a "substantial loss in the fourth
quarter." Following the announcement, in which the exact loss
had yet to be quantified, the price of SSI common stock dropped
by approximately 25% from a high above $5 per share. Since then,
the price of SSI common stock has steadily declined to its
current trading range between $.50 and $.75 per share.
24. During the period from 1993 through June 1995,
certain senior officers and directors of SSI knew or were
reckless in not knowing of the side letters, backdating of
contracts, booking of revenues without contracts, and overaccrual
of project revenues, and knew or were reckless in not knowing
that these practices resulted in SSI materially overstating
revenues.
FALSE PUBLIC FILINGS AND DISCLOSURES
25. The misstatements caused by SSI's false accounting
appeared in SSI's financial statements included in each of its
periodic filings with the Commission during the relevant period.
On March 31, 1994, SSI filed with the Commission its Annual
Report on Form 10-K for its fiscal year ended December 31, 1993.
This report contained audited financial statements in which SSI
materially overstated revenue, net income and earnings per share
for the fiscal year.
26. On May 9, 1994, SSI filed with the Commission a
registration statement on Form S-1 for the sale of 2 million
shares of common stock. The registration statement contained
audited and unaudited financial statements in which SSI
materially overstated revenue, net income and earnings per share
for the 1993 fiscal year and the first quarter of 1994.
27. On May 23, 1994, August 12, 1994, August 12, 1994,
and November 21, 1994, SSI filed with the Commission its
Quarterly Reports on Form 10-Q for the quarters ended March 31,
1994, June 30, 1994, and September 30, 1994, respectively. These
Quarterly Reports contained unaudited financial statements in
which SSI materially misstated revenue, net income and earnings
per share.
28. On June 21, 1995, SSI filed with the Commission
its Quarterly Report on Form 10-Q for the quarter ended March 31,
1995. The Quarterly Report contained unaudited financial
statements in which SSI materially overstated revenue, net income
and earnings per share.
29. During the period from 1993 through June 1995,
certain senior officers and directors of SSI knew or were
reckless in not knowing that the company's Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q materially overstated
revenue, net income and earnings per share.
RESIGNATION OF SSI'S AUDITORS
30. After discovering some of the accounting
improprieties occurring at SSI in April 1995, SSI's auditors
expressed concern over their ability to complete the audit, and
discussed with SSI management how the audit might be completed.
In response, SSI appointed a special committee to conduct an
internal investigation to determine the scope of the financial
misstatements. On June 30, 1995, after the committee traced the
improprieties in SSI's accounting to senior management outside
the P&F Division, the auditors resigned.
31. On July 10, 1995, SSI filed a Current Report on
Form 8-K stating that SSI's auditors had resigned and stating
that there were no disagreements with the auditors. After
reviewing the Form 8-K, the auditors contacted the Commission to
state that they disagreed with SSI's representations in the 8-K.
On August 14, 1995, SSI responded to the auditors' letter by
filing another Form 8-K. In that filing, SSI noted the
disagreement with its auditors, but falsely stated that the
auditors had not discussed resignation with SSI prior to June 30,
1995.
32. On July 10, 1995, SSI filed with the Commission
its Annual Report on Form 10-K for its fiscal year ended December
31, 1994. This report contained unaudited financial statements
in which SSI materially misstated revenue, net income and
earnings per share for the fiscal year.
33. During the period from 1993 through June 1994,
certain senior officers and directors of SSI knew or were
reckless in not knowing that the company's Current Reports on
Form 8-K was false and that the company's 1994 Annual Report on
Form 10-K materially overstated revenue, net income and earnings
per share.
34. By reason of the foregoing, SSI violated Section
17(a) of the Securities Act [15 U.S.C. Section 77q(a)], Section 10(b)
of the Exchange Act [15 U.S.C. Section 78j(b)] and Rule 10b-5 [17
C.F.R. Section 240.10b-5] thereunder.
SECOND CLAIM
Violations of Sections 13(a) of the Exchange Act
and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder
35. Plaintiff realleges and incorporates by reference
paragraphs 1 through 34 above.
36. By filing materially false and misleading Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K, SSI violated Section 13(a) of the Exchange
Act [15 U.S.C. Section 78m(a)] and Rules 12b-20, 13a-1, 13a-11 and
13a-13 thereunder [17 C.F.R. Section 240.12b-20, 13a-1, 13a-11 and 13a-
13].
THIRD CLAIM
Violations of Sections 13(b)(2)(A) of the Exchange Act
37. Plaintiff realleges and incorporates by reference
paragraphs 1 through 36 above.
38. By failing to make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly
reflected the transactions and dispositions of the assets of SSI,
SSI violated Section 13(b)(2)(A) of the Exchange Act [15 U.S.C.
Section 78m(b)(2)(A)].
FOURTH CLAIM
Violations of Sections 13(b)(2)(B) of the Exchange Act
39. Plaintiff realleges and incorporates by reference
paragraphs 1 through 38 above.
40. By failing to devise and maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that transactions were recorded as necessary to permit
preparation of financial statements in accordance with GAAP, SSI
violated Section 13(b)(2)(B) of the Exchange Act [15 U.S.C.
Section 78m(b)(2)(B)].
PRAYER
WHEREFORE, the Commission respectfully requests that the
Court:
I.
Permanently enjoin SSI from violating, directly or
indirectly, Section 17(a) of the Securities Act, and Sections
10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.
II.
Order SSI to restate its financial statements for the years
ending December 31, 1993, 1994 and 1995.
III.
Grant such other relief as the Court may deem just and
appropriate
Dated: September 11, 1997 Respectfully submitted,
/S/ GREGORY S. BRUCH
________________________________
Paul V. Gerlach, D.C. Bar 366777
Gregory S. Bruch, D.C. Bar 413527
Christopher F. Robertson
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Mail Stop 2-5
Washington, D.C. 20549
(202) 942-4548 (Bruch)
(202) 942-9639 (fax)
EXHIBIT 99.2
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549,
Plaintiff,
v. CIVIL ACTION NO.
SCIENTIFIC SOFTWARE-INTERCOMP, INC.,
633 17th Street, Suite 1600
Denver, Colorado 80202
Defendant.
CONSENT AND UNDERTAKING OF SCIENTIFIC
SOFTWARE-INTERCOMP, INC.
1. Defendant SCIENTIFIC SOFTWARE-INTERCOMP, INC. ("SSI")
enters a general appearance, admits the jurisdiction of this
Court over it and over the subject matter of this action, waives
service upon it of a Summons and of the Complaint of Plaintiff
SECURITIES AND EXCHANGE COMMISSION (the "COMMISSION") in this
action, and the filing of an Answer.
2. Defendant SSI, without admitting or denying the
allegations of the Complaint, except as to jurisdiction, which it
admits, and without trial, argument or adjudication of any issue
of fact or law, without findings of fact or conclusions of law
which it waives, consents to the entry of the FINAL JUDGMENT OF
PERMANENT INJUNCTION AS TO SCIENTIFIC SOFTWARE-INTERCOMP, INC.
(the "FINAL JUDGMENT") in the form annexed hereto and
incorporated by reference herein, which (i) permanently restrains
and enjoins SSI from violating Section 17(a) of the Securities
Act of 1933 ("Securities Act") [15 U.S.C. Section 77q(a)] and Sections
10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities
Exchange Act of 1934 ("Exchange Act") [15 U.S.C. Sections 78j(b),
78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)], and Exchange Act Rules
10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 [17 C.F.R. Sections 240.10b-5,
240.12b-20, 240.13a-1, 240.13a-11 and 240.13a-13] thereunder, and
(ii) orders SSI to restate its financial statements for the years
ending December 31, 1993, 1994 and 1995.
3. Defendant SSI waives the entry of findings of fact and
conclusions of law pursuant to Rule 52 of the Federal Rules of
Civil Procedure.
4. Defendant SSI waives any right it may have to appeal
from the entry of the FINAL JUDGMENT.
5. Defendant SSI enters into this CONSENT AND UNDERTAKING
OF SCIENTIFIC SOFTWARE-INTERCOMP, INC. (the "CONSENT")
voluntarily and of its own accord and represents that no threats,
offers, promises or inducements of any kind have been made by the
COMMISSION or any member, officer, employee, agent or
representative of the COMMISSION to induce it to enter into this
CONSENT.
6. Defendant SSI agrees that this CONSENT shall be
incorporated into the FINAL JUDGMENT with the same force and
effect as if fully set forth therein.
7. Defendant SSI agrees that it will not oppose the
enforcement of the final judgment on the ground, if any exists,
that it fails to comply with Rule 65(d) of the Federal Rules of
Civil Procedure, and it hereby waives any objection it may have
based thereon.
8. Defendant SSI agrees that the FINAL JUDGMENT may be
presented by the COMMISSION to the Court for signature and entry
without further notice.
9. Defendant SSI waives service of the FINAL JUDGMENT
entered herein upon it and agrees that entry of the FINAL
JUDGMENT by the Court and filing with the Clerk in the United
States District Court for the District of Columbia will
constitute notice to it of the terms and conditions of such FINAL
JUDGMENT.
10. Defendant SSI agrees and undertakes that, at the
COMMISSION's request, on reasonable notice and without service of
a subpoena, it will instruct its employees, agents and
representatives to cooperate with the COMMISSION and its staff
and to truthfully disclose all information with respect to their
activities and the activities of others about which the
COMMISSION or its staff may inquire with respect to the matters
alleged in the Complaint; designate representatives to testify in
all investigations, administrative and judicial proceedings
involving the Commission as a party at which the COMMISSION or
its staff makes requests for its testimony; will endeavor to make
its employees, agents and representatives available on a travel
cost reimbursable basis as may be required by the COMMISSION or
its staff; produce any documents within its possession, custody
or control, domestic or foreign, which are requested by the
COMMISSION or its staff; be accompanied at any time it so desires
by counsel of its choice; and give truthful and accurate
information and testimony and not assert any evidentiary or other
privilege, other than the attorney-client and work product
privileges.
11. Consistent with the provisions of 17 C.F.R. Section 202.5(f),
defendant SSI waives any claim of Double Jeopardy based upon the
settlement of this proceeding, including the imposition of any
remedy herein.
12. Defendant SSI has read, understands, and agrees to
comply with the policy of the COMMISSION, set forth in 17 C.F.R.
Section 202.5(e), not to permit a defendant to consent to a judgment or
order that imposes a sanction while denying the allegations in
the Complaint. Defendant SSI agrees not to take any action or
make any public statement denying, directly or indirectly, the
allegations of the Complaint. Defendant SSI further agrees not
to take any action or make any public statement which creates, or
tends to create, the impression that the Complaint underlying the
FINAL JUDGMENT is without factual basis. Nothing in this
paragraph affects Defendant's testimonial obligations or its
right to take legal positions in other non-commission litigation
or proceedings.
13. Defendant SSI agrees that this Court shall retain
jurisdiction over this matter for purposes of enforcing the terms
of the FINAL JUDGMENT.
SCIENTIFIC SOFTWARE-INTERCOMP, INC.
By: /S/ GEORGE STEEL
George Steel
Chairman
Dated: September 5, 1997<PAGE>
UNITED STATES DISTRICT COURT
FOR THE
DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549,
Plaintiff,
v. CIVIL ACTION NO.
SCIENTIFIC SOFTWARE-INTERCOMP, INC.,
633 17th Street, Suite 1600
Denver, Colorado 80202
Defendant.
FINAL JUDGMENT OF PERMANENT INJUNCTION
AS TO SCIENTIFIC SOFTWARE-INTERCOMP, INC.
Plaintiff SECURITIES AND EXCHANGE COMMISSION (the
"COMMISSION"), having duly commenced this action by filing its
Complaint, and defendant SCIENTIFIC SOFTWARE-INTERCOMP, INC.
("SSI"), having in its CONSENT AND UNDERTAKING OF SCIENTIFIC
SOFTWARE-INTERCOMP, INC. (the "CONSENT") entered a general
appearance herein, having admitted the jurisdiction of this Court
over it and over the subject matter of this action, having waived
the filing of an Answer to the Complaint and the entry of
findings of fact and conclusions of law pursuant to Rule 52 of
the Federal Rules of Civil Procedure, and without admitting or
denying any of the allegations of the Complaint, except as to
jurisdiction, which it admits, and without trial, argument or
adjudication of any issue of fact or law, having consented to the
entry of this FINAL JUDGMENT OF PERMANENT INJUNCTION AS TO
SCIENTIFIC SOFTWARE-INTERCOMP, INC. (the "FINAL JUDGMENT"), (i)
permanently restraining and enjoining SSI from violating Section
17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C.
Section 77q(a)] and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B)
of the Securities Exchange Act of 1934 ("Exchange Act") [15
U.S.C. Sections 78j(b), 78m(a), 78m(b)(2)(A) and 78m(b)(2)(B)], and
Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 [17
C.F.R. Sections 240.10b-5, 240.12b-20, 240.13a-1, 240.13a-11 and
240.13a-13] thereunder, and (ii) ordering SSI to restate its
financial statements for the years ending December 31, 1993, 1994
and 1995; and it further appearing that this Court has
jurisdiction over SSI and the subject matter hereof, and the
Court being fully advised in the premises:
I.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that SSI, its
officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them who receive
actual notice of the FINAL JUDGMENT, by personal service or
otherwise, and each of them, is permanently restrained and
enjoined from violating Section 17(a) of the Securities Act [15
U.S.C. Section 77q(a)] by, directly or indirectly, using any means or
instrumentality of interstate commerce, or of the mails to:
(1) employ any device, scheme or artifice to defraud;
(2) obtain money or property by means of any untrue
statement of a material fact or any omission to state a
material fact necessary in order to make the statements
made, in the light of the circumstances under which
they were made, not misleading; or
(3) engage in any transaction, practice, or course of
business which operates or would operate as a fraud or
deceit upon the purchaser,
in connection with the offer or sale of any securities.
II.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that SSI,
its officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them who receive
actual notice of the FINAL JUDGMENT, by personal service or
otherwise, and each of them, is permanently restrained and
enjoined from violating Section 10(b) of the Exchange Act [15
U.S.C. Section 77q(a)] by, directly or indirectly, using any means or
instrumentality of interstate commerce, or of the mails, or of
any facility of any national securities exchange to:
(1) employ any device, scheme or artifice to defraud;
(2) make any untrue statement of a material fact or to omit
to state a material fact necessary in order to make the
statements made, in light of the circumstances under
which they were made, not misleading; or
(3) engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit
upon any person,
in connection with the purchase or sale of any security.
III.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that SSI,
its officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them who receive
actual notice of the FINAL JUDGMENT, by personal service or
otherwise, and each of them, is permanently restrained and
enjoined from filing with the Commission Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form
8-K that are materially false or misleading, in violation of
Section 13(a) of the Exchange Act [15 U.S.C. Sections 78m(a)], and
Rules 12b-20, 13a-1, 13a-11 and 13a-13 [17 C.F.R. Sections 240.12b-20,
240.13a-1, 240.13a-11 and 240.13a-13], promulgated thereunder.
IV.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that SSI,
its officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them who receive
actual notice of the FINAL JUDGMENT, by personal service or
otherwise, and each of them, shall be permanently restrained and
enjoined from failing to make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of SSI,
in violation of Section 13(b)(2)(A) of the Exchange Act [15
U.S.C. Section 78m(b)(2)(A).
V.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that SSI,
its officers, agents, servants, employees, attorneys and those
persons in active concert or participation with them who receive
actual notice of the FINAL JUDGMENT, by personal service or
otherwise, and each of them, shall be permanently restrained and
enjoined from failing to devise and maintain a system of internal
accounting controls sufficient to provide reasonable assurances
that --
(1) transactions are executed in accordance with
management's general or specific authorization;
(2) transactions are recorded as necessary (I) to permit
preparation of financial statements in conformity with
generally accepted accounting principles or any other
criteria applicable to such statements, and (II) to
maintain accountability for assets;
(3) access to assets is permitted only in accordance with
management's general or specific authorization; and
(4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and
appropriate action is taken with respect to any
differences,
in violation of section 13(b)(2)(B) of the Exchange Act [15
U.S.C. Section 78m(b)(2)(B).
VI.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that
defendant SSI shall restate its financial statements for the
years ending December 31, 1993, 1994 and 1995.
VII.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that
defendant SSI shall comply with its undertakings to: instruct its
employees, agents and representatives to cooperate with the
COMMISSION and its staff and truthfully disclose all information
with respect to their activities and the activities of others
about which the COMMISSION or its staff may inquire with respect
to the matters alleged in the Complaint; designate
representatives to testify in all investigations, administrative
and judicial proceedings at which the COMMISSION or its staff
makes requests for its testimony; endeavor to make its employees,
agents and representatives available as may be required by the
COMMISSION or its staff; produce any documents within its
possession, custody or control, domestic or foreign, which are
requested by the COMMISSION or its staff; be accompanied at any
time it so desires by counsel of its choice; and give truthful
and accurate information and testimony and not assert any
evidentiary or other privilege, other than the attorney-client
and work product privileges. In the event that compliance with
this paragraph requires intercontinental or international travel
by SSI employees, such employees shall be reimbursed for air
travel, hotel accommodations and per them as provided by relevant
Government travel regulations applicable to witnesses appearing
before agencies or in Court proceedings.
VIII.
IT IS FURTHER HEREBY ORDERED, ADJUDGED AND DECREED that the
annexed CONSENT be, and the same hereby is, incorporated herein
by reference with the same force and effect as if fully set forth
herein.
IX.
There being no just cause for delay, the Clerk of the Court
is hereby directed, pursuant to Rule 54(b) of the Federal Rules
of Civil Procedure, to enter this FINAL JUDGMENT forthwith.
____________________________
UNITED STATES DISTRICT JUDGE
Dated: _________________________
EXHIBIT 99.3
PRESS RELEASE
CONTACT: George Steel
Scientific Software-Intercomp, Inc.
(303) 292-1111
Email: [email protected]
SSI Announces a Conclusion of
SEC Investigation
Denver, Colorado, 11 September 1997 . . . Scientific Software-
Intercomp, Inc. (SSI) announced that the Securities and Exchange
Commission (SEC) has completed its investigation into the
Company's financial statements for 1993, 1994 and 1995 and that
the related SEC enforcement proceedings against the Company have
been simultaneously concluded.
The investigation and the enforcement proceedings as they pertain
to the Company have been resolved by SSI's consenting to the
entry of a permanent injunction enjoining the Company from any
future violations of the applicable provisions of the Securities
Act of 1933 and the Securities Exchange Act of 1934. In
consenting to the injunction, the Company neither admitted nor
denied the allegations of the SEC. The Company is restating its
financial statements for the years ending December 31, 1993, 1994
and 1995. No financial or other penalties will be levied against
the Company.
George Steel, President and Chairman, said "The Company and its
current management are pleased that the SEC matter has been
concluded without further delay, as far as it relates to SSI.
With this matter behind us, we are now able to devote all of our
management efforts and resources to strengthening the Company and
providing to our customers the value, service and level of
technology for which SSI had become known."
Scientific Software-Intercomp, Inc. provides technically
advanced, cost effective solutions and software to the petroleum
industry worldwide. The company has offices in Beijing, Calgary,
Denver, Houston, Jakarta and London.
EXHIBIT 99.4
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
September 11, 1997
LITIGATION RELEASE NO. 15485 / September 11, 1997
ACCOUNTING AND AUDITING ENFORCEMENT
RELEASE NO. 956 / September 11, 1997
SECURITIES AND EXCHANGE COMMISSION v. SCIENTIFIC SOFTWARE-
INTERCOMP, INC., Civil Action No. 97-CV-2091 (JGP) (D.D.C.)
(filed September 11, 1997)
On September 11, 1997, the Securities and Exchange
Commission filed and simultaneously settled a financial fraud
action in the United States District Court for the District of
Columbia against Scientific Software-Intercomp, Inc. (SSI), a
Denver, Colorado oil and gas software company whose shares
formerly traded on NASDAQ, seeking a permanent injunction and
other relief.
The Commission's complaint alleges that during 1993, 1994
and 1995, SSI materially overstated its revenue and earnings by
backdating or misdating contracts, booking revenue without
contracts, overaccruing project revenues and providing
confidential side letters modifying payment obligations. As a
result of these practices, the complaint alleges that SSI
reported false and misleading information in its Annual Reports
for fiscal 1993 and 1994, its Quarterly Reports for the first
three quarters of fiscal 1994 and the first quarter of fiscal
1995. In addition, SSI conducted an offering of 2 million shares
of common stock from which it obtained more than $8 million on a
registration statement that materially overstated revenue, net
income and earnings per share for the 1993 fiscal year and the
first quarter of 1994. The complaint further alleges that SSI
filed false Current Reports on Form 8-K in July and August 1995
reporting the resignation of its auditors. By engaging in such
conduct, the complaint alleges that SSI violated Section 17(a) of
the Securities Act of 1933, and Sections 10(b), 13(a),
13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of
1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13
thereunder.
Specifically, the complaint alleges that, beginning in at
least 1993, SSI recognized revenues on contracts to Value Added
Resellers ("VARs") that included confidential side-letters either
excusing payment to SSI until the VARs received payment from a
third-party, or rendering the contract ineffective and cancelable
until a specified future event, normally the sale of SSI's
software to the VAR's customer. In addition, the complaint
alleges that SSI backdated contracts and shipping documentation,
booked contracts without written contracts, and overaccrued
project revenues in the company's Pipeline and Facilities
Division in Houston, Texas.
Without admitting or denying the allegations of the
complaint, SSI consented to the entry of a permanent injunction
prohibiting future violations of the antifraud, reporting,
internal controls and books and records provisions of the
Securities Act and Exchange Act, and ordering SSI to restate its
financial statements for the years ending December 31, 1993, 1994
and 1995.
The Commission's investigation is continuing.
