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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transitional period from ------------ to ------------ .
Commission File Number: 00-1033864
Docucorp International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2690838
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5910 North Central Expressway, Suite 800, Dallas, Texas 75206
(Address of principal executive offices) (Zip Code)
Registrant'stelephone number, including area code: (214) 891-6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of October 8, 2002, there were 13,533,801 shares of Common Stock, $.01
par value, of the Registrant outstanding. The aggregate market value on such
date of the voting stock of the Registrant held by non-affiliates was an
estimated $83,600,100 based upon the closing price of $8.75 per share on
October 8, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended July 31, 2002 are incorporated by reference in Items 7 and 8
of Part II of this report.
Part III of this Annual Report on Form 10-K incorporates by reference
portions of the Registrant's definitive proxy statement, to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
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Docucorp International, Inc.
Table of Contents
Form 10-K
July 31, 2002
Part I.
Item 1. Business ................................................................................. 2
Item 2. Properties ............................................................................... 13
Item 3. Legal Proceedings ........................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 13
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .................... 14
Item 6. Selected Consolidated Financial Data ..................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................... 16
Item 8. Financial Statements and Supplementary Data .............................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 16
Part III.
Item 10. Directors and Executive Officers of the Registrant ....................................... 17
Item 11. Executive Compensation ................................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matter ............................................................... 17
Item 13. Certain Relationships and Related Transactions ........................................... 17
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 18
Signatures ....................................................................................... 19
Index to Exhibits ................................................................................ 24
Part I
ITEM 1. BUSINESS
General
Docucorp International, Inc. ("Docucorp" or the "Company") develops,
markets and supports a portfolio of enterprise-wide software products that
enable users to acquire, manage, personalize and present information. The
Company provides professional services related to its information software
products including consulting, implementation, integration and training. In
addition, the Company provides application service provider ("ASP") hosting
using its software and facilities to provide processing, print, mail, archival
and Internet delivery of documents for customers who outsource these
activities.
The Company was organized in connection with the May 15, 1997 acquisition
of FormMaker Software, Inc. ("FormMaker") by Image Sciences, Inc. ("Image
Sciences") (the "Merger").
Docucorp software products support leading hardware platforms, operating
systems, printers and imaging systems. These products are designed to automate
applications that require high-volume acquisition, management, personalization
and presentation of information such as insurance policies, utility statements,
bank and mutual fund statements, invoices, call center correspondence and
electronic bill presentment and payment ("EBPP"). The Company's ASP offerings
include customer statement and bill generation, EBPP, insurance policy
production and electronic document archival. The Company currently has an
installed base of more than 1,200 customers. The Company believes it is the
leading provider of solutions that acquire, manage, personalize and present
information for the insurance industry including such customers as Prudential
Insurance Company of America, Aon Service Corporation and American
International Group (AIG). More than half of the 200 largest United States
insurance companies use the Company's software products and services, including
the 10 largest life and health insurance companies and nine of the ten largest
property and casualty insurance companies. The Company believes it has also
become a leading provider of software solutions and services for companies in
the utilities industry. Key utilities customers include Orcom, Southern Company
Services, Inc. and Toronto Hydro-Electric System Limited. The Company also has
customers in the financial services, higher education, telecommunications and
transportation industries, including American Express Services Europe Limited,
The University of Texas, Nortel Northern Telecom, Inc. and Yellow Services,
Inc.
Industry Background
Certain trends have accelerated the need for automating the process of
acquiring, managing, personalizing and presenting information. Deregulation of
industries such as insurance, utilities and financial services has resulted in
increased competition and caused participants in such industries to focus more
closely on customer service. This has increased the demand to create one-to-one
documents personalized to each customer with more visual appeal. Rapid
technological advances such as client/server architecture and the Internet,
adoption of Microsoft's WindowsNT, Active-X and ODBC, emergence of Sun
Microsystems' Solaris and Java, and the evolving XML standard have expanded the
benefits that businesses can derive from document automation. Additionally, the
emergence of call centers has increased the demand for access to and automation
of customer communications. As a result, an increasing number of companies are
employing innovative comprehensive information presentment processes.
The same advances that have enhanced the benefits of such process
automation, however, have rendered the development and implementation of
solutions increasingly complex. As a consequence, businesses are increasingly
outsourcing some of their needs to skilled and experienced providers such as
the Company.
Companies today need the right information, at the right time, in the
right place. Information is critical to corporations as they endeavor to
increase revenue, improve customer service and reduce costs. Companies can
increase revenue by leveraging information through personalizing and producing
high-volume, one-to-one documents such as customer statements that cross-sell
additional products and services. Personalization and presentation of
information enables companies to provide better customer service by:
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o Presenting information in print and over the Internet in more
attractive, easier to read formats,
o increasing accuracy,
o minimizing the time it takes to produce and deliver information and
o providing customer service personnel with immediate access to
electronically archived information.
At the same time, automating the process of acquiring, managing,
personalizing and presenting information reduces the cost of personnel,
printing and storage.
The current difficult economic environment has resulted in customers and
prospects focusing on Return On Investment ("ROI"). Few companies are buying
software or services unless ROI can be proven. Docucorp has successfully
demonstrated ROI on its solutions, thus allowing it to succeed in this
difficult economy.
Growth Strategy
The Company's strategy for growth consists of the following:
Leveraging Existing Customer Relationships
The Company has an installed base of more than 1,200 customers. Existing
customers expanding or upgrading their information solutions create a market
for additional products and services from the Company. The majority of Docucorp
revenues are generated from existing customers.
Entering New Vertical Markets
The Company believes it is the leading provider of solutions that acquire,
manage, personalize and present information for the insurance industry and has
become a leader in the utilities industry. The Company launched an expansion
effort in the financial services industry. Revenues from the financial services
industry represented approximately 10% of the Company's business in fiscal
2002. The financial services industry, like insurance and utilities, has an
increasing need for individualized information to be produced and presented in
large volumes in order to communicate effectively with their customers.
Expanding Internationally
Approximately 6% of the Company's revenues came from customers outside of
North America in fiscal 2002. Docucorp plans to expand its Europe, Middle East
and Africa, ("EMEA"), customer base primarily through direct sales and by
cultivating and expanding its European distribution alliances. During fiscal
2002, the Company increased the number of EMEA sales and services personnel by
more than 100% and increased EMEA revenues by more than 300%. Docucorp intends
to continue increasing the number of sales and services professionals domiciled
in Europe as international revenues grow.
Developing and Enhancing New Technologies
The Company's product development efforts are focused on developing new
products as well as enhancing and broadening its current software product
offerings. New Docucorp products and solutions will continue to emphasize
state-of-the-art technologies including XML, SOAP, LINUX, Java and
Microsoft.Net for Internet-enablement and information exchange. During the
fiscal year, the Company continued to expand its family of e-Solution software
products that speed business applications to the Internet, by enabling
everything from filling out forms and publishing documents online to managing
and viewing documents via the Internet. During fiscal 2003, the Company's
product development efforts will include development of new functionality,
integration of existing products to provide information exchange through the
Internet and further development and packaging of applications for use in
vertical industries such as utilities and financial services.
Pursuing Acquisitions and Strategic Alliances
The Company has successfully completed three acquisitions since 1997.
Docucorp will continue to evaluate potential acquisitions of other companies or
technologies to further expand its products, services or market penetration. In
addition, as the Company expands in its targeted vertical markets, the Company
intends to enter
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into additional strategic alliances for sales and marketing in such markets.
The Company believes that new technical skills, expanded product functionality,
a broader client base and an expanded geographic presence may result from these
activities.
Expanding ASP Hosting Business
The Company adopted an ASP business model in fiscal 2000 which provides
hosted software applications on a per transaction basis. The Company's ASP
offering allows customers to off-load applications and free-up resources to
concentrate on their core competencies and strategic projects. The ASP business
model provides the Company with a rapidly growing source of recurring revenues.
ASP revenues increased 39% in fiscal 2002. The Company has two ASP hosting
centers in the United States to meet the demands for capacity as well as offer
off-site backup and disaster recovery capabilities to its customers. The
Company anticipates that ASP hosting services, both in print and delivery over
the Internet, will be the fastest growing area of its business.
Docucorp Solutions
Docucorp focuses on providing enterprise-wide solutions that acquire,
manage, personalize and present information. Customers can purchase these
solutions by either licensing Docucorp software for installation in-house or by
accessing the solutions through Docucorp's ASP centers on a per transaction
basis. The Company markets solutions primarily to three vertical markets:
insurance, financial services and utilities. Set forth below is a list of
representative solutions that the Company provides to each of the vertical
markets that it serves:
Insurance Solutions
Insurance Policy Production -- Docucorp enables its clients to create,
publish, distribute and archive high volumes of personalized insurance
policies, quotes, endorsements, cancellations and renewals.
Correspondence -- Using Docucorp solutions, insurance representatives can
electronically access policies and other critical data to verify coverage and
automate and personalize subsequent document packages and correspondence.
Internet Viewing and Entry -- Docucorp solutions enable insurance agents,
customer service representatives or policyholders to access (and enter) data
for policies, claims forms, applications, invoices, correspondence or other key
documents via the Internet.
Electronic Bill Presentment & Payment -- Docucorp solutions provide
policyholders the ability to view premium notices and pay premiums online.
Financial Services Solutions
Wealth Management -- Docucorp solutions enable financial advisors and
customers to electronically access client data from multiple accounts for
review and analysis, while automating and personalizing subsequent consolidated
customer statements and correspondence.
Information Acquisition -- Docucorp solutions enable financial
institutions to transform data (structured or unstructured) from multiple
sources for delivery from/to any type of system, thereby facilitating the
ability to provide aggregated review and management of consumer accounts.
Information Aggregation -- Docucorp solutions aggregate data from
disparate processing systems into a consolidated asset management statement.
End to End Statements -- Consolidated, easy-to-read, easy-to-understand,
personalized customer statements that once took hours to create can now be
produced in minutes from multiple sources of data using Docucorp's information
automation solutions.
Utilities Solutions
Bill Print -- With Docucorp solutions, utility companies can cross-market
and consolidate billing for multiple services such as gas, electricity, cable
TV, security and Internet.
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Bills2Go -- A turnkey outsourced billing solution designed around an
established set of standard billing templates, enables small to medium size
utility companies to produce personalized consolidated bills at an affordable
rate.
Electronic Bill Presentment & Payment -- Docucorp solutions allow our
clients to give their customers the ability to view and pay their bills online.
Docucorp Software Products
The Company offers its enterprise-wide information solutions through a
portfolio of scalable, high-performance software products that address each
phase of the enterprise-wide information process of acquiring, managing,
personalizing and presenting information. The Company's philosophy of open
architecture and support of industry standards enables its customers to select
software and hardware from other leading vendors and integrate them with
Docucorp products. Software licenses accounted for approximately 17%, 18% and
14% of the Company's total revenues in Fiscal 2002, 2001 and 2000,
respectively. The Company's product lines have been organized into the
following four primary categories.
Acquiring Information
Docucreate products create forms that can be used over and over in
high-volume environments. These software products include editors that create
forms and insert fields for run-time variable data insertion. They also produce
device-independent data streams that can be printed, archived and distributed
over intranets and the Internet. License revenues from the Company's Docucreate
software products accounted for approximately 10% of the Company's total
license revenues for both 2002 and 2001, and 14% for 2000. Specific products
include:
Docucreate Workstation -- A Microsoft Windows-based product that includes a
WYSIWYG forms editor, field editors and print drivers necessary to create
and edit both static and dynamic forms that can be output in Xerox
Metacode, IBM AFP and other print data streams.
Docucreate SC (Kofax) -- A Microsoft Windows-based server product that
enables document capture by a Kofax Accent scanner.
Docucreate IC -- A server product available for Microsoft NT, AIX and IBM
MVS platforms that enables graphic images created by a personal computer or
captured by scanner or fax to be incorporated within documents to be
printed on high-speed Xerox and IBM printers, or published to digital
formats over intranets and the Internet.
Managing Information
Documanage software delivers full document management and archival to
information-intensive companies. License revenues from the Company's software
products that manage and archive information accounted for approximately 16%,
15% and 28% of the Company's total license revenues in fiscal 2002, 2001 and
2000, respectively. Specific products include:
Documanage Workstation -- A Microsoft Windows-based viewer that retrieves
indexed documents from the Documanage server and other repositories for
viewing, annotating and routing with viewer support of over 200 image and
print stream formats.
Documanage Server -- Documanage server automatically indexes and stores
various print data streams and imaging system formats and performs document
management, including check-in/check-out, automated version control,
multi-tier security and annotations. The Documanage Server product runs
under Microsoft NT, AIX and mainframe MVS, and accepts hundreds of image
formats, as well as IBM AFP, Xerox Metacode, Docucorp DCD and line printer
data streams.
Personalizing Information
Documaker is an efficient, high-volume production publisher for
personalizing and presenting information. Documaker performs data merging,
content assembly and business rules creation to automate enterprise-wide
production of applications such as insurance policies and customer statements.
It provides device-independent
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technologies that enable individualized printing, archiving and delivery via
networks and the Web. License revenues from the Company's software products
that personalize information accounted for approximately 45%, 55% and 50% of
the Company's total license revenues in fiscal 2002, 2001 and 2000,
respectively. Specific products include:
Documaker Workstation -- A Microsoft Windows-based application that enables
device-independent document production, including automated and dynamic
forms fill, data editing, and WYSIWYG viewing of documents.
Documaker -- A server-based product for customized, business rule-intensive
publishing applications that require unique documents, such as customer
correspondence, flexible bills and statements. Documaker runs under
Microsoft NT, AIX and mainframe MVS.
Docuflex -- An easy-to-use, powerful publishing engine ideal for
dynamically composing highly personalized booklets, catalogs, contracts and
statements. Docuflex runs under Microsoft NT.
Documaker FP -- A server-based product that personalizes and presents
information repeatedly using the same forms in various combinations, such
as insurance policies. Documaker FP runs under Microsoft NT, AIX and
mainframe MVS.
PPS -- A Microsoft Windows-based insurance policy software product targeted
for insurance agents.
Internet and Internet-Enabling
With our family of e-Solution software products, Docucorp can help
companies speed business applications to the Internet, web-enabling anything
from forms fill and publishing to managing and viewing documents. Solutions are
platform-independent and fully scalable. License revenues from the Company's
Internet software products accounted for approximately 23%, 14% and 7% of the
Company's total license revenues in fiscal 2002, 2001 and 2000, respectively.
Specific products include:
Docupresentment -- A software product that bridges the gap between Internet
browsers and legacy systems by enabling the viewing of documents in a
variety of Internet formats, including PDF, HTML and XML.
Electronic Bill Presentment & Payment -- A software product that allows
companies to deliver and present bills to their customers and collect
payments over the Internet.
iEntry -- A software product that allows users to select and complete forms
online, creating personalized documents.
iPPS -- A software product that enables insurance companies and their
agents to assemble policies and view information via the Internet.
Professional Services
The Company offers a broad range of professional services related to
acquiring, managing, personalizing and presenting information. At July 31,
2002, the Company employed approximately 150 professional service personnel,
which represents one of the largest services organizations in the industry. The
Company's professional services personnel have experience across many vertical
industries and types of information solutions.
A majority of the Company's professional services consulting revenues are
derived from implementation and integration of the Company's software products.
The Company also derives professional services revenues from consulting,
training, on-site support and electronic document library development. The
Company's professional services group works with clients to develop and define
enterprise information strategies to meet specific business needs. Training
classes are available to assist clients with implementing and using
applications. Training offerings are available in standardized and customized
formats. A majority of the Company's consulting services are related to
Docucorp solutions that personalize information. Consulting services accounted
for approximately 29%, 33% and 37% of the Company's total revenues in fiscal
2002, 2001 and 2000, respectively.
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ASP Hosting
The Company offers ASP hosting which utilizes the Company's software to
provide processing, print, mail, archival and Internet delivery of documents
for customers who outsource these activities. The Company operates ASP hosting
centers in Atlanta and Dallas. Using data received electronically from
customers, the ASP centers employ high-volume printers and mail handling
equipment to produce insurance policies, utility statements and other customer
mailings, bundle the output for bulk mailings and host Internet bill
presentation and payment. ASP hosting accounted for approximately 28%, 23% and
19% of the Company's total revenues in fiscal 2002, 2001 and 2000,
respectively.
Product Development
The Company has made and expects to continue to make substantial
investments in research and product development. During the fiscal year, the
Company's product development efforts focused on the development of new
Internet functionality, integration of web capablitites into existing products
and further development of new applications for the utilities and financial
services markets
In January 2002, the Company announced the release of Docuflex, a software
product targeted for the utilities and financial services industries. Docuflex
is a flexible publishing engine capable of delivering extremely large numbers
of complex, personalized documents for both Internet and print. With a WYSIWYG
graphical user interface that displays the impact of changes on screen as they
are made, Docuflex enables users to quickly deliver dynamic, data-rich,
personalized enterprise information.
Additionally, in January 2002, Docucorp acquired the exclusive rights for
a standards-based insurance transaction processing data model from Thazar
Solutions Corporation. Thazar Solutions is a leading provider of business
intelligence solutions and analytic applications for the property and casualty
insurance industry. This data model extends Docucorp's e-solutions package for
the insurance marketplace by offering a standard model for the exchange of
information between agents and carriers.
The Company has committed substantial resources to product development. As
of July 31, 2002, the Company employed approximately 125 technical personnel
engaged in research, product development and customer support activities. The
product development process is a cooperative effort between customers and the
Company. Early review of functionality specifications, prototypes and
demonstrations allows for the incorporation of customer suggestions and
comments in parallel with management review of the process internally. Docucorp
has a formal planning process for new software products as well as software
upgrades and maintenance releases to maximize product quality, timeliness of
releases and meeting or exceeding customer expectations. In fiscal 2002, 2001
and 2000, the Company's software development expenditures were approximately
$11.0 million, $9.1 million and $8.1 million, respectively.
Sales and Marketing
General
The Company markets its products through various distribution channels
including direct sales, marketing alliances and distributors. Its sales
resources are organized based upon vertical industry markets. At July 31, 2002,
the Company employed approximately 50 direct sales and sales support
representatives who operate primarily from Dallas, Atlanta and London. Sales
representatives are compensated principally on a commission basis.
The Company markets its products and services primarily through a direct
sales force. Distributor relationships are established in the United States,
Canada, Europe, South Africa and Asia.
The Company intends to increase its distribution channels through
marketing, sales and distribution and development relationships with other
companies. Formal and informal marketing and development partnerships currently
exist with Xerox, Microsoft, Hewlett Packard, ACORD, CSC, FileNET Corporation,
SCT Utility Systems, ORCOM Solutions, Sanchez Data Systems, Inc., CheckFree and
BillMatrix. These relationships provide sales leads for the Company's solutions
or provide access to certain technological information and resources.
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The Company's software products are generally licensed on a perpetual
basis for an up-front fee. Initial license fees typically range from $100,000
to $400,000. Most customers also enter into maintenance agreements with the
Company, which typically provide for annual maintenance fees ranging from 18%
to 30% of current license fees depending upon the customer group and size of
the license fee. Customers who enter into maintenance agreements are entitled
to software upgrades, software problem resolutions and use of the Company's
"Hotline" providing technical assistance to the software user. The Company
generally charges customers for consulting services on a time and materials
basis, although certain service assignments are performed on a fixed charge
basis. ASP hosting services are charged primarily on a transaction fee basis.
Customers
The Company generally markets to large and mid-size organizations that
have a need for integrated solutions for the high-volume production of
individualized information. Currently, the majority of the Company's revenues
are generated from the insurance industry. Approximately 64% of the Company's
total revenues for the year ended July 31, 2002 were derived from the insurance
industry. Over half of the 200 largest United States insurance companies use
the Company's products and services, including the 10 largest life and health
insurance companies and nine of the 10 largest property and casualty insurance
companies. The Company believes it has the largest installed customer base for
insurance policy production in the insurance industry. Approximately 21% of the
Company's total revenues for the year ended July 31, 2002 were derived from the
utilities industry and 10% were derived from the financial services industry.
The Company also has an installed base of customers in the higher education,
telecommunications, transportation and government markets.
Set forth below is a representative list of customers of the Company in
the various industries in which the Company markets its products and services:
Insurance
Prudential Insurance Company of America
American International Group (AIG)
Aon Service Corporation
Aegon USA Companies
MetLife Investors Group
Utilities
Southern Company Services, Inc.
Toronto Hydro-Electric System Limited
COBB Electric Membership Corporation
Vectren Utilities Holdings, Inc.
Financial Services
Royal Bank of Canada
ABN-AMRO Bank N.V.
Halifax Cetelem Credit Ltd
Higher Education
The University of Texas
San Francisco State University
Transportation
Yellow Services, Inc.
Wisconsin Department of Transportation
Competition
The market for acquiring, managing, personalizing and presenting
information is intensely competitive, subject to rapid change and significantly
affected by new product introductions and other market activities of industry
participants. The Company faces direct and indirect competition from a broad
range of competitors, many of whom
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have greater financial, technical and marketing resources than the Company. The
Company's principal competition currently comes from (i) systems developed
in-house by the internal MIS departments of large organizations, (ii) direct
competition from numerous software vendors, including Document Sciences
Corporation, Group 1 Software, Inc., ISIS Information Systems, InSystems
Technologies, Inc., Metavante and Mobius Management Systems, Inc. and (iii)
direct competition from numerous outsourcing and ASP vendors, including Xerox
XBS, KPT, Inc. and Output Technology Solutions. The Company believes that the
principal competitive factors in the information solutions software market are
product performance and functionality, ease of use, multi-platform offerings,
product and company reputation, quality of customer support and service and
price. The degree of competition varies significantly with the solution being
offered and by vertical market.
The Company may also face competition from new entrants into the industry.
As the market for information solutions continues to develop, current or
potential competitors with significantly greater resources than the Company
could attempt to enter or increase their presence in the market either
independently or by acquiring or forming strategic alliances with competitors
of the Company or otherwise increase their focus on the industry. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third-parties to increase the ability of
their products to address the needs of the Company's current and prospective
customers.
Intellectual Property, Trademarks and Proprietary Rights
The Company relies primarily on a combination of copyright, distribution
software license agreements, trademark and trade secret laws, employee and
third-party nondisclosure agreements and other methods to safeguard its
software products. Despite these precautions, it may be possible for
unauthorized third-parties to copy certain portions of the Company's products
or obtain and use information the Company regards as proprietary. While the
Company's competitive position may be affected by its ability to protect its
proprietary information, the Company believes that trademark and copyright
protections are not material to the Company's success.
The Company's software products are licensed to end-users on a "right to
use" basis pursuant to license agreements. Certain license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States. Generally, the Company distributes its software in object format only
and does not provide access to the underlying source code.
As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs will increasingly become subject to infringement claims.
Third parties may assert infringement claims against the Company in the future
with respect to current or future products, and in this event could require the
Company to enter into royalty arrangements or result in costly litigation.
The Company also relies on certain software that it licenses from
third-parties, including software that is integrated with internally developed
software and used in its products to perform key functions. These third-party
software licenses may not continue to be available to the Company on
commercially reasonable terms and the related software may not continue to be
appropriately supported, maintained or enhanced by the licensors. The loss of
licenses to use, or the inability of licensors to support, maintain and
enhance, any of such software could result in increased costs, delays or
reductions in product shipments until equivalent software could be developed or
licensed and integrated.
Employees
As of July 31, 2002, the Company had approximately 425 employees, of which
approximately 150 were engaged in professional services, 125 in product
development and customer support, 70 in ASP hosting, 50 in sales and marketing
and 30 in finance, administration, human resources and internal computer
systems support. The Company believes its future success will depend, in part,
on its continued ability to attract and retain highly qualified personnel in a
competitive market for experienced and talented software engineers and sales
and marketing
9
personnel. None of the Company's employees are represented by a labor union or
subject to a collective bargaining agreement. The Company believes that its
employee relations are strong.
Forward-Looking Statements
This Annual Report on Form 10-K may include certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical facts included in this Form
10-K, are forward-looking statements. Such statements are subject to certain
risks and uncertainties, which include but are not limited to those discussed
in the section entitled "Risk Factors." Should one or more of these risks or
uncertainties, among others as set forth in this Form 10-K, materialize, actual
results may vary materially from those estimated, anticipated or projected.
Although the Company believes that the expectations reflected by such
forward-looking statements are reasonable based on information currently
available to the Company, no assurance can be given that such expectation will
prove to have been correct. Cautionary statements identifying important factors
that could cause actual results to differ materially from the Company's
expectations are set forth in this Form 10-K, including without limitation in
conjunction with the forward-looking statements included in this Form 10-K that
are referred to above. All forward-looking statements included in this Form
10-K and all subsequent oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
Risk Factors
Social, Political and Economic Risks
Acts of terrorism have caused major instability in the U. S. and other
financial markets. Armed hostilities or further acts of terrorism would cause
further instability in financial markets and could directly impact the
Company's financial condition and results of operations. Our business is
subject to general economic conditions and fluctuation in corporate spending.
Any adverse effect on the economy, depending on the magnitude, could have a
material adverse effect on the Company's results of operations. There can be no
assurance as to the future effect of changes in social, political and economic
conditions on the Company's business or financial condition.
International Expansion
The expansion of our existing international operations and entry into
additional international markets requires significant management attention and
financial resources and will place additional burdens on our management,
administrative, operational, and financial infrastructure. The Company has only
limited experience in establishing and managing international operations, and
our EMEA operations have not been profitable to date. We cannot be certain that
our operations in other countries will produce desired levels of revenues or
profitability. International expansion may negatively effect the Company's
operating results because of numerous factors; including difficulties in
staffing and managing foreign operations, potential losses from foreign
currency fluctuations, seasonal reductions in business activity in Europe,
increased financial accounting and reporting burdens, potential adverse tax
consequences, compliance with a wide variety of complex foreign laws and
treaties, reduced protection for intellectual property rights in some countries
and potential language-specific requirements for software.
Significant Revenues from Two Industries
Approximately 64% and 67% of the Company's total revenues for the year
ended July 31, 2002 and 2001, respectively, were derived from the insurance
industry. Approximately 21% and 22% of the Company's total revenues for the
year ended July 31, 2002 and 2001, respectively, were derived from the
utilities industry. The Company's continued financial performance and its
future growth will depend upon its ability to continue to market its products
successfully in the insurance and utilities industries and to enhance and
market technologies for distribution in other markets. The Company expanded
into the financial service industry in fiscal 2000, and plans to expand into
additional vertical markets in the future. This will require the Company to
make substantial product development and distribution channel investments.
There can be no assurance that the Company will be able to
10
continue marketing its products successfully in the insurance and utilities
industries or will be able to successfully introduce new or existing products
into the financial service industries or other vertical markets.
Acquisitions
The Company may make acquisitions in the future. Acquisitions may be
difficult to integrate into the Company's business and would consume
significant management and financial resources. There is no assurance that any
acquisition will be successful or generate satisfactory returns on investments.
Future acquisitions may also involve large one-time write offs, amortization
expenses related to intangible assets, and impairment expenses related to
goodwill.
Technological Advances
The information solutions industry has experienced and will continue to
experience rapid technological advances, changes in customer requirements and
frequent new product introductions and enhancements. Development in both
software technology and hardware capability will require the Company to make
substantial product development investments. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could have a material adverse effect on the Company's results of operations.
There can be no assurance that the Company's new products or product
enhancements intended to respond to technological change or evolving customer
requirements will achieve acceptance.
Attraction and Retention of Technical Employees
The Company believes that its future success will depend in large part
upon its ability to attract, retain and motivate highly skilled employees,
particularly technical employees. The employees that are in highest demand are
software programmers, software developers, application integrators and
information technology consultants. There can be no assurance that the Company
will be able to attract and retain sufficient numbers of highly skilled
technical employees. The loss of a significant number of the Company's
technical employees could have a material adverse effect on the Company.
Competition
The market for the Company's information solutions is intensely
competitive. The Company faces competition from a broad range of competitors,
many of whom have greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will be able to compete
effectively with such entities.
Fluctuations in Operating Results
The Company has experienced, and may in the future continue to experience,
fluctuations in its quarterly operating results due to the fact that sales
cycles, from initial evaluation to purchase, vary substantially from customer
to customer. Delays in the sales cycle frequently occur as a result of
competition, changes in customer personnel, overall budget and spending
priorities and the economy. The Company has typically operated with little
backlog for license revenues because software products generally are shipped
soon after orders are received. As a result, license revenues in any quarter
are substantially dependent on orders booked and shipped in that quarter. The
delay of customer orders for a small number of licenses could adversely affect
the license revenues and profitablity for a given fiscal quarter. The Company
has historically earned a substantial portion of its license revenues in the
last weeks of any particular quarter. The failure to achieve such revenues in
accordance with such trends could have a material adverse effect on the
Company's financial results for each such interim period.
Risk of Software Defects
Complex software products such as those offered by the Company can contain
undetected errors or performance problems. Such defects are most frequently
found during the period immediately following introduction of new products or
enhancements to existing products. The Company's products have from time to
time contained software errors that were discovered after commercial
introduction. There can be no assurance that performance problems or errors
will not be discovered in the Company's products in the future. Any future
software
11
defects discovered after shipment of the Company's products, if material, could
result in loss of revenues, delays in customer acceptance or potential product
liability.
Limited Protection of Intellectual Property Rights
The Company relies on a combination of copyright and trademark laws,
employee and third-party nondisclosure agreements and other methods to protect
its proprietary rights. Despite these precautions, it may be possible for
unauthorized third-parties to copy certain portions of its products or to
obtain and use information that the Company regards as proprietary. There can
be no assurance that the Company's efforts will provide meaningful protection
for its proprietary technology against others who independently develop or
otherwise acquire substantially equivalent techniques or gain access to,
misappropriate or disclose the Company's proprietary technology.
Dependence on Key Management Personnel
The Company believes that its continued success depends to a significant
extent upon the efforts and abilities of its senior management. In particular,
the loss of Michael D. Andereck, the Company's President and Chief Executive
Officer, or any of the Company's other executive officers or senior managers,
could have a material adverse effect on the Company.
12
ITEM 2. PROPERTIES
The Company leases approximately 31,500 square feet of office space in
Dallas, Texas for its corporate headquarters, including administrative, sales,
marketing, services, and product development departments. This lease expires
April 30, 2005.
The Company leases approximately 76,000 square feet of office space in
Atlanta, Georgia which is utilized for administrative, sales, services, and
product development departments. The lease for this space expires on December
31, 2002. Commencing January 1, 2003, the Company will relocate and lease
approximately 80,000 square feet of office space in Atlanta, Georgia. This new
lease will expire on December 31, 2013.
The Company leases space for an ASP hosting facility located in Atlanta,
Georgia. This facility occupies approximately 24,500 square feet under a lease
which expires on March 31, 2008.
The Company leases space for an ASP hosting facility located in Dallas,
Texas. This facility occupies approximately 28,700 square feet under a lease
which expires on March 31, 2010, but may be terminated by the Company on March
31, 2007.
The Company's staff in Maryland is located in Silver Spring, Maryland.
This facility is principally leased for product development activities and
occupies approximately 10,000 square feet under a lease which expires December
31, 2003.
The Company's staff in New Hampshire is located in a 5,700 square foot
facility in Bedford, New Hampshire. The lease for this facility expires on
December 31, 2004 and is staffed primarily by professional services personnel.
The Company leases space for its European sales and services staff near
London, England. This facility occupies approximately 8,200 square feet under a
lease which expires on September 27, 2013, but may be terminated by the Company
on October 1, 2005.
Minimal office space is also leased in Portland, Maine for product
development activities.
The Company believes that its existing office facilities and additional
space available to it are adequate to meet its requirements, and that in any
event, suitable additional or alternative space adequate to serve the Company's
foreseeable needs will be available on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions incidental to
the normal conduct of its business. The Company does not believe that the
ultimate resolution of these actions will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal 2002.
13
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the Nasdaq National Market under
the symbol "DOCC" since April 6, 1998. At October 8, 2002 there were
approximately 600 holders of record of the Company's Common Stock, although the
Company believes that the number of beneficial owners of its Common Stock is
substantially greater. The table below sets forth for the fiscal quarters
indicated the high and low sales prices for the Company's Common Stock:
High Low
----------- ----------
Fiscal 2002:
Fourth quarter ................ $13.55 $7.60
Third quarter ................. 8.77 6.20
Second quarter ................ 8.00 3.48
First quarter ................. 3.96 3.26
Fiscal 2001:
Fourth quarter ................ $ 4.00 $3.02
Third quarter ................. 3.88 1.91
Second quarter ................ 4.63 1.72
First quarter ................. 5.00 3.25
The Company intends to retain any future earnings for use in its business
and does not intend to pay cash dividends in the foreseeable future. The
payment of future dividends, if any, will be at the discretion of the Company's
Board of Directors and will depend, among other things, upon future earnings,
operations, capital requirements, restrictions in future financing agreements,
general financial condition of the Company and general business conditions.
14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
July 31, 2002, 2001, 2000, 1999, and 1998 have been derived from the audited
financial statements of the Company. The following data should be read in
conjunction with, and are qualified by, reference to the Company's audited
financial statements and the notes thereto, included elsewhere in this Form
10-K.
Years ended July 31,
------------------------------------------------------------------------
2002** 2001* 2000 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands except per share amounts)
Statements of Operations Data:
Total revenues ................................. $72,620 $63,203 $50,977 $51,926 $45,247
Operating income ............................... $ 9,084 $ 6,797 $ 2,802 $ 7,231 $ 5,601
Income before income taxes and cumulative effect
of accounting change .......................... $ 9,865 $ 7,057 $ 3,414 $ 7,853 $ 5,424
Income before cumulative effect of accounting
change ........................................ $ 5,929 $ 3,472 $ 1,529 $ 4,513 $ 3,184
Net income ..................................... $ 5,929 $ 2,482 $ 1,529 $ 4,513 $ 3,184
Income before cumulative effect of accounting
change per share:
Basic ......................................... $ 0.44 $ 0.24 $ 0.10 $ 0.28 $ 0.25
Diluted ....................................... $ 0.40 $ 0.23 $ 0.09 $ 0.26 $ 0.21
Net income per share:
Basic ......................................... $ 0.44 $ 0.17 $ 0.10 $ 0.28 $ 0.25
Diluted ....................................... $ 0.40 $ 0.17 $ 0.09 $ 0.26 $ 0.21
Weighted average number of shares outstanding:
Basic ......................................... 13,458 14,293 15,317 16,001 12,587
Diluted ....................................... 14,883 15,028 16,872 17,570 14,865
- ------------
* Docucorp implemented Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements" ("SAB 101") in the fourth quarter of fiscal 2001.
The one-time cumulative effect of applying SAB 101 for all years prior to
fiscal 2001 resulted in a reduction of net income of $990,000 for the year
ended July 31, 2001, or $0.06 per diluted share. Income and diluted income
per share before cumulative effect of accounting change was approximately
$3.5 million and $0.23, respectively.
** Docucorp adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142") effective August 1,
2001. SFAS 142 discontinues amortization of goodwill and indefinite lived
assets.
July 31,
-------------------------------------------------------
2002 2001 2000 1999 1998
---------- ----------- ---------- ---------- ----------
(in thousands)
Balance Sheet Data:
Working capital ............................................... $13,150 $11,291 $13,029 $15,513 $15,988
Total assets .................................................. $55,750 $51,784 $49,010 $52,918 $51,921
Total debt, including obligations under capital lease ......... $ -0- $ -0- $ -0- $ 25 $ 87
Stockholders' equity .......................................... $33,064 $31,067 $33,705 $36,994 $38,433
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is set forth in the Company's 2002
Annual Report to Stockholders, which information is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no derivative financial instruments. The Company invests
its cash and cash equivalents in investment-grade, highly liquid investments,
consisting of money market instruments and commercial paper.
The Company is exposed to market risk arising from changes in foreign
currency exchange rates as a result of selling its products and services
outside the U.S. (principally Europe). A portion of the Company's sales
generated from its non-U.S. operations are denominated in currencies other than
the U.S. dollar, principally British pounds. Consequently, the translated U.S.
dollar value of Docucorp's non-U.S. sales and operating results are subject to
currency exchange rate fluctuations which may favorably or unfavorably impact
reported earnings and may affect comparability of period-to-period operating
results.
For the year ended July 31, 2002 and 2001, approximately 6% and 2%,
respectively, of the Company's revenues were denominated in British pounds. For
the year ended July 31, 2002 and 2001, approximately 6% and 4%, respectively,
of the Company's operating expenses were denominated in British pounds.
Historically, the effect of fluctuations in currency exchange rates has not had
a material impact on the Company's operations; however, there can be no
guarantees that it will not have a material impact in the future. The Company's
exposure to fluctuations in currency exchange rates will increase as it expands
its operations outside the U.S.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in the Company's 2002
Annual Report to Stockholders, which information is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
Part III
Part III of this Annual Report on Form 10-K incorporates by reference
portions of the Registrant's definitive proxy statement, to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year; provided that if such proxy statement is not filed with the
Commission in such 120-day period, an amendment to this Form 10-K shall be
filed no later than the end of the 120-day period.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is set forth in the
Proxy Statement under the heading "Directors and Executive Officers," which
information is incorporated herein by reference. Information required by Item
405 of Regulation S-K is set forth in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth in the
Proxy Statement under the heading "Executive Compensation," which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTER
Information with respect to security ownership of certain beneficial
owners and management and related stockholder matter is set forth in the Proxy
Statement under the heading "Beneficial Ownership of Common Stock," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and transactions is set
forth in the Proxy Statement, under the heading "Certain Relationships and
Related Transactions," which information is incorporated herein by reference.
17
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following is a list of the consolidated financial statements which
are included in this Form 10-K.
1. Financial Statements:
Report of Independent Accountants
As of July 31, 2002 and 2001:
o Consolidated Balance Sheets
For the Years Ended July 31, 2002, 2001 and 2000:
o Consolidated Statements of Operations and Comprehensive Income
o Consolidated Statements of Cash Flows
o Consolidated Statements of Changes in Stockholders' Equity
o Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
o Report of Independent Accountants on Financial Statement Schedule
o Schedule II -- Valuation and Qualifying Accounts
3. Exhibits:
See Exhibit Index beginning on page 27 of this Form 10-K.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
July 31, 2002.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas.
DOCUCORP INTERNATIONAL, INC.
-----------------------------------
(Registrant)
/s/ Michael D. Andereck Date 10/29/02
- ----------------------------------- -------------------------------
Michael D. Andereck
President, Chief Executive Officer and Director
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Docucorp International,
Inc., hereby severally constitute and appoint Michael D. Andereck, our true and
lawful attorney, with full power to sign for us in our names in the capacities
indicated below, amendments to this report, and generally to do all things in
our names and on our behalf in such capacities to enable Docucorp
International, Inc. to comply with the provisions of the Securities Exchange
Act of 1934, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Michael D. Andereck Date 10/29/02
- ----------------------------------- ---------------------------
Michael D. Andereck
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ John H. Gray Date 10/29/02
- ----------------------------------- ---------------------------
John H. Gray
Senior Vice President, Finance and Administration
(Principal Financial Officer and Principal
Accounting Officer)
/s/ Milledge A. Hart, III Date 10/29/02
- ----------------------------------- ---------------------------
Milledge A. Hart, III
Chairman of the Board
/s/ Anshoo S. Gupta Date 10/29/02
- ----------------------------------- ---------------------------
Anshoo S. Gupta
Director
/s/ John D. Loewenberg Date 10/29/02
- ----------------------------------- ---------------------------
John D. Loewenberg
Director
/s/ George F. Raymond Date 10/29/02
- ----------------------------------- ---------------------------
George F. Raymond
Director
/s/ Arthur R. Spector Date 10/29/02
- ----------------------------------- ---------------------------
Arthur R. Spector
Director
19
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Docucorp International, Inc. (the
"Company") on Form 10-K for the year ended July 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof, I, Michael D. Andereck,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:
(1) I have reviewed the Company's annual report on Form 10-K for the fiscal
year ended July 31, 2002;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which they
were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition and results of operations of
the Company as of, and for, the periods presented.
/s/ Michael D. Andereck
- -----------------------------
Michael D. Andereck
President and Chief Executive Officer
October 29, 2002
20
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Docucorp International, Inc. (the
"Company") on Form 10-K for the year ended July 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof, I, John H. Gray, Senior
Vice President, Finance and Administration of the Company, certify, pursuant to
18 U.S.C Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, that:
(1) I have reviewed the Company's annual report on Form 10-K for the fiscal
year ended July 31, 2002;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which they
were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition and results of operations of
the Company as of, and for, the periods presented.
/s/ John H. Gray
- -----------------------------
John H. Gray
Senior Vice President, Finance and Administration
(Principal Financial Officer)
October 29, 2002
21
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Stockholders
of Docucorp International, Inc.
Our audits of the consolidated financial statements referred to in our
report dated September 20, 2002 appearing in the Annual Report to Shareholders
of Docucorp International, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item 14(a)
(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
September 20, 2002
22
Valuation and Qualifying Accounts
Years ended July 31, 2002, 2001 and 2000
Schedule II
Balance at Charged to
Beginning Costs and Deductions Balance at
Description of Period Expenses (a) End of Period
- ------------------------------------------ ------------ ------------- ---------------- --------------
2002
Allowance for doubtful accounts ......... $ 600,000 $ 702,000 $ (632,000) $ 670,000
Amortization of intangibles ............. $4,939,641 $ -0- $ -0- $4,939,641
Valuation allowance against deferred
tax assets ............................ $1,725,000 $ 215,000 $ -0- $1,940,000
2001
Allowance for doubtful accounts ......... $ 600,000 $ 803,978 $ (803,978) $ 600,000
Amortization of intangibles ............. $3,832,003 $1,107,638 $ -0- $4,939,641
Valuation allowance against deferred
tax assets ............................ $1,163,525 $ 561,475 $ -0- $1,725,000
2000
Allowance for doubtful accounts ......... $ 675,000 $ 327,230 $ (402,230) $ 600,000
Amortization of intangibles ............. $2,478,780 $1,353,223 $ -0- $3,832,003
Valuation allowance against deferred
tax assets ............................ $2,267,387 $ 363,525 $ (1,467,387) $1,163,525
- ------------
(a) Deductions from the allowance for doubtful accounts relate to the
utilization of the valuation and qualifying accounts for specific items
for which they were established in the accounts receivable account.
Deductions from the valuation allowance against deferred tax assets relate
to the tax benefit from utilization of net operating loss carryforwards
and reduction of the valuation allowance based on management's assessment
of the likelihood of realizability of the loss carryforwards.
23
INDEX TO EXHIBITS
Exhibit No. Description
- ------------- ------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation. (filed as exhibit 3.1 to the Company's Registration Statement on
Form S-4 No. 333-22225 and incorporated herein by reference)
3.2 Bylaws. (filed as exhibit 3.2 to the Company's Registration Statement on Form S-4 No. 333-22225
and incorporated herein by reference)
10.2 Employment Agreement between Michael D. Andereck and the Registrant dated January 15,
1997. (filed as exhibit 10.2 to the Company's Registration Statement on Form S-4 No. 333-22225
and incorporated herein by reference)
10.3 1997 Equity Compensation Plan. (filed as exhibit 10.3 to the Company's 1997 Annual Report
on Form 10-K and incorporated herein by reference)
21.1* Subsidiaries of the Registrant.
23.1* Consent of PricewaterhouseCoopers LLP, Independent Accountants.
99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes -- Oxley Act of 2002.
99.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes -- Oxley Act of 2002.
- ------------
* Filed herewith.
24