<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1998
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 of (I.R.S. Employer
incorporation or organization) identification number)
5910 North Central Expressway, Suite 800, Dallas, Texas 75206
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 891-6500
-----------------------------------------------------
(Registrant's telephone number including area code)
DocuCorp, Inc.
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
SHARES OUTSTANDING EFFECTIVE
CLASS FEBRUARY 28, 1998
- ------------------------------------ ----------------------------
Common Stock, $.01 par value 5,323,100
Common Stock Class B, $.01 per value 5,783,242
<PAGE>
DOCUCORP INTERNATIONAL, INC.
TABLE OF CONTENTS
FORM 10-Q
JANUARY 31, 1998
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited)
Interim Consolidated Balance Sheets as of July 31, 1997 and
January 31, 1998 2
Interim Consolidated Statements of Operations for the three
and six month periods ended January 31, 1997 and 1998 3
Interim Consolidated Statements of Cash Flows for the six
months ended January 31, 1997 and 1998 4
Notes to interim consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
DOCUCORP INTERNATIONAL, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
July 31, January 31, Pro Forma
1997 1998 (Note 6)
------------ ------------ --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,869,458 $ 2,394,501 $ 2,394,501
Accounts receivable, net of allowance
of $525,000 and $700,000, respectively 9,010,784 10,044,321 10,044,321
Current portion of deferred taxes 380,925 649,068 649,068
Income tax refund receivable 503,888 530,928 530,928
Other current assets 553,977 1,433,269 1,433,269
------------ ------------ ------------
Total current assets 13,319,032 15,052,087 15,052,087
Fixed assets, net of accumulated depreciation
of $1,983,864 and $2,647,706, respectively 3,087,578 2,746,582 2,746,582
Software, net of accumulated amortization of
$5,397,344 and $5,500,312, respectively 7,408,113 7,220,282 7,220,282
Deferred taxes 1,029,473 622,290 622,290
Goodwill, net of accumulated amortization of
$160,522 and $545,775, respectively 7,544,535 6,887,282 6,887,282
Other assets 309,434 315,702 315,702
------------ ------------ ------------
$ 32,698,165 $ 32,844,225 $ 32,844,225
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,164,012 $ 864,802 $ 864,802
Accrued liabilities:
Accrued compensation 1,142,199 2,203,261 2,203,261
Other 1,532,300 1,697,151 1,697,151
Income taxes payable 412,000 290,978 290,978
Current portion of long-term debt 191,652 191,652 191,652
Current portion of obligations under capital leases 454,199 220,134 220,134
Deferred revenue 6,778,212 8,254,766 8,254,766
------------ ------------ ------------
Total current liabilities 11,674,574 13,722,744 13,722,744
Obligations under capital leases 33,993 0 0
Long-term debt 8,759,156 5,191,696 5,191,696
Other long-term liabilities 631,748 658,790 658,790
Redeemable Class B common stock, 7,000,000 shares
authorized at $.01 par value, 5,623,229,
5,661,376 and 0 shares issued and outstanding at
redemption value, respectively 19,118,978 19,248,678 0
Stockholders' deficit:
Common stock, 50,000,000 shares authorized at $.01
par value, 5,133,353, 5,190,371 and 10,851,747
shares issued and outstanding, respectively 51,334 51,904 108,518
Additional paid-in capital 4,912,649 4,967,572 24,159,636
Retained deficit (12,413,092) (10,925,984) (10,925,984)
Notes receivable from stockholders (71,175) (71,175) (71,175)
------------ ------------ ------------
Total stockholders' deficit (7,520,284) (5,977,683) 13,270,995
------------ ------------ ------------
$ 32,698,165 $ 32,844,225 $ 32,844,225
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
DOCUCORP INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three months ended Six months ended
January 31, January 31,
------------------------- -------------------------
1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Professional services $ 175,786 $ 6,297,131 $ 371,655 $12,985,141
License 817,283 2,244,526 1,860,970 3,820,343
Maintenance and other recurring 1,611,012 2,661,819 3,194,991 5,244,265
---------- ----------- ---------- -----------
Total revenues 2,604,081 11,203,476 5,427,616 22,049,749
---------- ----------- ---------- -----------
EXPENSES
Professional services 161,541 4,940,523 307,827 9,782,217
Product development and support 1,171,138 2,114,410 2,166,615 3,992,909
Selling and marketing 344,173 1,479,333 749,413 2,874,433
General and administrative 298,680 1,285,438 763,588 2,657,301
---------- ----------- ---------- -----------
Total expenses 1,975,532 9,819,704 3,987,443 19,306,860
---------- ----------- ---------- -----------
Operating income 628,549 1,383,772 1,440,173 2,742,889
Other income (expense), net 110,424 (125,869) 205,740 (281,781)
---------- ----------- ---------- -----------
Income before income taxes 738,973 1,257,903 1,645,913 2,461,108
Provision for income taxes 271,000 490,000 601,000 974,000
---------- ----------- ---------- -----------
Net income $ 467,973 $ 767,903 $1,044,913 $ 1,487,108
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Net income per share:
Basic $ 0.07 $ 0.15 $ 0.16 $ 0.29
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Diluted $ 0.05 $ 0.10 $ 0.13 $ 0.20
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Weighted average shares outstanding
used in the net income per share calculation:
Basic 6,472,359 5,142,241 6,472,359 5,137,797
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Diluted 8,542,284 7,382,596 8,355,453 7,297,770
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Unaudited pro forma data (Note 5):
Pro forma net income per share:
Basic $ 0.07 $ 0.14
----------- ------------
----------- ------------
Diluted $ 0.06 $ 0.11
----------- ------------
----------- ------------
Pro forma weighted average shares
outstanding used in the pro forma
net income per share calculation:
Basic 10,784,503 10,772,228
----------- ----------
----------- ----------
Diluted 13,024,857 12,932,202
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
DOCUCORP INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Six months ended
January 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,044,913 $ 1,487,108
Adjustments to reconcile net income to
net cash provided by operating activities:
Stock option compensation expense 24,499 10,515
Depreciation 196,483 732,710
Amortization of capitalized software 387,916 904,387
Amortization of goodwill 0 385,253
Tax benefit from utilization of net operating loss 0 272,000
Increase in allowance for doubtful accounts 0 175,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,185,387 (1,208,537)
Increase in income tax refund receivable 0 (27,040)
Decrease in deferred tax assets 100,101 139,040
(Increase) decrease in other assets 46,274 (885,560)
Decrease in accounts payable (160,213) (299,210)
Increase (decrease) in accrued liabilities (274,147) 1,225,913
Decrease in income taxes payable (476,748) (121,022)
Increase in deferred revenue 565,243 1,476,554
Increase in deferred tax liabilities 174,899 0
Increase in other long-term liabilities 0 27,042
---------- -----------
Total adjustments 1,769,694 2,807,045
---------- -----------
Net cash provided by operating activities 2,814,607 4,294,153
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of short-term investments, net 2,333,924 0
Purchase of fixed assets (187,877) (391,714)
Development of software (292,141) (716,556)
---------- -----------
Net cash provided by (used in) investing activities 1,853,906 (1,108,270)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt 0 (3,567,460)
Principal payments under capital lease obligations (45,967) (268,058)
Proceeds from exercise of stock options 0 174,678
---------- -----------
Net cash used in financing activities (45,967) (3,660,840)
---------- -----------
Net increase (decrease) in cash and cash equivalents 4,622,546 (474,957)
Cash and cash equivalents at beginning of period 1,909,016 2,869,458
---------- -----------
Cash and cash equivalents at end of period $6,531,562 $ 2,394,501
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include
the accounts of DocuCorp International, Inc. and its subsidiaries
(collectively, the "Company").
The financial information presented should be read in conjunction with the
Company's annual consolidated financial statements for the year ended July
31, 1997. The foregoing unaudited interim consolidated financial statements
reflect all adjustments (all of which are of a normal recurring nature) which
are, in the opinion of management, necessary for a fair presentation of the
results of the interim periods. The results for interim periods are not
necessarily indicative of results to be expected for the year.
NOTE 2 - MERGER OF IMAGE SCIENCES AND FORMMAKER
On January 15, 1997, Image Sciences, Inc. ("Image Sciences") entered into an
Agreement and Plan of Merger (the "Merger") with FormMaker Software, Inc.
("FormMaker"), pursuant to which the stockholders of Image Sciences and
FormMaker agreed to exchange their shares for common stock of the Company.
The Merger was completed on May 15, 1997. Concurrent with the closing of the
Merger, Image Sciences distributed approximately $8,000,000 via (i) a tender
offer to its common stockholders and certain holders of options to purchase
common stock and (ii) a dividend to its preferred stockholder.
The Merger was treated as an acquisition of FormMaker by Image Sciences;
accordingly, the Merger transaction was recorded under the purchase method of
accounting. For historical accounting purposes, Image Sciences is considered
to be the acquiror in the Merger and purchase accounting is not required
related to the conversion of Image Sciences common stock and preferred stock
into Company common stock. The financial statements of Image Sciences are
presented as the historical statements of the Company for periods prior to
the Merger. The excess of the purchase price over the fair value of the net
identifiable assets acquired of $7,705,057 has been recorded as goodwill and
is being amortized on a straight-line basis over ten years.
The following unaudited pro forma information for the three and six month
periods ended January 31, 1997 presents a summary of consolidated results of
operations of Image Sciences and FormMaker as if the acquisition had occurred
at the beginning of fiscal 1997. Such unaudited pro forma amounts are not
necessarily indicative of what the actual results might have been had the
Merger occurred at the beginning of fiscal 1997. The unaudited pro forma
amounts exclude non-recurring charges recorded in the year ended July 31,
1997 for acquired in-process technology, compensation charges, and other
Merger-related costs of $13,500,000, $7,649,740, and $228,115, respectively.
<TABLE>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, 1997 JANUARY 31, 1997
------------------ ----------------
<S> <C> <C>
Revenues $9,739,000 $18,761,000
Net income $ 386,000 $ 700,000
Net income per share:
Basic $ .04 $ .07
Diluted $ .03 $ .05
</TABLE>
5
<PAGE>
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - LONG-TERM DEBT
In connection with the Merger, the Company assumed a $10,000,000 revolving
credit facility with a bank which was guaranteed by Safeguard Scientifics,
Inc. ("Safeguard"), FormMaker's largest stockholder. Effective September
1997, the revolving credit facility was renegotiated. The maximum amount
available under this credit facility is $10,000,000, and repayment of
$3,500,000 is guaranteed by Safeguard. Under the credit facility, the
Company is required to maintain certain financial covenants. Amounts
outstanding under this credit facility bear interest at variable rates
determined by various provisions of the credit facility. These rates
generally approximate or equal the bank's prime rate or the London Interbank
Rate ("LIBOR").
NOTE 4 - NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 simplifies the standards for
computing earnings per share ("EPS") previously found in Accounting
Principles Board No. 15, "Earnings per Share" ("APB 15"), and makes them
comparable to international EPS standards. The provisions and disclosure
requirements for SFAS 128 were required to be adopted for interim and annual
periods ending after December 15, 1997, with restatement of EPS for prior
periods. Accordingly, EPS data for all periods presented has been restated to
reflect the computation of EPS in accordance with the provisions of SFAS 128.
The following table sets forth the basic and diluted net income per share
computation for the three and six month periods ended January 31:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
----------------------- -----------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $ 467,973 $ 767,903 $1,044,913 $1,487,108
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
BASIC
Weighted average shares outstanding
used in the basic net income per
share calculation 6,472,359 5,142,241 6,472,359 5,137,797
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net income per share $ 0.07 $ 0.15 $ 0.16 $ 0.29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DILUTED
Weighted average shares outstanding 6,472,359 5,142,241 6,472,359 5,137,797
Additional weighted average shares
from assumed exercise of diluted
stock options and warrants, net of
shares to be repurchased with
exercise proceeds 2,069,925 2,240,355 1,883,094 2,159,973
---------- ---------- ---------- ----------
Weighted average shares outstanding
used in the diluted net income per
share calculation 8,542,284 7,382,596 8,355,453 7,297,770
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net income per share $ 0.05 $ 0.10 $ 0.13 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
6
<PAGE>
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 - PRO FORMA NET INCOME PER SHARE
Pro forma basic and diluted net income per share has been computed in
accordance with SFAS 128 using the weighted average number of common shares
outstanding assuming that all shares of Class B common stock have been
converted to shares of Common Stock as of the date of issuance. Class B
shares automatically convert to Common Stock shares upon consummation of
the Company's initial public offering (see note 9). In addition, pro forma
diluted net income per share gives effect to all dilutive potential common
shares that were outstanding during the period.
The following table sets forth the pro forma basic and diluted net income per
share computation for the three and six month periods ended January 31:
<TABLE>
THREE MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, JANUARY 31,
1998 1998
----------- -----------
<S> <C> <C>
Net income $ 767,903 $ 1,487,108
----------- -----------
----------- -----------
BASIC
Weighted average shares outstanding used in
the pro forma basic net income per share calculation 10,784,503 10,772,228
----------- -----------
----------- -----------
Pro forma basic net income per share $ 0.07 $ 0.14
----------- -----------
----------- -----------
DILUTED
Weighted average shares outstanding 10,784,503 10,772,228
Additional weighted average shares from assumed
exercise of diluted stock options and warrants, net
of shares to be repurchased with exercise proceeds 2,240,354 2,159,974
----------- -----------
Pro forma weighted average shares outstanding used in the
pro forma diluted net income per share calculation 13,024,857 12,932,202
----------- -----------
----------- -----------
Pro forma diluted net income per share $ 0.06 $ 0.11
----------- -----------
----------- -----------
</TABLE>
NOTE 6 - PRO FORMA BALANCE SHEET
All outstanding shares of Class B common stock will be converted on a
one-for-one basis to Common Stock concurrent with the consummation of the
Company's initial public offering. Accordingly, the pro forma balance sheet
at January 31, 1998 gives effect to the conversion of the 5,661,376 shares of
Class B common stock to 5,661,376 shares of Common Stock as if such
conversion had occurred as of the balance sheet date.
NOTE 7 - MAJOR CUSTOMERS
For the three and six month periods ended January 31, 1998, one customer
accounted for approximately $1.2 million and $2.7 million, respectively, of
the Company's total revenues.
7
<PAGE>
DOCUCORP INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 8 - STOCK SPLIT
In December 1997, the Company approved the declaration of a six-for-five
stock split of the outstanding Common Stock and Class B common stock effected
in the form of a dividend to stockholders of record as of December 9, 1997.
Concurrently, the number of shares of Common Stock the Company is authorized
to issue was increased from 20 million to 50 million shares. The financial
statements have been adjusted retroactively for the six-for-five split.
NOTE 9 - SUBSEQUENT EVENTS
In February 1998, the Company entered into definitive agreements to acquire
all of the capital stock of EZPower Systems, Inc. ("EZPower") and Maitland
Software, Inc. ("Maitland"). EZPower develops, markets and supports document
management software products. The Company will issue 650,000 shares of Common
Stock, repay $2.5 million of EZPower's indebtedness and pay certain
contingent cash consideration based on future performance. For the year ended
December 31, 1997, EZPower had revenues of approximately $500,000 and a net
loss of $2.0 million. Maitland has developed and recently commenced marketing
the TRANSIT software product. This product is a data acquisition and
transmittal program which allows users the ability to more easily interface
with document printing and publishing software. The Company will issue
170,000 shares of Common Stock as consideration for the acquisition of
Maitland, subject to certain repurchase options by the Company. As a
development stage company, the historical results of Maitland and its
tangible net assets are not significant. Both acquisitions are scheduled to
close in March 1998 and will be accounted for under the purchase method of
accounting.
The Company has initiated an initial public offering ("IPO") in the form of a
rights offering to Safeguard stockholders. The Company's Registration
Statement on Form S-1 (File No. 333-44427) with respect to the IPO was
declared effective on February 24, 1998. The Company's when-issued Common
Stock, and rights to purchase Common Stock, began trading on the NASDAQ
National Market under the symbols DOCCV and DOCCR, respectively, on February
25, 1998. The Company is offering to sell 4,000,000 shares of Common Stock
at a per share price of $5.00. Net proceeds to the Company, after deduction
of the underwriting discount and estimated IPO expenses, will be
approximately $17.6 million. Selling stockholders are also selling 2,820,000
shares at a per share price of $5.00. The Company will not receive any
proceeds from the sale of shares by the selling stockholders. The offering is
expected to close and funding to the Company is expected to occur in early
April 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN INFORMATION CONTAINED HEREIN MAY INCLUDE "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-Q, ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES, WHICH INCLUDE BUT ARE NOT LIMITED TO THE RISK OF
COMPETITIVE PRESSURES, FAILURE TO ADEQUATELY RESPOND TO TECHNOLOGICAL
DEVELOPMENTS, LOSS OF SIGNIFICANT CUSTOMERS OR DISTRIBUTORS, AND THE OTHER
RISK FACTORS AND CAUTIONARY STATEMENTS LISTED FROM TIME TO TIME IN THE
COMPANY'S PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING BUT NOT LIMITED TO, THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-1 (REGISTRATION NO. 333-44427). ALL FORWARD-LOOKING STATEMENTS INCLUDED IN
THIS FORM 10-Q 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.
OVERVIEW
The Company develops, markets and supports a portfolio of open-architecture,
enterprise-wide document automation software products that enable its
customers to produce complex, high volume, customized documents. In addition,
the Company provides document automation consulting and systems integration
services through a 145-person service organization. The Company also provides
document processing and printing services which utilize the Company's
software to provide solutions for handling high volume, complex print, finish
and mailing for customers who outsource this activity.
The Company was formed in connection with the Merger. The Merger was treated
as an acquisition of FormMaker by Image Sciences, and accordingly the Merger
transaction was recorded under the purchase method of accounting. The
accompanying interim consolidated financial statements include the accounts
of the Company and its subsidiaries. Consolidated results of FormMaker and
its subsidiary are included from the effective date of the Merger, May 15,
1997. Due to the lack of comparability of the results of operations for
periods prior to and subsequent to the Merger, supplemental analysis of
unaudited pro forma combined statement of operations information of the
Company has been included in the accompanying analysis.
The Company derives its revenues from license fees, recurring maintenance
fees, and professional services fees related to its software products.
License revenues are generally derived from perpetual and term licenses of
software products. Maintenance and other recurring revenues consist primarily
of recurring license fees and annual maintenance contracts. Professional
services revenues include fees for consulting, implementation, print
outsourcing, contract programming, and education services.
9
<PAGE>
HISTORICAL OPERATING RESULTS OF THE COMPANY
The following table sets forth selected data of the Company expressed as a
percentage of total revenues for the periods indicated:
<TABLE>
(unaudited) (unaudited)
Three months ended Six months ended
January 31, January 31,
------------------- ------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Professional services 7% 56% 7% 59%
License 31 20 34 17
Maintenance and other recurring 62 24 59 24
---- ---- ---- ----
Total revenues 100 100 100 100
---- ---- ---- ----
EXPENSES
Professional services 6 44 6 45
Product development and support 45 19 40 18
Selling and marketing 13 13 14 13
General and administrative 12 12 14 12
---- ---- ---- ----
Total expenses 76 88 74 88
---- ---- ---- ----
Operating income 24 12 26 12
Other income (expense), net 4 (1) 4 (1)
---- ---- ---- ----
Income before income taxes 28 11 30 11
Provision for income taxes 10 4 11 4
---- ---- ---- ----
Net income 18% 7% 19% 7%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
THREE AND SIX MONTHS ENDED JANUARY 31, 1997 COMPARED TO THREE AND SIX MONTHS
ENDED JANUARY 31, 1998
REVENUES
The inclusion of FormMaker's results for the three and six months ended
January 31, 1998 was primarily responsible for the 330% and 306% increase in
total revenues, respectively. Professional services revenues increased
significantly due to the inclusion of FormMaker services in the three and six
months ended January 31, 1998. License revenues increased 175% and 105% due
to the inclusion of FormMaker's license revenues. For the three and six
months ended January 31, 1998, maintenance and other recurring revenues
increased 65% and 64%, respectively, as a result of an increased customer
base for DocuFlex and inclusion of the customer base of the Document
Automation Platform ("DAP") product line.
Backlog for the Company's products and services of approximately $28.9
million as of January 31, 1998, of which approximately $20.7 million is
scheduled to be satisfied within one year, is primarily comprised of
recurring software license and maintenance revenues for ongoing maintenance
and support, software implementation and consulting services, and print
outsourcing services. Software agreements for recurring license fees
generally have non-cancelable terms of up to five years. Annual maintenance
contracts may generally be terminated upon 30 days' notice; however, the
Company has not historically experienced material cancellations of such
contracts. Software implementation and consulting services backlog is
principally performed under time and material agreements of which some have
cancellation provisions. Print outsourcing services agreements generally
provide that fees are charged on a per transaction basis.
10
<PAGE>
The estimated future revenue with respect to software implementation and
print outsourcing services are based on management's estimate of revenues
over the remaining life of the respective contracts.
A subsidiary of the Company distributes the line of DAP software products,
which was acquired by the Company in connection with the Merger, to the
insurance industry in North America through Policy Management Systems
Corporation ("PMSC"). A substantial portion of the subsidiary's revenues are
generated from a marketing agreement with PMSC under which the subsidiary has
granted PMSC the exclusive third-party right to market the DAP software in
the property/casualty and life insurance industries. Pro forma revenues from
PMSC under this agreement for the year ended July 31, 1997, and revenues for
the three and six months ended January 31, 1998 were approximately $10.3
million, $1.4 million, and $3.2 million, respectively. PMSC can terminate the
marketing agreement by providing 90 days' prior written notice. Unless
terminated at an earlier date, the Company intends to allow the marketing
agreement to expire on December 31, 1999. Upon expiration or termination of
the marketing agreement, the Company will receive no revenues from new
licenses sold through PMSC, and maintenance revenues from PMSC-sourced
licensees will be eliminated over a two-year period.
In addition, PMSC has provided notice of termination of a print outsourcing
agreement, effective June 1998. Revenues from PMSC on a pro forma basis under
this agreement for the year ended July 31, 1997, and revenues for the three
and six months ended January 31, 1998 were approximately $5.3 million, $1.3
million, and $3.0 million, respectively. Although print outsourcing revenues
will experience a short-term decline, the Company does not anticipate any
meaningful reduction in operating income as a result of such termination.
The Company is unable to predict the impact, if any, on the Company's
revenues as a result of its customers being distracted from their document
automation needs as their attention is re-directed, or customer resources are
diverted, to becoming Year 2000 compliant.
PROFESSIONAL SERVICES EXPENSE
Professional services expense is composed primarily of personnel expenses
related to both consulting and print outsourcing services. The majority of
the $4.8 and $9.5 million increase for the three and six months ended January
31, 1998, respectively, from the comparable prior year period, is due to the
inclusion of FormMaker personnel and related expenses. For the three and six
months ended January 31, 1998, postage and supplies expense of approximately
$1.2 million and $2.5 million, respectively, for print outsourcing services
also contributed to the increase. For the three months ended January 31, 1997
and 1998, professional services expense represented 92% and 78% of
professional services revenues, respectively, and 83% and 75% of professional
services revenues for the six months ended January 31, 1997 and 1998,
respectively. The decrease in cost as a percentage of professional services
revenues is primarily due to economies of scale of the expanded services
operations, higher profit margins earned under a short-term print outsourcing
agreement, and improved margins due to a smaller percentage of services
business being generated through third-party distributors. The Company
expects professional services expense to increase, in order to meet
additional resource requirements as professional services revenues increase.
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
Product development and support expense consists primarily of research and
development efforts, amortization of capitalized software costs, customer
support, and other product support costs. For the three and six months ended
January 31, 1998, product development and support expense increased 81% and
84%, respectively, from the comparable prior year period, largely due to
development efforts related to operations acquired in the Merger. The Company
intends to accelerate development efforts, including the
11
<PAGE>
integration of existing products with the Internet to provide an
enterprise-wide Internet solution, further development of systems for use in
industries such as utility and financial services, and development of new
software products utilizing object-oriented technology, and with respect to
support of its existing product lines. Accordingly, expenditures in this area
are expected to increase.
Current versions of the Company's products are designed to be "Year 2000"
compliant. The Company is in the process of determining the extent to which
the customized implementations of its software products are Year 2000
compliant, as well as the impact of any non-compliance on the Company and its
customers. The Company does not currently believe that the effects of any
Year 2000 non-compliance in the Company's installed base of software will
result in any material adverse impact on the Company's business or financial
condition. No assurance can be given that the Company will not be exposed to
potential claims resulting from system problems associated with the century
change.
SELLING AND MARKETING EXPENSE
Selling and marketing expense increased 330% and 284% for the three and six
months ended January 31, 1998, respectively, from the comparable prior year
period. The increase in selling and marketing expense is primarily the result
of inclusion of operations acquired in the Merger and increased commissions.
Sales commissions increased due to additional revenues and a new fiscal 1998
sales compensation plan that has been expanded to provide compensation on all
revenue types.
GENERAL AND ADMINISTRATIVE EXPENSE
For the three and six months ended January 31, 1998, general and
administrative expense increased 330% and 248%, respectively, from the
comparable prior year period. The increased expense for the fiscal 1998
period resulted from inclusion of operations acquired in the Merger and
goodwill amortization as a result of the Merger.
OTHER INCOME (EXPENSE), NET
Other income (expense), net decreased 214% and 237%, respectively, for the
three and six months ended January 31, 1998, from the comparable prior year
period, due to a decrease in interest income and a significant increase in
interest expense. Interest income decreased as a result of an $8.0 million
cash distribution to stockholders and certain option holders in connection
with the Merger. Interest expense increased significantly due to the
assumption of debt and capitalized leases in connection with the Merger.
PROVISION FOR INCOME TAXES
Effective tax rates for the three months ended January 31, 1997 and 1998 were
approximately 37% and 39%, respectively, and 37% and 40%, for the six months
ended January 31, 1997 and 1998, respectively. The increase was due to the
non-deductibility of goodwill amortization related to the Merger. The Company
used a portion of its net operating loss carryforwards and outstanding tax
credits to offset its current tax liability for the three and six months
ended January 31, 1997 and 1998.
NET INCOME
Net income increased 64% and 42%, respectively, for the three and six months
ended January 31, 1998 from the comparable prior year period. The increase in
net income for these periods was primarily the result of significant increase
in revenues.
12
<PAGE>
UNAUDITED INTERIM PRO FORMA COMBINED OPERATING RESULTS OF THE COMPANY
The following is a supplemental comparison of the unaudited interim pro forma
combined operating results of the Company assuming the acquisition of
FormMaker occurred on August 1, 1996. The supplemental information presented
below, expressed in dollars and as a percentage of total revenues for the
periods indicated, has been derived from the interim consolidated financial
statements of the Company and the interim consolidated financial statements
of FormMaker. For periods prior to May 15, 1997, the Company, Image Sciences,
and FormMaker were not under common control or management and, as a result,
the selected unaudited interim pro forma combined financial information is
not necessarily indicative of or comparable to the operating results that
would have occurred had the Merger occurred as of or at the beginning of the
period presented or that will occur in the future.
<TABLE>
Three months ended Six months ended
January 31, January 31,
--------------------- ---------------------
1997 1998 1997 1998
Pro Forma Actual Pro Forma Actual
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
Professional services $4,935 $ 6,297 $ 9,457 $12,985
License 2,541 2,245 4,868 3,821
Maintenance and other recurring 2,263 2,662 4,436 5,244
------ ------- ------- -------
Total revenues 9,739 11,204 18,761 22,050
------ ------- ------- -------
EXPENSES
Professional services 4,448 4,941 7,928 9,782
Product development and support 1,605 2,114 3,231 3,993
Selling, general and administrative 2,909 2,765 6,000 5,532
------ ------- ------- -------
Total expenses 8,962 9,820 17,159 19,307
------ ------- ------- -------
Operating income 777 1,384 1,602 2,743
Other expense, net (169) (126) (301) (282)
------ ------- ------- -------
Income before income taxes 608 1,258 1,301 2,461
Provision for income taxes 222 490 601 974
------ ------- ------- -------
Net income $ 386 $ 768 $ 700 $ 1,487
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
13
<PAGE>
<TABLE>
Three months ended Six months ended
January 31, January 31,
------------------ ------------------
1997 1998 1997 1998
Pro Forma Actual Pro Forma Actual
--------- ------ --------- ------
(AS A PERCENT OF TOTAL REVENUES)
<S> <C> <C> <C> <C>
REVENUES
Professional services 51% 56% 50% 59%
License 26 20 26 17
Maintenance and other recurring 23 24 24 24
--- --- --- ---
Total revenues 100 100 100 100
--- --- --- ---
EXPENSES
Professional services 46 44 42 45
Product development and support 16 19 17 18
Selling, general and administrative 30 25 32 25
--- --- --- ---
Total expenses 92 88 91 88
--- --- --- ---
Operating income 8 12 9 12
Other expense, net (2) (1) (2) (1)
--- --- --- ---
Income before income taxes 6 11 7 11
--- --- --- ---
Provision for income taxes 2 4 3 4
--- --- --- ---
Net income 4% 7% 4% 7%
--- --- --- ---
--- --- --- ---
</TABLE>
THREE AND SIX MONTHS ENDED JANUARY 31, 1997 (ON A PRO FORMA BASIS) COMPARED TO
THREE AND SIX MONTHS ENDED JANUARY 31, 1998
REVENUES
Total revenues for the three and six months ended January 31, 1998 increased
15% and 18%, respectively, compared to pro forma total revenues for the three
and six months ended January 31, 1997. Professional services revenues
increased primarily due to several print outsourcing contracts and
penetration into the utility industry during fiscal 1998. License revenues
decreased 12% and 22%, respectively, in the three and six months ended
January 31, 1998 due to a decrease in license revenues generated through
PMSC, which was partially offset by an increase in license revenues from the
utility industry. Maintenance and other recurring revenues increased 18% in
both these periods due to an increase in the Company's installed base of
customers.
PROFESSIONAL SERVICES EXPENSE
Professional services expense increased 11% and 23% for the three and six
months ended January 31, 1998, respectively, compared to pro forma expense for
the prior year periods. The majority of the increase is due to additional
costs, mainly personnel, travel, and direct costs related to the print
outsourcing business, associated with the increase in professional services
revenues. Professional services expense, on a pro forma basis, represented 90%
and 84% of the pro forma professional services revenues for the three and six
months ended January 31, 1997, respectively, and 78% and 75% for the three and
six months ended January 31, 1998, respectively. The decrease in cost as a
percentage of pro forma professional services revenues was primarily due to
economies of scale of the expanded operations, the generation of a smaller
percentage of business through third-party distributors, and higher profit
margins earned under a short-term print outsourcing contract.
14
<PAGE>
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
For the three and six months ended January 31, 1998, product development and
support expense increased 32% and 24%, respectively, from the pro forma expense
of the prior year periods. As a percent of pro forma revenues, product
development and support expense increased from 16% to 19% for the three months
ended January 31, 1998, and increased from 17% to 18% for the six months ended
January 31, 1998, as the combined companies continued to commit significant
resources to development efforts, including the integration of existing
products with the Internet to provide an enterprise-wide Internet solution,
further development of systems for use in industries such as utility and
financial services, and development of new software products utilizing object-
oriented technology, and to support their existing product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
For the three and six months ended January 31, 1998, selling, general and
administrative expense decreased 5% and 8%, respectively, compared to pro forma
expense of the prior year periods. As a percentage of pro forma revenues, these
expenses decreased from 30% to 25% for the three months ended January 31, 1997
and 1998, respectively, and from 32% to 25% for the six months ended January
31, 1997 and 1998, respectively. The majority of the decrease is due to the
elimination of certain financial and executive level personnel as a result of
the Merger and decreased commissions due to third parties because a smaller
percentage of revenues were generated through third party distributors.
PROVISION FOR INCOME TAXES
The pro forma effective tax rates for the three and six months ended January
31, 1997, were 37% and 46%, respectively, and 39% and 40% for the three and six
months ended January 31, 1998, respectively. These rates differ from the
federal statutory rate because a portion of goodwill amortization is not
deductible for federal income tax purposes.
NET INCOME
For the three and six months ended January 31, 1998, net income increased 99%
and 112%, respectively, compared to prior year pro forma net income due to the
increase in revenue, partially offset with an increase in expense.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $2.4 million. The Company has initiated an IPO
in the form of a rights offering to Safeguard stockholders. Net proceeds to
the Company from this offering, after deduction of the underwriting discount
and estimated IPO expenses, will be approximately $17.6 million. $8.0 million
was available under the Company's $10.0 million revolving credit facility at
January 31, 1998.
Cash and cash equivalents for the six months ended January 31, 1998 decreased
$475,000 due primarily to repayment of debt and continued development and
enhancement efforts of the Company's product offerings. Cash flows from
operating activities were $4.3 million as the result of profitable operations
and various other cash and non-cash operating activities. Cash flows from
investing activities used $1.1 million in cash for development of software and
purchase of fixed assets. Cash flows from financing activities used $3.7
million in cash principally for repayment of debt.
15
<PAGE>
Working capital was $1.3 million at January 31, 1998, compared with $1.6
million at July 31, 1997. The decrease in working capital is primarily due to
repayments made on the Company's long-term revolving credit facility.
In connection with the Merger, the Company assumed a $10.0 million revolving
credit facility from FormMaker. At January 31, 1998, borrowings under this
credit facility totaled $2.0 million bearing interest at a rate of 8.5%.
The credit facility was renegotiated in September 1997. Under the new
agreement, $3.5 million bears interest at the bank's prime rate less 0.25%, or
8.25% as of January 31, 1998. The remaining $6.5 million bears interest at the
bank's prime rate of 8.50% as of January 31, 1998 and is collateralized by
substantially all of the Company's assets. Approximately $6.5 million of the
credit facility may be converted in September 1998 into a term loan provided
that the Company has given the bank thirty days' written notice and is not in
default. The principal balance of the term loan is payable in twenty-four
monthly installments. The $3.5 million portion of the credit facility is due
and payable in March 1999. Borrowings under the credit facility are utilized
primarily for working capital.
In addition, stockholders loaned the Company $3.0 million in the form of
subordinated notes concurrent with the Merger. The notes bear interest at
prime plus 1.0%, or 9.5% as of January 31, 1998, and are due in full at the
earlier of the closing of a public offering yielding net proceeds to the
Company in excess of $13.0 million and May 15, 2000. The notes are unsecured
obligations of the Company and are subordinated to all senior debt.
In connection with the Merger, the Company assumed two notes payable to
Safeguard, in the original amounts of $350,000 and $275,000. Monthly principal
payments aggregating approximately $16,000 plus accrued interest are due for
thirty-six months commencing February 1, 1997. These notes bear interest at
prime plus 1.0%, or 9.5% as of January 31, 1998.
The Company's liquidity needs will arise primarily from funding the continued
development, enhancement, and support of its software offerings, and the
selling and marketing costs associated principally with continued entry into
new vertical and international markets. The Company's business is not capital
intensive and capital expenditures in any given year are ordinarily not
significant.
The Company currently anticipates that amounts available under its existing
credit facility, cash generated from operations and existing cash balances
together with proceeds received by the Company from its current offering will
be sufficient to satisfy its operating cash needs for at least twelve months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1997, the FASB issued pronouncements relating to the presentation and
disclosure of information related to the Company's capital structure,
comprehensive income and segment data. The Company is required to adopt the
provisions relating to capital structure for the year ending July 31, 1998, if
applicable, and the provisions of the other pronouncements, if applicable, for
the year ending July 31, 1999. The adoption of these pronouncements will not
have an impact on the Company's financial position and results of operations
but may change the presentation of certain of the Company's financial
statements and related notes and data thereto.
In October 1997, the Accounting Standards Executive Committee issued Statement
of Position No. 97-2, "Software Revenue Recognition" ("SOP 97-2") that
supersedes Statement of Position No. 91-1, "Software Revenue Recognition."
SOP 97-2 is effective for transactions entered into in fiscal years beginning
after
16
<PAGE>
December 15, 1997. The Company believes the adoption of this statement will not
have a material effect on the Company's financial position or results of
operations.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By written consent of the holders of a majority of the shares of the Company's
common stock, on January 15 and 16, 1998, the Company amended its certificate
of incorporation to (i) change the Company's name from DocuCorp, Inc. to
DocuCorp International, Inc., (ii) change the name of the "Class A Common
Stock" to "Common Stock", (iii) increase the authorized Common Stock to 50
million shares and (iv) eliminate the right of stockholders in the future to
take action by written consent.
ITEM 5. OTHER INFORMATION
On March 4, 1998, Policy Management Systems Corp. ("PMSC") brought a lawsuit in
the United States District Court, District of South Carolina, against the
Company and its FormMaker subsidiary. The lawsuit alleges that FormMaker has
breached the marketing agreement pursuant to which PMSC distributes
FormMaker's software product to the insurance industry. The lawsuit further
alleges that the Company has engaged in unfair trade practices, tortious
interference with PMSC's contractual relations, breach of contract and other
forms of alleged misconduct relating to PMSC's contract with FormMaker. PMSC
seeks unspecified damages, including punitive damages and to enjoin certain
marketing of the DAP product by the Company and FormMaker. The Company
believes the claims are without merit, intends to vigorously contest such
claims, and believes that the resolution of such claims shall not have a
material adverse affect on its financial condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11. Computation of Earnings Per Share.
27. Financial Data Schedule (for EDGAR filing purposes only).
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during the
three months ended January 31, 1998.
18
<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, thereunto duly authorized.
DocuCorp International, Inc.
- -----------------------------------
(Registrant)
/s/ Todd Rognes Date: March 11, 1998
- ----------------------------------- ----------------------
Senior Vice President, Finance
(Duly Authorized Officer and
Principal Financial Officer)
19
<PAGE>
EXHIBIT 11
DOCUCORP INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
Three months ended Six months ended
January 31, January 31,
------------------------- -------------------------
NET INCOME PER SHARE: 1997 1998 1997 1998
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
BASIC
Net income $ 467,973 $ 767,903 $1,044,913 $1,487,108
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Weighted average shares outstanding used in
the basic net income per share calculation 6,472,359 5,142,241 6,472,359 5,137,797
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Basic net income per share $ 0.07 $ 0.15 $ 0.16 $ 0.29
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
DILUTED
Net income $ 467,973 $ 767,903 $1,044,913 $ 1,487,108
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Weighted average shares outstanding 6,472,359 5,142,241 6,472,359 5,137,797
Additional weighted average shares
from assumed exercise of diluted stock
options and warrants, net of shares to be
repurchased with exercise proceeds 2,069,925 2,240,355 1,883,094 2,159,973
---------- ----------- ---------- -----------
Weighted average shares outstanding used in
the diluted net income per share calculation 8,542,284 7,382,596 8,355,453 7,297,770
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
Diluted net income per share $ 0.05 $ 0.10 $ 0.13 $ 0.20
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
PRO FORMA NET INCOME PER SHARE:
BASIC
Net income $ 767,903 $ 1,487,108
----------- -----------
----------- -----------
Weighted average shares outstanding used in
the pro forma basic net income per share
calculation 10,784,503 10,772,228
----------- -----------
----------- -----------
Pro forma basic net income per share $ 0.07 $ 0.14
----------- -----------
----------- -----------
DILUTED
Net income $ 769,903 $ 1,487,108
----------- -----------
----------- -----------
Weighted average pro forma shares outstanding 10,784,503 10,772,228
Additional weighted pro forma average shares
from assumed exercise of diluted stock
options and warrants, net of shares to be
repurchased with exercise proceeds 2,240,354 2,159,974
----------- -----------
Pro forma weighted average shares outstanding
used in the pro forma diluted net income per
share calculation 13,024,857 12,932,202
----------- -----------
----------- -----------
Pro forma diluted net income per share $ 0.06 $ 0.11
----------- -----------
----------- -----------
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 2,394,501
<SECURITIES> 0
<RECEIVABLES> 10,744,321
<ALLOWANCES> 700,000
<INVENTORY> 0
<CURRENT-ASSETS> 15,052,087
<PP&E> 5,394,288
<DEPRECIATION> 2,647,706
<TOTAL-ASSETS> 32,844,225
<CURRENT-LIABILITIES> 13,722,744
<BONDS> 0
19,248,678
0
<COMMON> 51,904
<OTHER-SE> (6,029,587)
<TOTAL-LIABILITY-AND-EQUITY> 32,844,225
<SALES> 9,064,608
<TOTAL-REVENUES> 22,049,749
<CGS> 3,992,909
<TOTAL-COSTS> 19,306,860
<OTHER-EXPENSES> 281,781
<LOSS-PROVISION> 175,000
<INTEREST-EXPENSE> 319,453
<INCOME-PRETAX> 2,461,108
<INCOME-TAX> 974,000
<INCOME-CONTINUING> 1,487,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,487,108
<EPS-PRIMARY> .29
<EPS-DILUTED> .20
</TABLE>
