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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
For the transition period from ___________ to ____________
Commission File Number 0-20981
DOCUMENT SCIENCES CORPORATION
Delaware (State or Other Jurisdiction of Incorporation or Organization) | 33-0485994 (IRS Employer Identification No.) |
6339 Paseo del Lago
Carlsbad, California 92009
(Address of Principal Executive Offices including Zip Code)
(760) 602-1400
(Registrant’s Telephone Number including Area Code)
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 þ No o
As of May 10, 2002, there were 3,869,926 shares of common stock of the registrant outstanding.
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DOCUMENT SCIENCES CORPORATION
Page | ||||
No. | ||||
PART I. FINANCIAL INFORMATION | ||||
Item 1. Financial Statements (Unaudited) | ||||
Consolidated balance sheets — March 31, 2002 and December 31, 2001 | 3 | |||
Consolidated statements of operations — three months ended March 31, 2002 and 2001 | 4 | |||
Consolidated statements of cash flows — three months ended March 31, 2002 and 2001 | 5 | |||
Notes to consolidated financial statements | 6 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 20 | |||
PART II. OTHER INFORMATION | ||||
Item 1. Legal Proceedings | 20 | |||
Item 4. Submission of Matters to a Vote of Security Holders | 20 | |||
Item 5. Other Information | 21 | |||
Item 6. Exhibits and Reports on Form 8-K | 21 | |||
Signatures | 23 |
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PART I. FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS (Unaudited)
DOCUMENT SCIENCES CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||||
2002 | 2001 | |||||||||
(Unaudited) | (See note below) | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 1,695,030 | $ | 3,187,229 | ||||||
Short-term investments | 5,349,610 | 5,736,200 | ||||||||
Accounts receivable, net | 4,163,506 | 5,028,059 | ||||||||
Due from affiliates | 1,295,086 | 1,739,739 | ||||||||
Unbilled revenue | 424,963 | 400,164 | ||||||||
Other current assets | 448,642 | 519,163 | ||||||||
Total current assets | 13,376,837 | 16,610,554 | ||||||||
Property and equipment, net | 1,020,004 | 1,178,600 | ||||||||
Computer software costs, net | 1,025,996 | 1,143,618 | ||||||||
Goodwill, net | 724,615 | 724,615 | ||||||||
Other assets | 195,804 | 48,785 | ||||||||
Total assets | $ | 16,343,256 | $ | 19,706,172 | ||||||
LIABILITIES | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 142,658 | $ | 191,919 | ||||||
Accrued compensation | 686,668 | 881,791 | ||||||||
Other accrued liabilities | 606,949 | 520,599 | ||||||||
Deferred revenue | 7,744,613 | 7,851,670 | ||||||||
Short-term notes | — | 2,128,219 | ||||||||
Total current liabilities | 9,180,888 | 11,574,198 | ||||||||
Long-term notes | — | 297,099 | ||||||||
Deferred revenue — long-term | 112,025 | 134,430 | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||||
Common stock, $.001 par value | 3,870 | 3,825 | ||||||||
Treasury stock | (48,098 | ) | — | |||||||
Additional paid-in capital | 10,809,776 | 10,781,055 | ||||||||
Accumulated comprehensive income | 53,670 | 95,514 | ||||||||
Retained deficit | (3,768,875 | ) | (3,179,949 | ) | ||||||
Total stockholders’ equity | 7,050,343 | 7,700,445 | ||||||||
Total liabilities and stockholders’ equity | $ | 16,343,256 | $ | 19,706,172 | ||||||
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements.
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DOCUMENT SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended | ||||||||||
March 31, | ||||||||||
2002 | 2001 | |||||||||
Revenues: | ||||||||||
Initial license fees | $ | 1,355,031 | $ | 1,849,680 | ||||||
Annual renewal license and support fees | 2,295,959 | 2,117,030 | ||||||||
Services and other | 1,195,641 | 1,290,729 | ||||||||
Total revenues | 4,846,631 | 5,257,439 | ||||||||
Cost of revenues: | ||||||||||
Initial license fees | 350,314 | 394,848 | ||||||||
Annual renewal license and support fees | 375,320 | 410,490 | ||||||||
Services and other | 677,679 | 878,156 | ||||||||
Total cost of revenues | 1,403,313 | 1,683,494 | ||||||||
Gross margin | 3,443,318 | 3,573,945 | ||||||||
Operating expenses: | ||||||||||
Research and development | 1,626,513 | 1,117,012 | ||||||||
Selling and marketing | 1,676,612 | 2,044,858 | ||||||||
General and administrative | 744,562 | 1,116,482 | ||||||||
Total operating expenses | 4,047,687 | 4,278,352 | ||||||||
Loss from operations | (604,369 | ) | (704,407 | ) | ||||||
Interest and other income, net | 15,443 | 352,825 | ||||||||
Loss before income taxes | (588,926 | ) | (351,582 | ) | ||||||
Provision for income taxes | — | — | ||||||||
Net loss | $ | (588,926 | ) | $ | (351,582 | ) | ||||
Net loss per share — basic | $ | (0.15 | ) | $ | (0.03 | ) | ||||
Weighted average shares used in basic calculation | 3,848,659 | 10,859,191 | ||||||||
Net loss per share — diluted | $ | (0.15 | ) | $ | (0.03 | ) | ||||
Weighted average shares used in diluted calculation | 3,848,659 | 10,859,191 | ||||||||
See notes to consolidated financial statements.
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DOCUMENT SCIENCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended | ||||||||||
March 31, | ||||||||||
2002 | 2001 | |||||||||
Operating activities | ||||||||||
Net loss | $ | (588,926 | ) | $ | (351,582 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 137,812 | 175,329 | ||||||||
Amortization of goodwill | — | 17,531 | ||||||||
Loss on disposal of fixed assets | 22,970 | — | ||||||||
Amortization of computer software costs | 280,681 | 238,797 | ||||||||
Provision for doubtful accounts | (6,435 | ) | (149,067 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 871,448 | 1,382,122 | ||||||||
Due from affiliates | 444,978 | 405,683 | ||||||||
Unbilled revenue | (24,799 | ) | 175,105 | |||||||
Other assets | (76,665 | ) | 74,939 | |||||||
Accounts payable | (49,232 | ) | (274,036 | ) | ||||||
Accrued compensation | (195,278 | ) | (369,584 | ) | ||||||
Other accrued liabilities | 111,773 | 141,096 | ||||||||
Deferred revenue | (129,886 | ) | (829,279 | ) | ||||||
Net cash provided by operating activities | 798,441 | 637,054 | ||||||||
Investing activities | ||||||||||
Purchases of short-term investments | (1,097,410 | ) | (119,968 | ) | ||||||
Sales of short-term investments | — | 10,081,144 | ||||||||
Maturities of short-term investments | 1,484,000 | 1,100,000 | ||||||||
Purchases of property and equipment, net | (8,381 | ) | (58,764 | ) | ||||||
Proceeds from disposal of assets | 6,394 | 325 | ||||||||
Unrealized gains (losses) on securities | (32,904 | ) | 50,334 | |||||||
Additions to computer software costs | (163,059 | ) | (221,202 | ) | ||||||
Net cash provided by investing activities | 188,640 | 10,831,869 | ||||||||
Financing activities | ||||||||||
Reduction of debt | (2,451,170 | ) | — | |||||||
Purchase of treasury stock | (48,311 | ) | — | |||||||
Sale of treasury stock | 213 | — | ||||||||
Issuance of common stock | 28,766 | 6,770 | ||||||||
Net cash provided by (used in) financing activities | (2,470,502 | ) | 6,770 | |||||||
Increase (decrease) in cash and cash equivalents | (1,483,421 | ) | 11,475,693 | |||||||
Effect of foreign currency on cash | (8,778 | ) | (10,635 | ) | ||||||
Cash and cash equivalents at beginning of period | 3,187,229 | 4,768,520 | ||||||||
Cash and cash equivalents at end of period | $ | 1,695,030 | $ | 16,233,578 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||
Interest paid | $ | 171,970 | $ | — | ||||||
See notes to consolidated financial statements.
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DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2002
Note A—Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain amounts for 2001 have been reclassified to conform with the 2002 presentation. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, included in our 2001 Annual Report on Form 10-K. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
We recognize revenue in accordance with SOP 97-2,Software Revenue Recognition and SAB No. 101,Revenue Recognition in Financial Statements. Initial license fees are recognized when a contract exists, the fee is fixed and determinable, software delivery has occurred and collection of the receivable is deemed probable. We use the residual method to recognize revenue for all of our license models. Our contracts specifically state the amount of initial and annual license fees due for each type of software licensed. If an undelivered element of the arrangement exists under the license arrangement, revenue is deferred based on vendor-specific objective evidence of the fair value of the undelivered element. If vendor-specific objective evidence of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered. We recognize revenue on transactions with payment terms greater than 30 days but less than twelve months from the contract date if we have a history of successfully collecting from the specific customer without providing concessions. Amounts billed or payments received in advance of revenue recognition are recorded as deferred revenue.
Our goodwill was purchased on May 7, 1997, and had been amortized on a straight-line basis over 15 years. On January 1, 2002, we adopted FAS 142,Goodwill and Other Intangible Assetsand ceased amortizing our goodwill. Pursuant to this adoption, we reassessed the underlying value of our goodwill by analyzing future net cash flows and determined that no adjustment to the carrying value was required. We amortized $17,500 for the three months ended March 31, 2001.
Note B—Transactions with Affiliates
We have distribution agreements with Xerox affiliates providing the non-exclusive right to sub-license our software in Europe, Australia, Canada, and South America. The terms of the distributor agreements provide that the affiliates receive a discount from the list price of our licensed products and annual license fees. We also have agreements with Xerox affiliates providing the non-exclusive right to sub-license our software in the United States. Revenues from these affiliates, net of discounts, were $783,700 and $916,500 for the three months ended March 31, 2002 and 2001, respectively. Included in accounts receivable are $1.3 million and $1.2 million from these revenues at March 31, 2002 and 2001, respectively.
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DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2002
Note C—Net Income Per Share
We present our earnings per share information in accordance with FAS No. 128, “Earnings per Share”. Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share includes the dilutive effects of options, warrants and convertible securities.
The following table reconciles the shares used in computing basic and diluted earnings per share for the periods indicated:
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2002 | 2001 | |||||||
Weighted average common shares outstanding used in basic earnings per share calculation | 3,848,659 | 10,859,191 | ||||||
Effect of dilutive stock options | — | — | ||||||
Shares used in diluted earnings per share | 3,848,659 | 10,859,191 | ||||||
Dilutive securities may include options, warrants, preferred stock (as if converted) and restricted stock subject to vesting. Potentially dilutive securities (which include options) totaling 539,546 and 74,064 shares for the three months ended March 31, 2002 and 2001, respectively, were excluded from the calculation of diluted earnings per share because of their antidilutive effect.
Note D—Sales Commitments
In 1999, we began licensing software for non-cancelable three-year terms. Where we provide extended payment terms to customers (allowing them to make payments on a quarterly or annual basis), we recognize license revenue when invoices come due, as SOP 97-2 precludes us from recognizing the portion of these licenses that is not currently due from the customer. Amounts not currently due from customers on these agreements are not reflected on our Balance Sheet and are identified below.
We also began signing customers to non-cancelable three-year maintenance agreements, which we recognize ratably over the service period. As we invoice these agreements, the amounts are recorded initially to Deferred Revenue. Amounts to be invoiced are not reflected on our Balance Sheet and are identified below.
The following table summarizes these multi-year license and maintenance agreement activities showing ending balances not reflected on our Balance Sheet at March 31, 2002:
Unrecognized Revenue Backlog | ||||||||||||
Maintenance | ||||||||||||
Licenses | Agreements | Totals | ||||||||||
Balances at December 31, 1999 | $ | 841,030 | $ | 2,925,517 | $ | 3,766,547 | ||||||
2000 additions | 66,329 | 3,171,475 | 3,237,804 | |||||||||
Invoiced and included in Deferred Revenue | (419,295 | ) | (2,674,323 | ) | (3,093,618 | ) | ||||||
Balances at December 31, 2000 | 488,064 | 3,422,669 | 3,910,733 | |||||||||
2001 additions | 23,334 | 2,830,831 | 2,854,165 | |||||||||
Invoiced and included in Deferred Revenue | (484,257 | ) | (3,193,020 | ) | (3,677,277 | ) | ||||||
Balances at December 31, 2001 | 27,141 | 3,060,480 | 3,087,621 | |||||||||
First quarter additions | — | 997,980 | 997,980 |
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DOCUMENT SCIENCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2002
Unrecognized Revenue Backlog | ||||||||||||
Maintenance | ||||||||||||
Licenses | Agreements | Totals | ||||||||||
Invoiced and included in Deferred Revenue | (27,141 | ) | (698,493 | ) | (725,634 | ) | ||||||
Balances at March 31, 2002 | $ | — | $ | 3,359,967 | $ | 3,359,967 | ||||||
Revenue from the current unrecognized revenue backlog will be recognized by the end of the 2nd quarter of 2006.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Quarterly Report that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our financial condition, operations, plans, objectives and performance. Additionally, when we use the words “believe,” “expect,” “anticipate,” “estimate” or similar expressions, we are making forward-looking statements. Many possible events or factors could affect our future financial results and performance. This could cause our results or performance to differ materially from those expressed in our forward-looking statements. You should consider these risks when you review this document, along with the following possible events or factors:
• | national, international, regional and local economic, competitive and regulatory conditions and developments; | ||
• | the market for document automation software; | ||
• | market acceptance of our existing products and introduction of new products and enhancements to existing products; | ||
• | continued expansion of our professional services; | ||
• | maintaining our relationships with Xerox; | ||
• | possible transfer of our listing of our shares to the NASDAQ SmallCap Market; and | ||
• | other uncertainties, all of which are difficult to predict and many of which are beyond our control. |
Our actual results could differ materially from those discussed herein, including those set forth in this discussion, under “Certain Factors Affecting Document Sciences Corporation” and other risks detailed from time to time in our SEC reports. In addition, the discussion of our results of operations should be read in conjunction with the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2001 Annual Report on Form 10-K.
OVERVIEW
We develop, market and support a family of document automation software products and services used in high volume electronic publishing applications. We were incorporated in Delaware in October 1991 as a wholly owned subsidiary of Xerox. Following our initial public offering of stock in September 1996, Xerox ownership was reduced to approximately 62%. As a result of our tender offer and our exercise of an option to purchase additional shares of Xerox in April 2001, Xerox’s ownership interest has been reduced to 19.9%.
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CRITICAL ACCOUNTING POLICIES
We believe the following represent our critical accounting policies:
We recognize revenue in accordance with SOP 97-2,Software Revenue Recognition and SAB No. 101,Revenue Recognition in Financial Statements. Initial license fees are recognized when a contract exists, the fee is fixed and determinable, software delivery has occurred and collection of the receivable is deemed probable. We use the residual method to recognize revenue for all of our license models. Our contracts specifically state the amount of initial and annual license fees due for each type of software licensed. If an undelivered element of the arrangement exists under the license arrangement, revenue is deferred based on vendor-specific objective evidence of the fair value of the undelivered element. If vendor-specific objective evidence of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered. We recognize revenue on transactions with payment terms greater than 30 days but less than twelve months from the contract date if we have a history of successfully collecting from the specific customer without providing concessions. Amounts billed or payments received in advance of revenue recognition are recorded as deferred revenue.
We work in conjunction with our established VARs, with whom we have formal contracts defining the rights and obligations of the parties, to license software to end-users. We license software to our VARs, less a discount, from a fixed price list. We require a binding purchase order as evidence of an unconditional order from our VARs, with no rights of return or acceptance. License revenue from our VARs is recognized when software is licensed to an end user.
Annual renewal license and support fees, ALF, are recognized ratably over the contract period. Included in our ALF are unspecified maintenance releases. Our contracts do not provide for specific upgrades. Our standard contracts do not provide for rights of return or conditions of acceptance; however, in the rare case that acceptance criteria are provided, revenue is deferred and not recognized until all conditions are satisfied and written customer acceptance is obtained. We believe this approach to revenue recognition, when acceptance criteria exist, would reduce materially different amounts being reported under different conditions or using different assumptions.
Revenues generated from consulting services are recognized as the related services are performed and collectibility is deemed probable. However, when such consulting services are deemed to be essential to the functionality of the delivered software product, revenue from the entire arrangement is recognized on a percentage of completion method or not until the contract is completed in accordance with SOP 81-1,Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and ARB No. 45,Long-Term Construction-Type Contracts. We measure progress under the percentage of completion method, depending on how the contract language is written, either by using the percentage of total project hours completed or by the completion of phases in the consulting project. Because (i) the phases of our consulting projects are generally not of great duration (2-6 weeks on average) and (ii) we have a variety of projects progressing at the same time, we believe that there are very limited circumstances where materially different amounts would be reported under different conditions or using different assumptions.
Our operating expenses are primarily based on anticipated revenue levels. Since a high percentage of those expenses are relatively fixed, a delay in the recognition of revenue from license transactions could cause significant variations in operating results from quarter to quarter and we may sustain losses as a result. Since revenue may not be recognized in the same quarter as when shipment occurs and if such fixed expenses precede these revenues, our operating results would be materially adversely affected.
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Computer Software Costs.In accordance with SFAS No. 86,Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, costs incurred in the research and development of new software products and significant enhancements to existing software products are expensed as incurred until the technological feasibility of the product has been established. After technological feasibility has been established, direct production costs, including programming and testing, are capitalized until general release of the product.
Capitalized costs of software to be sold, licensed or otherwise marketed are amortized using the greater of the amount computed using the ratio of current period product revenues to estimated total product revenues or the straight-line method over the remaining estimated economic lives of the products. It is possible that estimated total product revenues, the estimated economic life of the product, or both, will be reduced in the future. As a result, the carrying amount of capitalized software costs may be reduced in the future, which could cause our operating results in future periods to be adversely affected.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would result in an additional general and administrative expense in the period such determination was made. At the end of each reporting period, we perform a rigorous review of outstanding balances by customer and invoice. We utilize statistical and account specific analysis to determine the adequacy of our reserve, as well as comparing balances to historical losses.
Valuation Allowance for Net Deferred Tax Assets. Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 2001, we had net deferred tax assets of $2.2 million. However, we believe realization of these assets is currently considered uncertain due to the uncertainty of future taxable income as well as loss carryforwards and tax credits expiring in 2018 and 2012, respectively. Also, pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more than 50% within a three-year period. Due to the uncertainty of realizing these deferred tax assets we have recognized a valuation allowance of $2.2 million.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
The following table sets forth the percentage of total revenues, cost of revenues, operating expenses and other items in our consolidated statements of income for the periods indicated:
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Three Months Ended | |||||||||||
March 31, | |||||||||||
2002 | 2001 | ||||||||||
Revenues: | |||||||||||
Initial license fees | 28 | % | 35 | % | |||||||
Annual renewal license and support fees | 47 | 40 | |||||||||
Services and other | 25 | 25 | |||||||||
Total revenues | 100 | % | 100 | % | |||||||
Cost of revenues: | |||||||||||
Initial license fees | 7 | % | 7 | % | |||||||
Annual renewal license and support fees | 8 | 8 | |||||||||
Services and other | 14 | 17 | |||||||||
Total cost of revenues | 29 | % | 32 | % | |||||||
Gross profit | 71 | % | 68 | % | |||||||
Operating expenses: | |||||||||||
Research and development | 33 | % | 21 | % | |||||||
Selling and marketing | 35 | 39 | |||||||||
General and administrative | 15 | 21 | |||||||||
Total operating expenses | 83 | % | 81 | % | |||||||
Loss from operations | (12 | )% | (13 | )% | |||||||
Interest and other income, net | — | 6 | |||||||||
Loss before income taxes | (12 | )% | (7 | )% | |||||||
Provision for income taxes | — | — | |||||||||
Net loss | (12 | )% | (7 | )% | |||||||
Revenues
Total revenues decreased 8% to $4.8 million for the three months ended March 31, 2002 from $5.3 million for the three months ended March 31, 2001, primarily due to a decline in initial license fees. Services and other revenue also declined, while annual license fees grew.
Sales Channels. We sell our products largely through a direct sales force domestically, and internationally through distributors and value added resellers or VAR’s. Revenues from export sales and sales through our foreign subsidiary increased 1% to $979,400 for the three months ended March 31, 2002 from $969,600 for the three months ended March 31, 2001. This increase is the result of slightly higher revenues in Canada and Australia. Revenues from export sales were 20% and 18% of total revenues for the three months ended March 31, 2002 and 2001, respectively.
We maintain distributorship agreements with various Xerox foreign affiliates to remarket our products internationally. Our revenues from such distributorship agreements related to the licensing, maintenance and support of our products decreased 1% to $728,200 for the three months ended March 31, 2002 from $736,000 for the three months ended March 31, 2001. Decreased revenues were reported for our Brazil and Europe Xerox affiliates.
Initial license fees.Initial license fee revenues decreased 27% to $1.4 million for the three months ended March 31, 2002 from $1.8 million for the three months ended March 31, 2001. This decrease is due to decreased sales in the United States, Europe and Brazil.
Annual renewal license and support fees. Revenues from annual renewal license and support fees increased 8% to $2.3 million for the three months ended March 31, 2002 from $2.1 million for the three months ended March 31, 2001. This increase is due to an increase in the installed base of users of our software products.
Services and other.Revenues from services and other decreased 7% to $1.2 million for the three months ended March 31, 2002 from $1.3 million for the three months ended March 31, 2001. This decrease is largely due to customer delays in initiating contracted projects.
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Cost of Revenues
Total cost of revenues was 29% and 32% of total revenues for the three months ended March 31, 2002 and 2001, respectively. The decrease in cost of revenues as a percentage of total revenues resulted primarily from controlling costs associated with our lower-margin services revenue for the three months ended March 31, 2002.
Operating Expenses
Research and development. Research and development expenses increased 46% to $1.6 million for the three months ended March 31, 2002 from $1.1 million for the three months ended March 31, 2001. We capitalized $163,100 and $221,200 of software development costs for the three months ended March 31, 2002 and 2001, respectively. Notwithstanding capitalized software costs, research and development expenses increased approximately $451,400 or 34% for the three months ended March 31, 2002. This increase is due primarily to expenditures with an outside firm, Objectiva Software Solutions, Inc., in conjunction with new product development activities.
Selling and marketing.Selling and marketing expenses decreased 18% to $1.7 million for the three months ended March 31, 2002 from $2.0 million for the three months ended March 31, 2001. This decrease is due primarily to decreased commissions due to lower initial license fees.
General and administrative.General and administrative expenses decreased 33% to $744,600 for the three months ended March 31, 2002 from $1.1 million for the three months ended March 31, 2001. This decrease is primarily due to lower salary-related costs as a result of reducing the headcount in this area.
Provision for income taxes.For the three months ended March 31, 2002, we have recognized no income tax expense as a result of the loss incurred in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents and short-term investments totaled $7.0 million at March 31, 2002, representing 43% of total assets. We intend to continue to invest in short-term, interest-bearing, investment grade securities.
Net cash provided by operating activities increased 25% to $798,400 for the three months ended March 31, 2002 from $634,100 for the three months ended March 31, 2001. This increase is due largely to a more favorable change in operating assets and liabilities. Net cash provided by investing activities decreased 98% to $188,640 for the three months ended March 31, 2002 from $10.8 million for the three months ended March 31, 2001. This decrease is associated with the proceeds received from our 2001 sale of short-term investments in preparation for payments made in April in connection with our tender offer. Net cash used in financing activities was $2.5 million for the three months ended March 31, 2002. Net cash provided by financing activities was $6,800 for the three months ended March 31, 2001. Cash used in financing activities for the three months ended March 31, 2002 related primarily to the payment of notes to Xerox pursuant to our 2001 tender offer.
We believe that our existing cash balances and anticipated cash flows from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months.
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We have no significant capital spending or purchase commitments other than normal purchase commitments and commitments under facilities leases.
CERTAIN FACTORS AFFECTING DOCUMENT SCIENCES CORPORATION
The following is a discussion of certain factors which currently impact or may impact our business, operating results and/or financial condition. Anyone making an investment decision with respect to our common stock or other securities is cautioned to carefully consider these factors. If any of the following risks actually occur, our business, results of future operations and financial condition could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment.
Our quarterly results fluctuate significantly and we may not be able to grow our business.
Our total revenues and operating results can vary, sometimes substantially, from quarter to quarter and we expect them to vary significantly in the future. Our revenues and operating results are difficult to forecast; and our future results will depend upon many factors, including the following:
• | the demand for our products; | ||
• | the level of product competition and price competition we face; | ||
• | the length of our sales cycle; | ||
• | the size and timing of individual license transactions; | ||
• | the delay or deferral of customer implementations; | ||
• | the budget cycles of our customers; | ||
• | our success in expanding our direct sales force and indirect distribution channels; | ||
• | the timing of our new product introductions and enhancements, as well as those of our competitors; | ||
• | our mix of products and services; | ||
• | our level of international sales; | ||
• | the activities of and acquisitions by our competitors; | ||
• | our timing of new hires; | ||
• | changes in foreign currency exchange rates; | ||
• | our ability to develop and market new products and to control costs; and | ||
• | general domestic and international economic conditions. |
Our initial license fee revenues mainly depend on when orders are received and shipped. However, because of our sales model, our customers’ implementation schedule and the complexity of the implementation process, revenue from some software shipments may not be recognized in the same quarter as the shipment occurs. Our operating expenses are primarily based on anticipated revenue levels. Since a high percentage of those expenses are relatively fixed, a delay in the recognition of revenue from license transactions could cause significant variations in operating results from quarter to quarter and we may sustain losses as a result. If such expenses precede increased revenues, our operating results would be materially adversely affected.
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As a result of these factors, results from operations for any quarter are subject to significant variation, and we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and you should not rely upon them as an indication of our future performance. Furthermore, our operating results in some future quarter may fall below the expectations of public market analysts and investors. If this occurs, the price of our common stock would likely be materially adversely affected.
We currently derive a significant portion of our revenues with Xerox.
We currently have a variety of contractual and informal relationships with Xerox and affiliates of Xerox, including a cooperative marketing agreement, a transfer and license agreement and various distribution agreements. We rely on these relationships and agreements for a significant portion of our total revenues. Revenues derived from relationships with Xerox and affiliates of Xerox accounted for approximately $783,700 and $916,500 for the three months ended March 31, 2001 and 2002, respectively, representing 16% and 17% of our total revenues respectively.
Furthermore, there can be no assurance that existing and potential customers will continue to do business with us because of these relationships or our historical ties with Xerox and its affiliates. Though we intend to continue our existing relationships with Xerox, our strategy is to lessen our dependence on Xerox. However, there can be no assurance that we will be able to do so and, because of our current level of dependence on Xerox, there can be no assurance that our move to become more independent will not adversely affect our business, results of operations and financial condition. Our failure to maintain these relationships, particularly with Xerox and its affiliates, or to establish new relationships in the future, could have a material adverse effect on our business, operating results and financial condition.
Xerox has strategic alliances and other business relationships with other companies who supply software and services used in high volume electronic publishing applications and who now or in the future may be our competitors. There can be no assurance that Xerox or one of its affiliated companies will not engage in business that directly competes with us. In addition, Xerox has ongoing internal development activities that could in the future lead to products that compete with us. Xerox could in the future expand these relationships or enter into additional ones, and as a result our business could be materially adversely affected.
Our growth is dependent upon successfully protecting our proprietary rights.
We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights. Despite these precautions, it may be possible for unauthorized third parties to copy portions of our products or use information we consider proprietary. Policing unauthorized use of our products is difficult and, while we are unable to determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the United States. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology.
We are not aware of any infringement of our products upon the proprietary rights of third parties. However, we cannot assure you that third parties will not claim infringement by us with respect to current or future products. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be
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available on terms acceptable to us or at all, which could have a material adverse effect upon our business, operating results and financial condition.
Our growth is dependent upon successfully focusing our distribution channels.
We intend to streamline our worldwide sales and distribution channels by focusing on key target industry market segments where our current and planned products enjoy a significant competitive advantage and a current, high market demand. We also plan on leveraging our existing relationships with Xerox, IBM Corporation and their channels and affiliates by launching targeted joint marketing and value added reseller programs and by introducing new product offerings that are optimized for selected target markets and marketing channels. In addition, we intend to form additional partnerships with system integrators and consultants in order to broaden our capacity to deliver complete document automation solutions that incorporate significant services content, while also maintaining our core domain expertise. We cannot assure you that we will be able to successfully streamline and focus our worldwide channels, leverage our existing relationships or form new alliances. If we fail to do so, it will have a material adverse effect on our business, operating results and financial condition.
Maintaining our professional services expertise is necessary for our future growth.
We are continuing our focus on the consulting services component of our professional services to assist customers in the planning and implementation of enterprise-wide, mission-critical document automation applications. This strategy is dependent on retaining and hiring professionals to perform these consulting services. Should we be unable to maintain the necessary services workforce, our business and financial condition could be materially adversely affected.
Our growth depends on our ability to compete successfully against current and future competitors.
The market for our document automation products is intensely competitive. We face competition from a broad range of competitors, many of whom have greater financial, technical, and marketing resources than we do. Our principal competition currently comes from systems developed in-house by the internal MIS departments of large organizations and direct competition from numerous software vendors, including Docucorp International Inc., Metavente and Group 1 Software, Inc. We believe that the principal competitive factors affecting our market include product performance and functionality, ease of use, scalability, operating across multiple computer and operating system platforms, product and company reputation, client service and support and price. Although we believe we currently compete favorably with respect to such factors, we can not assure you that we will be able to maintain our competitive position against current and future competitors, especially those with greater financial, technical and marketing resources than us, or that we will be successful in the face of increasing competition from new products, new solutions introduced by existing competitors or by new companies entering the market.
Our growth depends on market acceptance of our existing products and our introduction of new products and enhancements to existing products.
Our future business, operating results and financial condition will depend upon market acceptance of our existing products, as well as our ability to respond to emerging industry standards and practices and to develop new products that address the future needs of our target markets. OurAutographfamily of products has been applied mainly to document automation applications producing paper-based documents. We have started to extend our core technology to the Internet, intranets and commercial on-line services. However, we cannot assure you that we will be successful in developing, introducing and
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marketing new products or product enhancements, including new products or the extension of existing products for the Internet, intranets and commercial on-line services, on a timely and cost effective basis, if at all. In addition, we cannot assure you that our new products and product enhancements will adequately meet the requirements of the marketplace or achieve market acceptance. Delays in our commercial shipments of new products or enhancements may result in client dissatisfaction and a delay or loss of product revenues.
If for technological or other reasons we are unable to develop and introduce new products or enhancements of existing products in a timely manner in response to changing market conditions or client requirements, then our business, operating results and financial condition will be materially adversely affected. In addition, we cannot assure you that our existing products, new products or new versions of our existing products will achieve market acceptance. In order to provide our customers with integrated product solutions, our future success will also depend in part upon our ability to maintain and enhance relationships with our technology partners.
A longer than expected sales cycle may affect our revenues and operating results.
The licensing of our software products is often an enterprise-wide decision by prospective customers and generally involves a sales cycle of three to twelve months in order to educate our prospective customers regarding the use and benefits of our products. In addition, the implementation of our products by customers involves a significant commitment of their resources over an extended period of time, and is commonly associated with substantial customer business process reengineering efforts. For these and other reasons, our sales and customer implementation cycles are subject to a number of significant delays over which we have little or no control. Any delay in the sale or customer implementation of a limited number of license transactions could have a material adverse effect on our business and results of operations and cause our operating results to vary significantly from quarter to quarter.
Our operating results are substantially dependent on sales of a small number of products in highly concentrated industries.
We derived 65% of our initial license revenues from licenses of CompuSet and related CompuSet option products for the three months ended March 31, 2002. Our initial license fees from DLS and Electronic Document Viewing products comprised 33% and 2%, respectively, for the three months ended March 31, 2002. As a result, factors that may adversely impact the pricing of or demand for CompuSet and related products, such as competition from other products, negative publicity or obsolescence of the hardware or software environments in which our products run, could have a material adverse effect on our business, operating results and financial condition. Our financial performance will continue to depend significantly on the successful development, introduction and customer acceptance of new and enhanced versions of our CompuSet software and related products.
Licenses to end users in the insurance industry accounted for 60% of domestic initial license revenues. Our future success will depend on our ability to continue to successfully market our products in this and other industries. We cannot assure you that we will continue to be successful in developing and marketing CompuSet products and related services. Our failure to do so would have a material adverse effect on our business, results of operations and financial condition.
We may be exposed to risks associated with international operations.
Our revenues from export sales, including sales through our foreign subsidiary, accounted for 20% and 18% of our total revenues for the three months ended March 31, 2002 and 2001, respectively.
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Our wholly owned subsidiary, Document Sciences Europe, markets and supports our products in Europe. We license our products in Europe through value added resellers and to a lesser extent, direct sales. Our VARs are principally Xerox affiliates who re-market our products. Revenues generated by this subsidiary were $639,000 and $649,200 for the three months ended 2002 and 2001, respectively. Net income from this subsidiary was $406,100 and $399,200 for the three months ended 2002 and 2001, respectively. In Australia, Canada and Brazil we distribute our products through Fuji Xerox Co., Ltd., Xerox Canada, Ltd. and Xerox do Brazil, Ltd., respectively. Revenues generated by these Xerox affiliates were $339,500 and $320,500 for the three months ended 2002 and 2001, respectively. In order to successfully expand export sales, we must establish additional foreign operations, hire additional personnel and develop relationships with additional international resellers. If we are unable to do so in a timely manner, our growth in international export sales could be limited, and our business, operating results and financial condition could be materially adversely affected. In addition, we cannot assure you that we will be able to maintain or increase international market demand for our products.
Additional risks inherent in our international business activities include:
• | currency fluctuations; | ||
• | unexpected changes in regulatory requirements; | ||
• | tariffs and other trade barriers; | ||
• | our limited experience in localizing products for foreign countries; | ||
• | lack of acceptance of our localized products in foreign countries; | ||
• | longer accounts receivable payment cycles; | ||
• | difficulties in managing our international operations; | ||
• | potentially adverse tax consequences including restrictions on the repatriation of earnings; and | ||
• | the burdens of complying with a wide variety of foreign laws. |
A portion of our business is conducted in currencies other than the U.S. Dollar, primarily the Euro. Although exchange rate fluctuations have not had a significant impact on us, fluctuations in the value of the currencies in which we conduct our business relative to the U.S. Dollar could cause currency transaction gains and losses in future periods. We do not currently engage in currency hedging transactions, and we cannot assure you that fluctuations in currency exchange rates in the future will not have a material adverse impact on our international revenues and our business, operating results and financial condition.
Our business is dependent on the market for document automation software.
The market for document automation software is intensely competitive, highly fragmented and subject to rapid change. We cannot assure you that the market for document automation software will grow or that, if it does grow, organizations will adopt our products. We have spent, and intend to continue to spend, significant resources educating potential customers about the benefits of our products. However, we cannot assure you that such expenditures will enable our products to achieve further market acceptance, and if the document automation software market fails to develop or develops more slowly than we currently anticipate, our business, operating results and financial condition would be materially adversely affected.
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In addition, the commercial market for document automation of electronic documents designed for use with the Internet, intranets and commercial on-line services has only recently begun to develop, and the success of our products designed for this market will depend in part on their compatibility with such services. It is difficult to predict whether the demand for related products and services would increase or decrease in the future. Since the increased commercial use of the Internet, intranets and commercial on-line services could require substantial modification and customization of certain of our products and services as well as the introduction of new products and services, we cannot assure you that we will be able to effectively or successfully compete in this market.
Our ability to manage our growth will affect our business.
Our ability to compete effectively and to manage future change will require us to continue to improve our financial and management controls, reporting systems and procedures on a timely basis and to expand, train and manage our work force. We cannot assure you that we will be able to do so successfully. Our failure to do so could have a material adverse effect on our business, operating results and financial condition.
Our executive officers and certain key personnel are critical to our business, and these officers and key personnel may not remain with us in the future.
Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel. Only our President and Chief Executive Officer and Chief Scientist have signed employment agreements with us. The loss of the services of one or more of our executive officers could have a material adverse effect on our business, operating results and financial condition. Our future success also depends on our continuing ability to attract and retain highly qualified product development, sales and management personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to retain our key employees or that we will be able to attract, assimilate or retain other highly qualified product development, sales and managerial personnel in the future.
Our failure to adequately limit our exposure to product liability claims may adversely affect us.
Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, it is possible that the limitation of liability provisions contained in our license agreements may not be effective under the laws of certain jurisdictions. Although we have not experienced any product liability claims to date, sale and support of our products may entail the risk of such claims in the future. A successful product liability claim brought against us or a claim arising as a result of our professional services could have a material adverse effect upon our business, operating results and financial condition.
Our products may suffer from defects or errors.
Software products as complex as those we offer, may contain undetected defects or errors when first introduced or as new versions are released. As a result, we could in the future lose or delay recognition of revenues as a result of software errors or defects. In addition, our products are typically intended for use in applications that may be critical to a customer’s business. As a result, we expect that our customers and potential customers have a greater sensitivity to product defects than the general market for software products. Although our business has not been adversely affected by any such errors to date, we cannot assure you that, despite our testing and testing by current and potential customers, errors will not be
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found in our new products or releases. If these errors are discovered after the commencement of commercial shipments, it could result in any of the following:
• | loss of revenue or delay in market acceptance; | ||
• | diversion of our development resources; | ||
• | damage to our reputation; or | ||
• | increased service and warranty costs. |
If any of these factors occur, it would have a material adverse effect upon our business, operating results and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. To a certain extent, foreign currency exchange rate movements also affect our competitive position, as exchange rate changes may affect business practices and/or pricing strategies on non-U.S. based competitors. The primary foreign currency risk exposure is related to U.S. Dollar to Euro conversions. Considering both the anticipated cash flows from firm sales commitments and anticipated sales for the next quarter and the foreign currency derivative instruments in place at year end, a hypothetical 10% weakening of the U.S. Dollar relative to all other currencies would not materially adversely affect expected second quarter 2002 earnings or cash flows. This analysis is dependent on actual export sales during the next quarter occurring within 90% of budgeted forecasts. The effect of the hypothetical change in exchange rates ignores the affect this movement may have on other variables including competitive risk. If it were possible to quantify this competitive impact, the results could well be different than the sensitivity effects described above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the U.S. Dollar. In reality, some currencies may weaken while others may strengthen. Each month we review our position for expected currency exchange rate movements.
Interest Rate Risk
We are exposed to changes in interest rates primarily from our short-term available-for-sale investments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our interest sensitive financial instruments at March 31, 2002. Declines in interest rates over time will, however, reduce our interest income.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended March 31, 2002.
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ITEM 5. OTHER INFORMATION
Minimum Advance Notice of Stockholder Proposals. Document Sciences stockholders are advised that we must be notified at least 120 days prior to the month and day of mailing the prior year’s proxy statement of any proposal or solicitation that any stockholder intends to present at the next annual meeting of stockholders and which the stockholders has not sought to have included in our proxy statement for the meeting in accordance with Rule 14a-8 under the Securities Exchange Act of 1934. If a proponent fails to notify us before the required deadline, management proxies will be allowed to use their discretionary voting authority when the proposal is raised at the annual meeting, without any discussion of the matter in the proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) | Exhibits. |
Set forth below is a list of the exhibits included as part of this Quarterly Report.
Exhibit | ||||||
Number | Exhibit Description | |||||
3.1(1) | Restated Certificate of Incorporation of the Registrant filed May 1, 1992. | |||||
3.2(1) | Form of Amended and Restated Certificate of Incorporation of the Registrant. | |||||
3.3(1) | Amended and Restated Bylaws of the Registrant. | |||||
3.4(1) | Form of Certificate of Amendment of Certificate of Incorporation of the Registrant. | |||||
4.1(1) | Specimen Stock Certificate. | |||||
4.2(6) | Rights Agreement Between the Registrant and U.S. Stock Transfer Corporation, as Rights Agent, dated May 11, 2001, which includes as Exhibit A thereto the form of Rights Certificate to be Distributed to Holders of Rights after the Distribution Date (as that term is defined in the Rights Agreement) | |||||
10.1(1,2) | Form of Indemnity Agreement Between the Registrant and each of its Officers and Directors. | |||||
10.2(1,2) | 1993 Stock Option Plan and Form of Agreement. | |||||
10.3(4) | 1995 Stock Incentive Plan and Form of Agreement, as amended. | |||||
10.4(1,2) | Stockholder Rights Agreement Dated September 1996 Between the Registrant and Xerox Corporation. | |||||
10.5(1) | Tax Sharing Agreement Dated August 1996 Between the Registrant and Xerox Corporation. | |||||
10.6(1) | Transfer and License Agreement Dated July 1, 1992, as Amended in September 1994, Between the Registrant and Xerox Corporation. | |||||
10.7(1) | Strategic Marketing Alliance Agreement Dated September 1, 1993, Between the Registrant and Xerox Corporation. | |||||
10.8(4) | 1997 Employee Stock Purchase Plan, as amended. | |||||
10.9(3) | Xerox Cooperative Marketing Agreement. | |||||
10.10(3) | Xerox Canada Cooperative Marketing and Customer Support Agreement. | |||||
10.11(4) | International Business Machines Marketing Agreement. | |||||
10.12(4) | Lease for Company’s new Principal Facilities, as Amended, and Assignment of Lease. | |||||
10.13(2,5) | John L. McGannon Employment Agreement. | |||||
10.14(6) | Form of Software License and Software Support Agreement. | |||||
10.15(6) | Form of Professional Services Agreement. | |||||
10.16(6) | Form of Value Added Reseller Agreement. | |||||
10.17(6) | Development Services and Referral Agreement Between Objectiva Software Solutions, Inc. and the Registrant. |
(1) | Previously filed as exhibits to Registration Statement on Form S-1 Registration Number 333-06344. | |
(2) | Indicates management compensatory plan, contract or arrangement. |
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(3) | Previously filed as exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997. | |
(4) | Previously filed as exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998. | |
(5) | Previously filed as exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000. | |
(6) | Previously filed as exhibits to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001. |
(b) | No current reports on Form 8-K were filed during the quarter ended March 31, 2002. |
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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.
Document Sciences Corporation (Registrant) | |||
| |||
Date: May 10, 2002 | /s/ John L. McGannon | ||
John L. McGannon President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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