U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1997
OR
[ ] Transition Report Under Section 13 or 15(d) of the
Exchange Act
For the Transition Period From _________ to ____________
Commission File Number 1-10185
DOCUCON, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 74-2418590
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7461 Callaghan Road
San Antonio, Texas 78229
(Address of principal executive offices)
(210) 525-9221
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity as of October 31, 1997. 12,774,223
<PAGE>
DOCUCON, INCORPORATED
INDEX
Page
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1: Balance Sheets - September 30, 1997, and December 31, 1996............ 3
Statements of Operations - For the Three and Nine Months Ended
September 30, 1997 and 1996........................................... 5
Statements of Cash Flows - For the Nine Months Ended September 30,
1997 and 1996......................................................... 6
Notes to Financial Statements......................................... 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................10
PART II. OTHER INFORMATION....................................................13
SIGNATURES....................................................................15
-2-
<PAGE>
DOCUCON, INCORPORATED
BALANCE SHEETS
September 30,
1997 December 31,
ASSETS (UNAUDITED) 1996
----------- -----------
CURRENT ASSETS:
Cash and temporary cash investments ............ $ 28,823 $ 198,152
Accounts receivable-trade, net of allowance
for doubtful accounts of $4,444-
U.S. Government ............................. 475,639 1,492,509
Commercial .................................. 107,340 342,574
Unbilled revenues ............................. 1,972,679 1,655,428
Other receivables ............................. 26,347 6,834
Prepaid expenses and other .................... 143,216 169,795
Net current assets of discontinued operations . 147,017 186,166
----------- -----------
Total current assets ............ 2,901,061 4,051,458
----------- -----------
PROPERTY AND EQUIPMENT:
Conversion systems ............................ 4,761,354 4,732,297
Building and improvements ..................... 1,762,318 1,736,666
Land .......................................... 230,000 230,000
Furniture and fixtures ........................ 317,786 275,279
----------- -----------
Total property and equipment .... 7,071,458 6,974,242
Less- Accumulated depreciation ................ (4,867,664) (4,541,487)
----------- -----------
Net property and equipment ...... 2,203,794 2,432,755
----------- -----------
OTHER, net ..................................... 54,361 64,556
----------- -----------
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS 1,056,645 1,047,408
----------- -----------
Total assets .................... $ 6,215,861 $ 7,596,177
=========== ===========
See Notes to Financial Statements.
-3-
<PAGE>
DOCUCON, INCORPORATED
BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED) 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ...................................... $ 481,287 $ 1,403,419
Accrued liabilities .................................. 836,393 885,659
Note payable to related party ........................ 45,000 --
Line of credit ....................................... 725,000 750,000
Current maturities of capital lease obligations ...... 15,433 11,820
Deferred revenues .................................... -- 20,300
Current maturities of long-term debt ................. 30,003 27,729
----------- -----------
Total current liabilities ................... 2,133,116 3,098,927
----------- -----------
LONG-TERM DEBT ........................................ 1,492,728 1,517,970
----------- -----------
CAPITAL LEASE OBLIGATIONS ............................. 53,636 51,211
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000
shares authorized-
Series A, 60 shares authorized, 17 and 19 shares
outstanding as of September 30, 1997, and
December 31, 1996, respectively..................... 17 19
Common stock, $.01 par value, 25,000,000 shares
authorized; 12,458,723 and 12,032,559 shares
outstanding as of September 30, 1997, and December 31,
1996, respectively.................................... 124,587 120,326
Additional paid-in capital ............................ 9,643,660 9,640,036
Accumulated deficit .................................. (7,231,883) (6,832,312)
----------- -----------
Total stockholders' equity .................. 2,536,381 2,928,069
----------- -----------
Total liabilities and stockholders' equity .. $ 6,215,861 $ 7,596,177
=========== ===========
</TABLE>
See Notes to Financial Statements.
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<PAGE>
DOCUCON, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES ......................................... $ 1,317,352 $ 3,146,312 $ 5,903,083 $ 7,321,155
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Production ............................................... 855,515 1,963,277 3,818,692 4,567,890
Research and development ................................. 41,004 68,868 128,447 151,056
General and administrative ............................... 286,064 364,857 787,143 922,674
Marketing ................................................ 123,726 205,739 477,277 577,073
Depreciation and amortization ............................ 104,688 124,812 327,361 399,302
------------ ------------ ------------ ------------
1,410,997 2,727,553 5,538,920 6,617,995
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS (93,645) 418,759 364,163 703,160
OTHER INCOME (EXPENSE):
Interest expense ......................................... (52,094) (27,057) (151,290) (104,373)
Other, net ............................................... 10,152 1,882 39,430 8,180
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (135,587) 393,584 252,303 606,967
INCOME TAX EXPENSE ......................................... -- 3,000 12,000 3,000
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS................ (135,587) 390,584 240,303 603,967
PREFERRED STOCK DIVIDEND REQUIREMENTS ...................... 11,688 13,597 36,439 42,473
------------ ------------ ------------ ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
APPLICABLE TO COMMON STOCKHOLDERS ......................... (147,275) 376,987 203,864 561,494
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ................. (281,983) 101,629 (639,874) 120,911
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS .............................................. $ (429,258) $ 478,616 $ (436,010) $ 682,405
============ ============ ============ ============
PRIMARY INCOME (LOSS) FROM CONTINUING OPERATIONS
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS ............. $ (.01) $ .03 $ .02 $ .04
PRIMARY INCOME (LOSS) FROM DISCONTINUED OPERATIONS
PER COMMON SHARE AND COMMON SHARE EQUIVALENTS ............. (.02) .01 (.06) .01
------------ ------------ ------------ ------------
PRIMARY INCOME (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS ......................................... $ (.03) $ .04 $ (.04) $ .05
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES AND COMMON
SHARE EQUIVALENTS ......................................... 12,447,307 12,556,467 12,401,473 12,481,947
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
DOCUCON, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations ........................... $ 240,303 $ 603,967
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization ................................ 327,361 399,302
Other noncash expenses ....................................... -- 7,787
Changes in current assets and current liabilities-
(Increase) decrease in receivables and unbilled revenues .... 915,340 (460,492)
(Increase) decrease in prepaid expenses and other ........... 26,579 (141,726)
Increase (decrease) in accounts payable and accrued liabilies (971,398) 607,473
Increase (decrease) in deferred revenues .................... (20,300) --
----------- -----------
Net cash provided by operating activities ........ 517,885 1,016,311
----------- -----------
NET CASH USED BY DISCONTINUED OPERATIONS .......................... (591,878) (530,877)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................ (90,048) (426,654)
----------- -----------
Net cash used in investing activities ............ (90,048) (426,654)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under line of credit ................................... 2,408,500 --
Payments under line of credit ................................... (2,433,500) (230,000)
Principal payments under capital lease obligations .............. (10,202) (3,107)
Net proceeds from exercise of stock options ..................... 7,882 36,003
Proceeds from issuing notes payable ............................. 45,000 87,054
Principal payments on long-term debt ............................ (22,968) (79,785)
----------- -----------
Net cash used in financing activities ............ (5,288) (189,835)
----------- -----------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS ............... (169,329) (131,055)
CASH AND TEMPORARY CASH INVESTMENTS, beginning of period ........ 198,152 139,167
----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS, end of period .............. $ 28,823 $ 8,112
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest ....................................................... $ 163,953 $ 74,389
=========== ===========
Income taxes ................................................... $ 3,711 $ --
=========== ===========
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
DOCUCON, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1
The financial statements included herein have been prepared by Docucon,
Incorporated (the Company), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. However, all adjustments have been
made which are, in the opinion of the Company, necessary for a fair presentation
of the results of operations for the periods covered. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is recommended that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996.
Since its inception, the Company has incurred cumulative net losses of
approximately $7.2 million. The cumulative net losses have been funded primarily
through the Company's public offering of common stock, issuances of preferred
stock, the exercise of warrants and debt financing. The Company has taken steps
to improve its operating results including exiting the litigation support
services market and focusing on the Company's core higher margined businesses.
In October 1996, the Company also refinanced its $1.5 million note payable which
was originally due in December 1996. The Company's management believes that it
is likely that the Company's operating results for the remainder of 1997 will
generate sufficient working capital to sustain its operations throughout the
year. However, if improved operating results are not sustained, the Company will
be unable to ensure its continuing operations independent of additional capital
infusions.
NOTE 2
Planned disposal of software division and planned recapitalization-
In October 1997, the Company announced that it has entered into a letter of
intent with a third party in connection with a proposed sale of its software
division. The Company has also entered into a letter of intent with an investor
in connection with a proposed recapitalization of the Company. If these
transactions were to be consummated, the Company currently contemplates
distributing the net proceeds of the sale and recapitalization, which would
range from $1.35 to $1.75 per share, to its shareholders. Additionally, the
Company's current shareholders would retain approximately 8 percent of the
outstanding shares of the contemplated surviving company. There can be no
assurances that any definitive agreements will be reached regarding the proposed
sale or recapitalization or that such transactions will be consummated. As a
result of the proposed sale of the Company's software division, the division has
been accounted for as a discontinued operation and, accordingly, the Company has
restated its financial statements for all periods presented in accordance with
Accounting Principles Board Opinion No. 30. Income tax effects of the
discontinued operation are not material. The following table provides certain
information related to the discontinued operation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- -------------------------
1997 1996 1997 1996
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues ................................. $ 580,741 $946,165 $ 1,880,621 $2,456,943
========= ======== =========== ==========
Income (loss) from discontinued operations $(281,983) $101,629 $ (639,874) $ 120,911
========= ======== =========== ==========
</TABLE>
-7-
<PAGE>
The components of net long-term assets of discontinued operations are described
below:
September 30, December 31,
1997 1996
---------- ----------
Property and equipment, net ........................ $ 212,534 $ 263,824
Software development costs, net .................. 537,854 463,370
Goodwill, net .................................... 306,257 320,214
---------- ----------
Net long-term assets of discontinued operations .. $1,056,645 $1,047,408
========== ==========
NOTE 3
Organization and description of the Company-
Docucon, Incorporated, was incorporated in June 1986 to engage in the business
of providing technical services to its customers for the conversion of paper and
microform documents to computer-accessible media. Paper or microform documents
are scanned by sophisticated computer equipment and stored and indexed on
optical disks or magnetic media. The Company also sells software products to the
legal market. Substantially all of the Company's customers are located in the
U.S.
NOTE 4
Summary of significant accounting policies-
Property and equipment-
Property and equipment are recorded at original cost or the present value of the
capital lease payments for assets under capital lease arrangements. Maintenance
and repairs are charged to expense as incurred and betterments which increase
the value or extend the useful life of the property are capitalized. Gains or
losses on sales or other dispositions of property and equipment are credited or
charged to income.
Depreciation is provided using the straight-line method over the lesser of the
capital lease term or estimated useful lives of the related assets. The
Company's fixed assets are currently depreciated over periods ranging from two
to five years beginning in the month the property is placed in service. The
Company's building is being depreciated over 40 years.
Revenue recognition-
Revenues from conversion service contracts are recognized at the time services
are provided and are based upon the number of documents converted and the
conversion rates established in the contracts.
Revenues from software licensing fees are recognized upon delivery of the
software. Revenues from maintenance and telephone support contracts are
recognized ratably over the term of the contract, typically one year.
-8-
<PAGE>
Software development costs-
Included in net long-term assets of discontinued operations are software
development costs of $250,000 for advanced litigation support software
(Litigator's Notebook(TM)) which was acquired during March 1994. Also included
are software development costs of approximately $482,000 which were incurred
during 1995, 1996 and 1997 to develop software which will support and complement
Litigator's Notebook(TM). These costs are being amortized over periods ranging
from three to five years. At September 30, 1997, software development costs had
a net book value of $537,854.
Goodwill-
In connection with an acquisition in March 1994, the Company recognized goodwill
of approximately $372,000. This goodwill is a component of net long-term assets
of discontinued operations and is being amortized on a straight-line basis over
20 years. At September 30, 1997, goodwill, net of accumulated amortization, was
$306,257.
Use of estimates-
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Statements of cash flows-
During the nine months ended September 30, 1997, the Company had noncash
investing and financing activities consisting of a capital lease entered into
for $16,240 and two shares of preferred stock and accrued dividends that were
converted into 66,666 shares and 51,280 shares of common stock, respectively.
NOTE 5
Common stock and preferred stock-
Each share of the Company's preferred stock ($25,000 stated value) is
convertible into 33,333 shares of common stock and earns cash dividends of 11
percent per annum. As of September 30, 1997, cumulative undeclared dividends on
the preferred stock approximated $349,000. As these dividends are undeclared,
they have not been recorded as a reduction of the Company's equity. On March 28,
1997, two shares of preferred stock were converted into 66,666 shares of common
stock. Dividends related to the converted preferred stock were paid in the form
of 51,280 shares of common stock in the second quarter.
-9-
<PAGE>
DOCUCON, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations during the quarter ended September 30, 1997, resulted
in a net loss applicable to common shareholders of $429,258 compared to net
income applicable to common shareholders of $478,616 for the same quarter in
1996. The Company incurred a net loss applicable to common shareholders of
$436,010 for the nine months ended September 30, 1997, as compared to net income
of $682,405 for the same period in 1996.
Revenues from continuing operations decreased 58 percent to $1,317,352 for the
quarter ended September 30, 1997, as compared to the same quarter in 1996.
Conversion service revenues earned under commercial contracts and a contract
with the Department of Defense (DOD) (see "Liquidity and Capital Resources")
decreased 58 percent, or approximately $1,830,000, as compared to the 1996
quarter. Revenues from continuing operations decreased 19 percent, or
approximately $1,418,000, for the nine-month period ended September 30, 1997, as
compared to the 1996 nine-month period due primarily to decreased conversion
service revenues. The decrease is due to what management believes to be a
temporary discontinuation of funding for a specific project on which the Company
has been performing under the DOD contract. Revenues from discontinued
operations related to the Company's software products decreased 39 percent and
23 percent during the 1997 quarter and nine-month period, respectively, compared
to the 1996 respective periods; the Company had received large orders from two
clients in the second and third quarters of 1996.
Production costs from continuing operations decreased 56 percent and 16 percent
for the quarter and nine months ended September 30, 1997, respectively, over the
comparable 1996 periods due to the decreased revenue levels.
Research and development costs from continuing operations decreased 40 percent
and 15 percent for the quarter and nine months ended September 30, 1997,
respectively, compared to the respective periods in 1996 primarily due to a
temporary decrease in personnel expenses in the second and third quarters of
1997. The Company continued to devote resources to development of new conversion
applications and capabilities and to the expansion of the capabilities of its
JFS Litigator's Notebook(TM)which contributed to the loss from discontinued
operations for the quarter and nine months ended September 30, 1997.
Marketing expenses from continuing operations decreased 40 percent and 17
percent for the quarter and nine months ended September 30, 1997, respectively,
as compared to the same periods in 1996, primarily due to decreased conversion
services. With respect to the discontinued operations, the Company increased
marketing efforts for the JFS Litigator's Notebook(TM)product line which were
partially offset by lower sales commissions paid on the decreased software
products revenues. This net increase in marketing expenses associated with the
discontinued operations contributed to the loss for the quarter and nine months
ended September 30, 1997. (In late 1996, the Company established a corporate
marketing department to oversee and coordinate the total marketing strategy of
the JFS division.)
-10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been supplemented through
bank borrowings, capital contributions, borrowings from affiliated and
unaffiliated lenders, capital lease agreements, an initial public offering of
the Company's common stock in 1989, the conversion of warrants into common stock
and preferred stock placements.
In October 1997, the Company announced that it has entered into a letter of
intent with a third party in connection with a proposed sale of its software
division. The Company has also entered into a letter of intent with an investor
in connection with a proposed recapitalization of the Company. If these
transactions were to be consummated, the Company currently contemplates
distributing the net proceeds of the sale and recapitalization, which would
range from $1.35 to $1.75 per share, to its shareholders. Additionally, the
Company's current shareholders would retain approximately 8 percent of the
outstanding shares of the contemplated surviving company. There can be no
assurances that any definitive agreements will be reached regarding the proposed
sale or recapitalization or that such transactions will be consummated.
In February of 1996, the Defense Printing Services Office awarded a contract to
the Company. This contract allows the Company to provide up to $14.8 million of
document services to Department of Defense (DOD) agencies. This contract was
subsequently increased and extended by approximately $5,600,000 through February
1998. The Company continues to provide document services under this contract.
The Company also submitted a bid to the DOD along with several other competitors
for a contract for services similar to those already being provided by the
Company to the DOD. The size of this contract is believed to be substantially
larger than those previously awarded. The Company believes that it is in good
position to win all or part of this new contract but to date has received no
word from the DOD.
With the addition of J. Feuerstein Systems (JFS) in 1994, the Company made
significant investments in the marketing and development areas of its litigation
support products and services. These investments resulted in substantially
increased revenues in both the services and product areas. Such investment has
enabled the Company to offer enhanced versions of Litigator's Notebook and
JazzNotes (formerly the Optical Notebook), and JFSNET, an Internet-access
enabled version of the Notebook. Other complementary products are available or
under development. The Company believes that it has built significant value into
the division. However, in order to realize that value, the Company also believes
considerable investment will be required. In order to effect a more immediate
return to its shareholders, it has entered into a letter of intent with a third
party in connection with a proposed sale of the software division. In the
accompanying financial statements, the Company's software division has been
accounted for as a discontinued operation. See also Note 2 of the Notes to
Financial Statements.
In October 1996, the Company obtained long-term financing to replace the
existing mortgage note for its office building which had a December 1996
maturity. The new note bears interest at a fixed rate of 9.5 percent, payable
monthly to a commercial bank, and is being amortized over a 20-year term with a
5-year maturity. The note is secured by the Company's building, other fixed
assets, accounts receivable and inventory. Approximately $68,000 of debt
issuance costs were incurred and will be amortized over a five-year period. The
Company utilizes the building for office and production space and believes that
the building will fulfill its needs for the foreseeable future. The Company has
obtained a waiver from this lender for additional indebtedness that was incurred
relating to short-term borrowings of $45,000 from one of the Company's officers.
This amount is due on demand.
-11-
<PAGE>
Accounts receivable and unbilled revenues from continuing operations decreased
approximately $915,000 from December 31, 1996, to September 30, 1997, as a
result of the reduced conversion services performed during 1997. Accounts
payable and accrued liabilities from continuing operations decreased
approximately $971,000 for the comparable period as a result of the reduced
conversion services performed during 1997.
At September 30, 1997, $725,000 was outstanding under the Company's $750,000
revolving term note which has a current maturity date of December 31, 1997.
Management of the Company believes that its cash on hand, cash generated from
operations and anticipated proceeds from the proposed sale of its software
division should be sufficient to repay the indebtedness and fund future
operations. If the proposed sale of the software division is not consummated by
December 31, 1997, management of the Company believes that it will be able to
obtain an extension of the maturity date on the revolving term note.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders-
The annual meeting of Stockholders of the Company was held on Tuesday,
August 12, 1997. The proposals and the results are listed below:
Proposal No. 1 To elect five Directors to serve until the next Annual
Meeting of Stockholders and until their successors are
duly elected and qualified.
Proposal No. 2 To amend the 1993 Employee Stock Purchase Plan of the
Company to increase the number of shares offered and
reserved for issuance thereunder by 200,000 shares to
1,000,000 shares of Common Stock, par value $.01 per
share, to be offered under one additional annual
offering from January 1, 1998, to December 31, 1998.
Proposal No. 3 To amend the 1988 Stock Option Plan of the Company to
increase the number of shares reserved for issuance
thereunder by 300,000 shares to 1,660,000 shares of
Common Stock, par value $.01 per share.
The following persons were nominated for election as directors of the
Company, and all nominees were elected. The shares voted for and those
withheld from each nominee are set forth below opposite such nominee's
name:
DIRECTOR NOMINEES SHARES VOTED FOR SHARES WITHHELD
---------- -------
Edward P. Gistaro ................... 10,989,319 233,196
Allan H. Hobgood .................... 10,993,319 229,196
Ralph Brown ......................... 10,991,319 231,196
Al R. Ireton ........................ 10,991,049 231,466
Chauncey E. Schmidt ................. 10,994,319 228,196
PROPOSALS FOR AGAINST ABSTAIN
--------- ------- ------
No. 2 ................... 8,715,725 661,075 96,700
No. 3 ................... 8,330,428 804,342 83,600
-13-
<PAGE>
Item 5. Other Matters - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
-14-
<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.
DOCUCON, INCORPORATED
(Registrant)
By /S/ EDWARD P. GISTARO
Edward P. Gistaro,
Chairman of the Board and
Chief Executive Officer
By/S/ LORI TURNER
Lori Turner,
Vice President of Finance
and Treasurer
Dated: November 19, 1997
-15-
EXHIBIT 11
DOCUCON, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COMPUTATION OF PRIMARY EARNINGS (LOSS) PER SHARE:
Net income (loss) from continuing operations ................ $ (135,587) $ 390,584 $ 240,303 $ 603,967
Less- Preferred stock dividend requirements ............... (11,688) (13,597) (36,439) (42,473)
------------ ------------ ------------ ------------
Net income (loss) from continuing operations
applicable to common stockholders ....................... (147,275) 376,987 203,864 561,494
Income (loss) from discontinued operations ................ (281,983) 101,629 (639,874) 120,911
------------ ------------ ------------ ------------
Net income (loss) applicable to common
stockholders ............................................. $ (429,258) $ 478,616 $ (436,010) $ 682,405
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING ............................................ 12,447,307 11,978,117 12,401,473 11,914,074
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING
UPON ASSUMED CONVERSION OF OPTIONS AND WARRANTS .............. -- 578,350 -- 567,873
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS .................................................. 12,447,307 12,556,467 12,401,473 12,481,947
============ ============ ============ ============
PRIMARY INCOME (LOSS) FROM CONTINUING
OPERATIONS PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS .................................................. $ (.01) $ .03 $ .02 $ .04
PRIMARY INCOME (LOSS) FROM DISCONTINUED
OPERATIONS PER COMMON SHARE AND COMMON SHARE
EQUIVALENTS .................................................. (.02) .01 (.06) .01
------------ ------------ ------------ ------------
PRIMARY INCOME (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS ............................................ $ (.03) $ .04 $ (.04) $ .05
============ ============ ============ ============
COMPUTATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Net income (loss) from continuing operations ................ $ (135,587) $ 390,584 $ 240,303 $ 603,967
Preferred stock dividend requirements ....................... (11,688) (13,597) (36,439) (42,473)
Decrease in net income applicable to common stock for-
Preferred stock dividends not incurred upon assumed
conversion of preferred stock ............................. 11,688 13,597 36,439 42,473
Net income (loss) from continuing operations
applicable to common stockholders ........................ (135,587) 390,584 240,303 603,967
Income (loss) from discontinued operations ................ (281,983) 101,629 (639,874) 120,911
------------ ------------ ------------ ------------
Net income (loss) applicable to common stockholders ....... $ (417,570) $ 492,213 $ (399,571) $ 724,878
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING .................................................. 12,447,307 11,978,117 12,401,473 11,914,074
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING UPON
ASSUMED CONVERSION OF OPTIONS AND WARRANTS ................... 299,925 578,350 432,610 567,873
WEIGHTED AVERAGE INCREMENTAL SHARES OUTSTANDING UPON
ASSUMED CONVERSION OF THE PREFERRED STOCK .................... 566,661 658,689 587,829 686,074
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS .................................................. 13,313,893 13,215,156 13,421,912 13,168,021
============ ============ ============ ============
</TABLE>
<PAGE>
EXHIBIT 11
(Continued)
DOCUCON, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE (Continued)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON
SHARE AND COMMON SHARE EQUIVALENTS ............................. $ (.01)(a) $ .03(a) $ .02 (a) $ .05(a)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS PER COMMON
SHARE AND COMMON SHARE EQUIVALENTS ............................. (.02)(a) .01(a) (.05)(a) .01(a)
-------- -------- -------- --------
INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENTS
ASSUMING FULL DILUTION ......................................... $ (.03)(a) $ .04(a) $(.03)(a) $ .06(a)
======== ======== ======== ========
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K although it is not required by APB Opinion No. 15 because
it results in dilution of less than 3 percent or is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DOCUCON,
INCORPORATED'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997,
AND ITS CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,823
<SECURITIES> 0
<RECEIVABLES> 2,586,449
<ALLOWANCES> (4,444)
<INVENTORY> 0
<CURRENT-ASSETS> 2,901,061
<PP&E> 7,071,458
<DEPRECIATION> (4,867,664)
<TOTAL-ASSETS> 6,215,861
<CURRENT-LIABILITIES> 2,133,116
<BONDS> 1,546,364
0
17
<COMMON> 124,587
<OTHER-SE> 2,411,777
<TOTAL-LIABILITY-AND-EQUITY> 6,215,861
<SALES> 5,903,083
<TOTAL-REVENUES> 5,903,083
<CGS> 3,818,692
<TOTAL-COSTS> 5,538,920
<OTHER-EXPENSES> (39,430)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,290
<INCOME-PRETAX> 252,303
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 240,303
<DISCONTINUED> (639,874)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (436,010)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
