SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER
31, 1995; OR
[o] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
______ TO ______
COMMISSION FILE NUMBER 1-10185
DOCUCON, INCORPORATED
(Name of Small Business Issuer in its Charter)
DELAWARE 74-2418590
- --------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7461 CALLAGHAN ROAD
SAN ANTONIO, TEXAS 78229
- --------------------------------- ------------------------------------
(Address of Principal Executive (Zip Code)
Offices)
Issuer's Telephone Number, Including Area Code: (512) 525-9221
--------------
Securities Registered Under Section 12(b) of the Exchange Act:
Name of Each Exchange
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------- ------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE BOSTON STOCK EXCHANGE
Securities Registered Under Section 12(g) of the Exchange Act: NONE
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 [o]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [x]
State Issuer's revenues for its most recent fiscal year: $11,038,000
State the aggregate market value of the voting stock held by
non-affiliates as of March 15, 1996:
Common Stock, par value $.01 per share - $12,626,407
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 15, 1996
- --------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE 11,891,144 SHARES
$.01 PER SHARE
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual
Report on Form 10-KSB.
Transitional Small Business Issuer Format: Yes No [x]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Docucon, Incorporated ("Docucon" or the "Company") was incorporated
under the laws of the State of Delaware in 1988 and is the successor by merger
to a Texas corporation organized in 1986. The Company divides its business into
two areas: backfile conversion services and software products.
BACKFILE CONVERSION SERVICES
The automated conversion of source documents into electronic form,
including computer accessible images, indices and formats is referred to as
"backfile conversion". These source documents may include letters, contracts,
manuals, drawings, aperture cards, transcripts, microfilm and microfiche. After
conversion, these documents are stored on various optical and magnetic media.
These media are then accessed by document management systems which may be based
on a wide range of computer systems.
The process of document conversion involves the preparation and grading
of the documents to be stored, the physical scanning of the documents and the
creation of indices to facilitate retrieval of the converted documents. The
indexing of the information to be stored is a significant activity in any
document conversion system, and because Docucon creates custom indices and
formats, the ultimate users can retrieve information from their own documents
utilizing their own systems. Additionally, each of Docucon's document conversion
systems can customize the format of the converted materials. Throughout all its
operations, Docucon maintains a quality control program to ensure the integrity
of the indexing, editing and grading processing of the databases which are
converted. The Company provides backfile conversion services at its headquarters
in San Antonio, Texas. Upon client request, the Company can provide equipment to
process documents at remote client-site locations.
LITIGATION SUPPORT SOFTWARE PRODUCTS
The Company develops, markets and supports software products for use by
attorneys engaged in litigation. The principal product marketed by the Company
is the JFS Litigator's Notebook. Lawyers involved in litigation routinely keep
witnesses, issues and facts files in spiral bound notebooks called "binders".
Unlike paralegals who have been using computer systems for some time to assist
them in the assembly of document sets to extract information required by the
attorneys, the attorneys themselves have rarely used computers for anything
other than word processing. The JFS Litigator's Notebook provides attorneys with
electronic "binders". In addition, since the Notebook is based on Lotus
Development Corporation's Lotus Notes(R), attorneys on a litigation team can
work from the same "binders", send and receive notes and marginalia within the
binders, and associate other documents with the "binders". With the advent of
large and powerful "lap-top" computers, the attorney can now carry his entire
case file with him, wherever he might be, and not only have access to it, but
also be able to share updates with the other members of the litigation team in
other cities or countries.
2
The Company maintains a support and training staff for its software
products in its facility in Parsippany, New Jersey.
JFS TRANSACTION
On March 16, 1994, the Company purchased substantially all of the
assets, having an approximate book value of $1,015,000 and assumed certain
liabilities in the approximate amount of $1,179,000 of J. Feuerstein Systems,
Inc. ("JFS"), for consideration in the approximate amount of $200,000. JFS was
based in Parsippany, New Jersey and was engaged in the business of providing
consulting and support services and software products to the legal market. The
consideration was paid to Mr. Jim Feuerstein, Ms. Jane Gennarelli and a
finder/consultant who helped all of the parties consummate the transaction. The
transaction was negotiated on an arms-length basis between independent parties.
In connection with the transaction, the Company entered into Employment
Agreements with Jim Feuerstein and Jane Gennarelli, the principal executives of
JFS, who became officers in the JFS division of the Company. See "Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act - Directors, Executive Officers and Key Technical Personnel"
in Item 9, Note 1 of "Notes to Financial Statements" and Item 6 "Management's
Discussion and Analysis of Financial Condition or Plan of Operation". See also,
this Item, "Business - Product and Service Markets - Litigation Support Software
Services Market and Litigation Support Software Products Market".
PRODUCT AND SERVICE MARKETS
The Company currently markets backfile conversion and litigation
support software products. The primary customers for backfile conversion
services are governmental and private organizations which have substantial
document storage and retrieval needs. These documents may be logistic support
documents for the Department of Defense ("DOD"), land files for petro-chemical
companies and county governments, personnel and financial records for
corporations and institutions, or a number of other similar requirements.
The Company markets a line of software products whose purpose is to
facilitate the creation and use of electronic "ring binders" commonly used by
lawyers during litigation. The flagship product is the JFS Litigator's Notebook,
which has enjoyed broad acceptance by large law firms and the corporate legal
departments of several major corporations. The Company plans to continue to make
significant investment in the continued marketing and development of these
products.
For the years ended December 31, 1995, 1994, and 1993, the Company
spent $497,000, $652,000, and $455,000, respectively, for research and
development activities. The Company does not own any patents. The Company uses
the word "Docucon" alone and in combination with various designs and logos as a
service mark to identify the Company's services. The Company has obtained
federal trademark registration for the name "Docucon" and uses it to identify
its products and services.
3
BACKFILE CONVERSION SERVICES MARKETS
The Company has performed backfile conversion services since 1987 under
two consecutive contracts awarded by the DOD. Although the original 1987
contract totalled $9.3 million, the Company received orders for only $5.4
million before the expiration of the contract in 1991. The subsequent 1991
contract was increased from $12.3 million to $16.8 million and the delivery date
extended to April 1996. The Company provided services totalling $16.75 million
under this contract from 1991 through 1995. In November 1994, the Company was
notified that it was not the successful bidder on a new similar contract.
However, that contract was subsequently terminated at the government's
convenience, and additional contract awards to the Company in 1995 totalled
$2,000,000. In early 1996 the Company received a $14.8 million contract from the
DOD for services similar to those provided for in the aforementioned contracts.
These services are to be provided over the next 18 months. In 1995, 1994, and
1993 approximately 38 percent, 48 percent, and 57 percent, respectively, of the
Company's revenues were derived from services provided under DOD contracts.
The Company has also performed conversion services for various
commercial companies and governmental agencies including Texaco Exploration and
Production, Inc.,Computer Science Corporation, QED, Amoco, Dowell Schlumberger,
and Ericsson GE. The Company presently has six non-federal contracts.
LITIGATION SUPPORT SOFTWARE PRODUCTS MARKET
The Company's strategic intent with its software products is to
"capture the attorney's desktop". At present, the majority of revenues for the
Company's products has come from large law firms and corporations. It has been
the Company's strategy to aggressively market to these large organizations early
in the product life of the JFS Litigator's Notebook, a strategy which management
believes has been successful. Strategies for the future of these products
include the migration of the product to smaller firms. Present and future sales
strategies will be carried out by the Company's direct product sales force and
through relationships with companies having access to the legal market.
COMPETITION
The Company's services are sold in highly competitive markets, and its
sales and earnings can be affected by changes in competitive prices,
fluctuations in the level of activity in major markets or general economic
conditions. The Company believes that the document conversion industry is highly
fragmented, with numerous relatively small companies seeking to establish market
positions. In addition, the Company believes that major hardware, software and
service providers may seek to enter the field in the future. Many potential
competitors have larger marketing organizations and greater resources than the
Company. Due to the rapidly changing technology used in connection with
providing such services, competitive positions within the industry are subject
to change.
4
GOVERNMENT REGULATION
The Company's ability to obtain contracts from the DOD is dependent
upon its compliance with rules and regulations promulgated by that department,
including regulations related to security and technological standards. Although
the Company believes it is currently in compliance, there is no assurance that
it will be able to comply with such rules and regulations promulgated in the
future or to maintain its current clearances. See this Item, "Business - Product
and Service Markets" and "Business -Competition" and Item 6, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
EMPLOYEES
At March 15, 1996, the Company had 187 full-time employees. In
addition, at such date, the Company was retaining the services of 85 temporary
employees to meet current production needs. None of the Company's employees is
represented by a labor union, and the Company is not aware of any current
activities to unionize its employees. Management believes the relationship
between the Company and its employees is good.
ITEM 2. DESCRIPTION OF PROPERTY.
In October 1992, the Company purchased an eight-story, 52,000-square
foot office building in San Antonio, Texas. This facility is located on 2.5
acres of land which at the time of purchase was expected to provide the Company
with adequate office and parking facilities for the foreseeable future. The
Company currently occupies approximately 50,000 square feet in the building,
utilizing it for office and production space. The remaining space is currently
leased to outside tenants. As these leases expire, the Company plans to occupy
the remainder of the building to fulfill its anticipated expansion needs. In
Management's opinion, the Company's physical properties are adequate for the
Company's current needs, and are consistent with the Company's plans described
elsewhere in this Annual Report on Form 10-KSB; however, in the event that the
Company experiences a significant influx of new business, additional space will
be required.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company may be subject,
from time to time, to claims and legal actions by clients, suppliers and others.
No material actions are currently pending against the Company. The Company
maintains general liability insurance and other insurance coverages typical in
the industry.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 1995.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock, par value $.01 per share, is traded on The
Nasdaq Stock Market'sSM SmallCap Market (Symbol: DOCU), and on the Boston Stock
Exchange (Symbol: DOC).
The following table sets forth for the fiscal periods indicated the
high and low bid prices for the Company's Common Stock in the Nasdaq Stock
Market's SmallCap Market, the principal market upon which the Company's Common
Stock is traded, as reported to the Company in monthly reports from Nasdaq.
REPORTED
BID PRICE
----------------------
HIGH LOW
- --------------------------------------------------------------------------------
1994
- -------------------
First Quarter.................................. $1.34 $ .75
Second Quarter................................. .81 .50
Third Quarter.................................. .72 .50
Fourth Quarter................................. .72 .31
1995
- -------------------
First Quarter.................................. $ .63 $ .41
Second Quarter................................. .63 .34
Third Quarter.................................. .49 .38
Fourth Quarter................................. .56 .31
The last reported sale price for the Common Stock on The Nasdaq Stock
Market on March 15, 1996, was $1.19. Bid and asked prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
There were approximately 246 holders of record of the Common Stock as
of March 15, 1996, excluding those shares held by depository companies for
certain beneficial owners.
The Company has never paid cash dividends on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company currently anticipates that any future earnings will be retained to
finance the Company's operations. Under the terms of the Company's Series A
Convertible Preferred Stock, the Company cannot pay dividends on its Common
Stock until all accumulated but unpaid dividends on such Preferred Stock have
been paid. At December 31, 1995, cumulative undeclared dividends on the Series A
Convertible Preferred Stock were approximately $317,000.
6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company's operations resulted in a net loss applicable to common
stockholders of $665,897 for fiscal 1995, compared to a net loss applicable to
common stockholders of $1,785,871 in 1994. The smaller loss was attributable to
improved results in the backfile conversion service division and increased sales
of the JFS Litigator's Notebook and related products. In addition, the 1994 loss
included a $283,000 writedown of capitalized software. These improvements were
offset by losses incurred by the services portion of the litigation support
division. The Company reduced the scope of its litigation support services in
June of 1995 as a result of continuing losses incurred by the division. Although
the losses from those operations were reduced to a nominal amount by the end of
the fiscal year, the operations were discontinued at the end of 1995.
Operating revenues totaled $11,037,846 in fiscal 1995, a 28% increase
over 1994 revenues. The majority of the increase was due to an increase in
software product sales. Backfile conversion service revenues also increased.
Revenues earned under the DOD contracts increased slightly, from
approximately $3,900,000 to $4,200,000, resulting from several contract awards
throughout the fiscal year (see "Liquidity and Capital Resources"). Revenues
earned under commercial and government-related subcontracts also increased.
Litigation support services revenue increased during the first six
months of fiscal 1995. However, the contracts for these services were largely
unprofitable and the scope of the services was reduced in June of 1995 and
discontinued in full at year end. Overall, total litigation support service
revenues were slightly lower than the 1994 comparable revenues, and represented
21% and 29% of the Company's 1995 and 1994 revenues, respectively. Revenues from
software product sales and support increased 450% to $2,200,000, and composed
19% of total revenues in 1995 as compared to 4% of 1994 total revenues.
Production costs increased $1,345,000, or 25%, in 1995 as compared to
1994, commensurate with the increase in revenues. A disproportionate share of
production costs were incurred in the litigation support service area as
compared to the Company's other areas of production including document
conversion and software products.
The Company devoted a portion of its research and development resources
to a software development project in 1995, and capitalized $153,000 of costs
related to the project. Thus, research and development expenses decreased 24
percent from 1994 to 1995. The Company continued to devote resources to the
expansion of the capabilities of its JFS Litigator's Notebook and related
software products as well as the development and enhancement of its document
conversion capabilities.
Marketing expenses increased 38% percent during 1995 as compared to
1994. The Company built national marketing teams in the latter part of 1994 to
support new and aggressive marketing efforts for litigation support services and
its line of software products. Although the marketing efforts
7
of litigation support services were curtailed in June of 1995, the Company
continued aggressive marketing efforts for the remaining government and
commercial and software product divisions.
Depreciation and amortization decreased 15 percent during fiscal 1995
as compared to fiscal 1994. The decrease in depreciation and amortization
charges is due to equipment becoming fully depreciated. The Company added
approximately $200,000 of equipment shortly after year end in order to expand
its production capabilities to accommodate the new DOD contract.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
The Company's operations during fiscal year 1994 resulted in a net loss
applicable to common stockholders of $1,785,871, compared to net income
applicable to common stockholders of $115,696 in 1993. Operating revenues
totaled $8,616,480 in fiscal 1994. Although this total represents a $1,728,000,
or 17 percent, decline from 1993 revenues, there were shifts in divisional
revenue levels which the Company believes establishes an improved position for
future stability.
Revenues earned under the DOD contract decreased 30 percent from
approximately $5,900,000 to $4,125,000 and declined steadily throughout the year
as the 1991 DOD Contract neared completion. The Company received notification in
November 1994 that it was not the low bidder and did not receive a new contract
with the DOD. Commercial revenues decreased from approximately $2,500,000 to
$1,590,000 due to the completion of a $4.0 million conversion project with
Texaco, $2,142,000 of which was earned in 1993. There were no revenues earned
under this contract in 1994. Approximately $1,300,000 of these commercial
revenues was earned under government-related non-DOD contracts which were issued
through commercial enterprises. Other commercial revenues in 1994 included those
earned under continuing contracts with Amoco, Alabama Power Company, Norfolk
Southern and SAIC, as well as several other new contracts.
The litigation support division experienced growth in 1994; divisional
revenues increased approximately $1,000,000, or 53 percent in 1994 as compared
to 1993. The increase was concentrated in the latter nine months of the year,
subsequent to the JFS transaction and is attributable to the opportunities
afforded by such transaction. Both conversion service revenues and product sales
of JFS Litigator's Notebook contributed to the increase.
Production costs during 1994 decreased $664,000, or 11 percent compared
to 1993. These decreases occurred in the government area due to reduced
temporary labor costs and a reduction in personnel by attrition, as well as a
decrease in required supplies. These decreased costs were offset by additional
production costs within the JFS division. In the latter part of the year, the
Company relocated its New Jersey offices to less expensive facilities and
tightened labor costs to reduce production costs of the division.
Research and development costs increased 43 percent during 1994 as
compared to 1993. The Company continued development and enhancement of its
document conversion capabilities, as well as expansion of the capabilities of
its JFS Litigator's Notebook and related software products, which the Company
purchased in the JFS transaction.
General and administrative expenses decreased 5 percent from year to
year, primarily as a result of decreased occupancy expenses. During the first
six months of 1993, the Company incurred costs related to the building acquired
in 1992 while it was being refurbished for occupancy in addition to the rental
expense
8
associated with its prior headquarters. The Company has been able to hold other
general and administrative expenses constant despite the increased demands
arising from the JFS transaction.
Marketing expenses increased 20 percent during 1994 as compared to
1993. The Company built a new sales team for the JFS division and opened new
regional sales offices in New York City, San Francisco, Los Angeles, and
Washington, D.C. The Company continued to build its presence in the legal
industry, and opened an office in Minneapolis shortly after year end.
Depreciation and amortization increased 16 percent during fiscal 1994
as compared to fiscal 1993, primarily as a result of depreciation and
amortization costs arising from the additional assets of JFS and the related
goodwill. Interest expense increased slightly in 1994 due to obligations the
Company assumed in connection with JFS.
In 1994, the Company wrote off the carrying value of its litigation
support software which was developed prior to 1993. The write off of
approximately $283,500 was recorded when it became apparent that the remaining
carrying cost would not be realized due to a redirection of development and
support efforts to JFS Litigator's Notebook.
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 private preferred stock placements.
In 1991, the Company was awarded a contract from the Defense Printing
Services Office (DPS) to provide conversion services for the Department of
Defense (DOD) totaling $12.3 million. The award was increased in 1994 and 1995
by a total of $4.5 million and extended in time until April 1996. Additionally,
in 1995, DPS awarded contracts totaling approximately $2.0 million to the
Company. During 1995, the Company generated $4,200,000, or 38% of total revenues
through DOD contracts. In February of 1996, DPS awarded a contract to the
Company. This contract allows the Company to provide up to $14.8 million of
document services to DOD agencies through August 1997.
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.
However, lower than expected margins in the litigation support service area
resulted in the Company's decision to substantially reduce the scope of those
operations in June of 1995 and ultimately to terminate those operations at year
end. As a result of the decision, the losses of the division were reduced
steadily during the year.
The Company is currently negotiating long term financing on its
$1,500,000 8 percent promissory note due in December 1996. This note is secured
by the Company's office building. In connection with the purchase of the
Company's office building in 1992, the Company issued 900,000 warrants to
purchase an equivalent number of shares of Common Stock at an exercise price of
$2.00 per share. The Company now occupies approximately five sixths of the
building with the remaining
9
space being leased to third party tenants. The Company believes that the
building will fulfill its needs for the foreseeable future.
Accounts receivable and unbilled revenues increased approximately
$828,000 from December 31, 1994 to December 31, 1995. The higher balances
reflect the increased services provided to the DOD in the fourth quarter of 1995
and also include final balances due from litigation support service customers,
most of which have been collected subsequent to year end.
The Company expects to fund its operations and marketing activities
through utilization of cash on hand and cash generated from operations. During
1995, the Company fully extended its $400,000 line of credit to fund short-term
cash needs. At March 15, 1996, $300,000 was outstanding under this line of
credit. The Company believes its negotiations with the bank to extend the line
of credit beyond the current maturity date of April 1996 will be successful.
These funds are expected to be adequate for the Company's needs for at least the
next 12 months. Subsequent to year end, the Company expended over $200,000 from
internally generated funds for capital equipment to fulfill the requirements of
the new DOD contract awarded in February 1996. While the Company may consider
and evaluate, from time to time, acquisitions and opportunities for future
growth, the Company has not entered into any agreements with respect to future
acquisitions. Should the Company enter into any such agreements, the Company
would, in all likelihood, be required to raise outside capital to consummate
such transactions.
OUTLOOK
The Company enters 1996 with a profit outlook which is stronger than in
any other year in its history. The reasons for this are: the acquisition of the
new DOD contract, the expansion of the software products business, and the
elimination of the historically unprofitable litigation support services
business.
* In 1996 the Company will significantly increase the capacity of its
conversion lines to accommodate the buildup in revenues under the new DOD
contract.
* The JFS division will expand its product offerings during the year. These
actions will not only strengthen the market position of Litigator's
Notebook but will also allow the penetration of the non-litigation portion
of the legal market and markets beyond the legal market.
* JFS will increase its direct sales force from four to six sales
representatives in order to broaden its national coverage.
* The Company intends to obtain conventional financing for its San Antonio
facility.
10
ITEM 7. FINANCIAL STATEMENTS.
Financial statements of the Company meeting the requirements of
Regulation S-B are filed on the succeeding pages of this Item 7 of this Annual
Report on Form 10-KSB, as listed below:
PAGE
----
Report of Independent Public Accountants 12
Balance Sheets as of December 31, 1995 and 1994 13
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 15
Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 16
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 17
Notes to Financial Statements 18
11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Docucon, Incorporated:
We have audited the accompanying balance sheets of Docucon, Incorporated (a
Delaware corporation), as of December 31, 1995 and 1994, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Docucon, Incorporated, as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Antonio, Texas
February 27, 1996
DOCUCON, INCORPORATED
BALANCE SHEETS
DECEMBER 31
---------------------------
ASSETS 1995 1994
------------ ------------
CURRENT ASSETS:
Cash and temporary cash investments $ 139,167 $ 376,798
Accounts receivable-trade, net of allowance for doubtful accounts
of $7,683 and $28,093 in 1995 and 1994, respectively-
U.S. Government 594,090 119,249
Commercial 1,278,796 1,347,075
Unbilled revenues 579,821 156,305
Other receivables 1,648 3,830
Prepaid expenses and other 69,634 169,543
------------ ------------
Total current assets 2,663,156 2,172,800
------------ ------------
PROPERTY AND EQUIPMENT:
Conversion systems 4,540,302 4,083,892
Building and improvements 1,515,608 1,467,287
Land 230,000 230,000
Furniture and fixtures 278,805 253,280
------------ ------------
Total property and equipment 6,564,715 6,034,459
Less- Accumulated depreciation 4,182,671 3,286,816
------------ ------------
Net property and equipment 2,382,044 2,747,643
------------ ------------
SOFTWARE DEVELOPMENT COSTS, net 358,879 280,901
------------ ------------
GOODWILL, net 338,824 357,433
------------ ------------
Total assets $ 5,742,903 $ 5,558,777
============ ============
See Notes to Financial Statements.
DOCUCON, INCORPORATED
BALANCE SHEETS
DECEMBER 31
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
-------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 697,980 $ 755,305
Accrued liabilities 774,955 597,148
Line of credit 400,000 -
Note payable - 10,560
Current maturities of capital lease obligations 3,107 20,930
Deferred revenues 339,558 91,018
Current maturities of long-term debt 1,500,000 -
------------- -------------
Total current liabilities 3,715,600 1,474,961
------------- -------------
LONG-TERM DEBT - 1,500,000
CAPITAL LEASE OBLIGATIONS, less current maturities - 3,094
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 10,000,000 shares authorized- Series A, 60
shares authorized, 21 and 23 shares outstanding as of December 31,
1995 and 1994, respectively 21 23
Common Stock, $.01 par value, 25,000,000 shares authorized; 11,771,228 and
11,544,280 shares outstanding as of December 31, 1995 and 1994, respectively 117,712 115,442
Additional paid-in capital 9,506,553 9,456,677
Accumulated deficit (7,596,983) (6,991,420)
------------- -------------
Total stockholders' equity 2,027,303 2,580,722
------------- -------------
Total liabilities and stockholders' equity $ 5,742,903 $ 5,558,777
============ ============
See Notes to Financial Statements.
DOCUCON, INCORPORATED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
----------------------------------------------
1995 1994 1993
------------- ------------- -------------
OPERATING REVENUES $ 11,037,846 $ 8,616,480 $ 10,344,393
------------- ------------- -------------
COSTS AND EXPENSES:
Production 6,810,976 5,465,746 6,129,557
Research and development 497,123 651,629 455,319
General and administrative 990,162 1,034,371 1,092,611
Marketing 2,214,310 1,610,291 1,343,152
Depreciation and amortization 992,154 1,167,177 1,003,942
Writeoff of software development costs - 283,442 -
------------- ------------- -------------
11,504,725 10,212,656 10,024,581
------------- ------------- -------------
OPERATING INCOME (LOSS) (466,879) (1,596,176) 319,812
OTHER INCOME (EXPENSE):
Interest expense (152,410) (140,010) (134,087)
Other, net 13,726 26,685 47,384
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (605,563) (1,709,501) 233,109
INCOME TAX EXPENSE - 13,200 25,600
------------- ------------- -------------
NET INCOME (LOSS) (605,563) (1,722,701) 207,509
------------- ------------- -------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 60,334 63,170 91,813
------------- ------------- -------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (665,897) $ (1,785,871) $ 115,696
============= ============= =============
PRIMARY EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENTS $(.06) $(.15) $.01
============= ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING 11,690,161 11,549,909 11,627,383
============= ============= =============
See Notes to Financial Statements
DOCUCON, INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK PREFERRED STOCK
-------------------- ---------------
NUMBER NUMBER Additional Total
OF OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- --- ---- ----------- ----------- -----------
BALANCE, December 31, 1992 ............................ 10,711,616 $107,116 41 $ 41 $ 9,455,835 $(5,476,228) $ 4,086,764
Shares issued pursuant to employee stock plans ..... 130,000 1,300 -- -- 29,700 -- 31,000
Conversion of Series A preferred stock ............. 566,661 5,666 (17) (17) (5,649) -- --
Shares issued to pay preferred stock dividends ..... 102,670 1,027 -- -- (1,027) -- --
Net income ......................................... -- -- -- -- -- 207,509 207,509
---------- -------- --- ---- ----------- ----------- -----------
BALANCE, December 31, 1993 ............................ 11,510,947 115,109 24 24 9,478,859 (5,268,719) 4,325,273
Conversion of Series A preferred stock ............. 33,333 333 (1) (1) (332) -- --
Stock registration costs ........................... -- -- -- -- (21,850) -- (21,850)
Net loss ........................................... -- -- -- -- -- (1,722,701) (1,722,701)
---------- -------- --- ---- ----------- ----------- -----------
BALANCE, December 31, 1994 ............................ 11,544,280 115,442 23 23 9,456,677 (6,991,420) 2,580,722
Shares issued pursuant to employee stock plans ..... 70,983 710 -- -- 51,434 -- 52,144
Conversion of Series A preferred stock ............. 66,666 667 (2) (2) (665) -- --
Shares issued to pay preferred stock dividends ..... 89,299 893 -- -- (893) -- --
Net loss ........................................... -- -- -- -- -- (605,563) (605,563)
---------- -------- --- ---- ----------- ----------- -----------
BALANCE, December 31, 1995 ............................ 11,771,228 $117,712 21 $ 21 $ 9,506,553 $(7,596,983) $ 2,027,303
========== ======== === ==== =========== =========== ===========
See Notes to Financial Statements.
DOCUCON, INCORPORATED
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
---------------------------------------------
1995 1994 1993
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (605,563) $ (1,722,701) $ 207,509
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 992,154 1,167,177 1,003,942
Writeoff of software development costs - 283,442 -
Changes in current assets and current liabilities-
(Increase) decrease in receivables and unbilled revenues (827,896) 1,087,891 (346,292)
Decrease in prepaid expenses and other 99,909 101,554 36,521
Increase (decrease) in accounts payable and accrued liabilities 120,482 (135,591) 73,113
Increase in deferred revenues 248,540 29,153 6,014
------------- ------------- -------------
Net cash provided by operating activities 27,626 810,925 980,807
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (533,123) (513,507) (1,346,854)
Capitalized software development costs (152,801) (21,527) (130,050)
------------- ------------- -------------
Net cash used in investing activities (685,924) (535,034) (1,476,904)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under line of credit 400,000 - -
Principal payments on notes payable (10,560) (489,259) -
Principal payments under capital lease obligations (20,917) (21,125) (14,392)
Proceeds from employee stock purchase plan 52,144 - -
Proceeds from exercise of options - - 31,000
Stock registration costs - (21,850) -
------------- ------------- -------------
Net cash provided by (used in) financing activities 420,667 (532,234) 16,608
------------- ------------- -------------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (237,631) (256,343) (479,489)
------------- ------------- -------------
CASH AND TEMPORARY CASH INVESTMENTS, beginning of period 376,798 633,141 1,112,630
------------- ------------- -------------
CASH AND TEMPORARY CASH INVESTMENTS, end of period $ 139,167 $ 376,798 $ 633,141
============= ============= =============
See Notes to Financial Statements.
DOCUCON, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF THE COMPANY:
Docucon, Incorporated (the Company), was incorporated in June 1986. The
Company's primary business is the conversion of paper and microform documents to
a computer accessible medium for commercial and governmental customers. 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.
In March 1994, the Company acquired substantially all of the assets and assumed
selected liabilities of J. Feuerstein Systems, Inc. (JFS), a company which
provided consulting and support services and software products to the legal
market.
Since its inception, the Company has incurred losses of approximately $7.6
million including a loss of approximately $606,000 in 1995. These losses have
been funded primarily through the Company's public offering, issuances of
preferred stock, the exercise of warrants and debt financing. The Company has
taken steps to improve its 1996 operating results. The steps taken include
exiting the litigation support services market and focusing on the Company's
core higher margined businesses. The Company also intends to refinance its
$1,500,000 note payable which is currently due in December 1996. The note
payable is secured by the Company's building and is nonrecourse to the Company.
(See Note 5.) The Company's management believes that it is likely that the
Company's operating results for 1996 will improve over 1995 and will generate
sufficient working capital to sustain its operations throughout the year.
However, if operating results do not improve, the Company will be unable to
ensure its continuing operations independent of additional capital infusions.
See Note 3 and "Outlook" and "Liquidity and Capital Resources" included in Item
6 under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PROPERTY AND EQUIPMENT
Property and equipment are recorded at original cost. 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 conversion system and furniture and fixtures 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.
DOCUCON, INCORPORATED
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs and amortizes those costs
over the estimated useful life of the software. During 1993 and prior, the
Company incurred approximately $417,000 related to the development of software
(WIN.LAW), which was to be used to supplement the Company's litigation support
services. During 1994, the Company wrote off the unamortized cost of WIN.LAW
($283,442) when it became apparent that the carrying value would not be
realized.
Included in software development costs is $250,000 for advanced litigation
support software (Litigator's Notebook(TM)) which was acquired from JFS in 1994.
Also included in software development costs is approximately $150,000 of costs
which were incurred during 1995 to develop software which will support and
complement Litigator's Notebook(TM). These costs are being amortized over a
five-year period. During 1995, amortization expense of approximately $75,000 was
recorded relating to software development costs. As of December 31, 1995,
accumulated amortization of $164,000 was netted against software development
costs.
GOODWILL
In connection with the acquisition discussed in Note 1 above, the Company
recognized goodwill of approximately $372,000. This goodwill is being amortized
on a straight-line basis over 20 years. Accumulated amortization as of December
31, 1995, totaled approximately $33,000.
STATEMENTS OF CASH FLOWS-
SUPPLEMENTAL DISCLOSURES
The Company considers funds invested in highly liquid investments having a
maturity of 90 days or less when acquired to be temporary cash investments.
During 1994, as a result of the JFS acquisition, noncash investing and financing
activities include the acquisition of approximately $1,015,000 in assets and
approximately $372,000 in goodwill in exchange for the assumption of
approximately $1,179,000 in liabilities.
The following relates to cash interest and income taxes paid by the Company for
the periods indicated:
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
-----------------------------------
Cash paid during the year for interest $ 181,769 $ 143,980 $ 123,725
Cash paid during the year for income taxes - 39,000 31,600
POST RETIREMENT AND POST EMPLOYMENT BENEFITS
The Company does not provide post retirement nor post employment benefits to its
employees.
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.
3. SHORT-TERM BORROWING ARRANGEMENTS:
The Company's bank credit agreement consists of a $400,000 revolving line of
credit which bears interest at prime plus 1.25 percent (9.75 percent as of
December 31, 1995). The line is due on demand, or if no demand is made, payment
of principal and accrued interest is due in April 1996. Borrowings pursuant to
the revolving line of credit are secured by the Company's accounts receivable.
As of December 31, 1995, the entire $400,000 was outstanding under this line.
Subsequent to December 31, 1995, the Company repaid $100,000 on the line.
Discussions with the bank have led the Company's management to believe that the
bank will extend the maturity date of the line of credit to beyond December
1996.
4. LEASES:
Certain office equipment and office space is leased under various noncancelable
operating leases with lease terms ranging from one to five years. Rent expense
under all cancelable and noncancelable operating leases was approximately
$395,000, $293,000 and $207,000 for the years ended December 31, 1995, 1994 and
1993, respectively. Future minimum lease payments for all noncancelable
operating leases, as of December 31, 1995, are as follows:
Year ending December 31-
1996 $ 181,048
1997 160,892
1998 160,892
1999 131,371
2000 1,484
----------
Total future minimum lease payments $ 635,687
==========
5. LONG-TERM DEBT:
In connection with the purchase of its headquarter's building, the Company
issued a four-year, 8 percent promissory note with the principal amount of
$1,500,000 due in December 1996 and interest payable quarterly. The note is
secured by land and the building with a net book value of approximately
$1,595,000 at December 31, 1995, and is nonrecourse. Also in connection with the
purchase of its headquarter's building, the Company paid a loan origination fee
of $60,000 and issued 900,000 warrants, which expire in December 1996, to
purchase an equivalent number of shares of Common Stock at an exercise price of
$2.00 per share. As the exercise price exceeded the current market price and the
financing terms of the debt were arm's length, no value was recorded for the
warrants issued. The fair value of the Company's long-term debt approximates its
carrying value based upon the borrowing rates available to the Company for
long-term debt with similar terms.
6. MAJOR CUSTOMER:
The Company has historically earned a significant portion of its total revenues
from conversion services performed for the Department of Defense (DOD).
Specifically, the Company earned approximately $4,194,000, $4,125,000 and
$5,900,000 during the years ended December 31, 1995, 1994 and 1993,
respectively, from services provided to the DOD. Subsequent to December 31,
1995, the Company announced that it was awarded a $14.8 million contract by the
DOD to provide document conversion services to DOD agencies through August 1997.
7. PREFERRED STOCK:
In 1990, the Company issued 46 shares of 11 percent Series A Preferred Stock at
$25,000 per share. Each share of the Preferred Stock is convertible into 33,333
shares of Common Stock. Through December 31, 1995, 25 shares of Preferred Stock
have been converted. Additionally, 191,969 shares of Common Stock have been
issued in lieu of accumulated dividends on the Preferred Stock which was
converted. As of December 31, 1995, cumulative undeclared dividends on the
Preferred Stock approximated $317,000.
8. STOCK OPTIONS AND UNIT PURCHASE OPTIONS:
The Company adopted the 1988 Stock Option Plan (the 1988 Plan) which allows for
the granting of stock options at the current market value of the Common Stock at
the date of the grant to key employees. An aggregate of 1,360,000 shares of
Common Stock has been reserved for issuance pursuant to the 1988 Plan. The 1991
Director Non-Statutory Stock Option Plan (the Director Plan) provides for the
granting of options at the Common Stock's current market value to members of the
board of directors of the Company who are not employees of the Company. The
Director Plan authorizes the granting of options to purchase up to 500,000
shares of the Company's Common Stock. The stock options granted under the 1988
Plan and the Director Plan are exercisable pursuant to the individual agreements
between the Company and the grantee and range from a six-month to a three-year
vesting period. All options granted under these plans must be exercised within
10 years from the date of grant and expire within three months after termination
of employment or service as a director. Additionally, the Company adopted the
1991 Employees' Non-Statutory Stock Option Plan (the Employees' Plan) which
provided for the granting of options to purchase Common Stock of the Company at
below market value and immediate vesting. An aggregate of 100,000 shares had
been reserved for issuance pursuant to the Employees' Plan, all of which were
granted to a former officer of the Company at an option price of $.10 per share
and were exercised during 1993.
The following summarizes the activity in the Company's stock option plans during
1995:
MARKET PRICE
OPTION PRICE AT DATE OF GRANT
----------------------------- ---------------------------
SHARES PER SHARE TOTAL PER SHARE TOTAL
--------- ------------- ------------ ------------- -----------
Outstanding, December 31, 1994 1,192,450 $.56 -2.44 $ 1,216,918 $.56 -2.44 $ 1,216,918
Price reduction - - 546,165 - -
Granted 164,200 .41 -.56 83,930 .41 -.56 83,930
Exercised - - - - -
Terminated 69,100 .53 -.56 38,644 .53 -2.44 43,385
---------- ------------ -----------
Outstanding, December 31, 1995 1,287,550 .41 -.56 $ 716,039 .41 -2.44 $ 1,257,463
========== ============ ===========
Exercisable, December 31, 1995 1,029,384 .53 -.56 $ 577,753 .53 -2.44 $ 1,067,723
========== ============ ===========
On February 14, 1995, the Company's board of directors voted to reduce the
exercise price for all outstanding options granted under the 1988 Plan and the
Director Plan to $.5625 per share, the current market price of the Company's
Common Stock on that date. This reduction is shown in the above table.
In addition to the above stock option agreements, the Company has warrants and
options outstanding with certain lenders and other parties. As of December 31,
1995, the total number of shares issuable under these warrants and options was
972,727, at exercise prices ranging from $1.375 to $2.00 per share.
9. EMPLOYEE BENEFIT PLANS:
Effective January 1, 1994, the Company adopted the 1993 Employee Stock Purchase
Plan (the Stock Purchase Plan). Under the Stock Purchase Plan, eligible
employees may elect to have up to 10 percent of their base pay (as defined)
deducted and utilized to purchase Common Stock of the Company in annual or
semiannual offerings. The Company has reserved 800,000 shares of Common Stock
for issuance pursuant to the Stock Purchase Plan. In January 1996 and 1995, the
Company issued 100,583 and 70,983 shares of Common Stock at purchase prices of
$.32 and $.35 per share, respectively. The purchase prices represent 85 percent
of the closing price on December 29, 1995, and December 30, 1994, respectively.
The Stock Purchase Plan is administered by the Compensation Committee of the
Board of Directors and will expire on December 31, 1997, unless sooner
terminated or amended by the Board of Directors.
The Company also maintains a qualified employee benefit plan under Section
401(k) of the Internal Revenue Code. Under this plan, employees meeting certain
eligibility requirements may contribute up to 15 percent of their eligible
compensation to the plan on a pretax basis. In addition, the Company may make
voluntary matching contributions to the plan. The Company contributed $0 and
$25,000 during 1995 and 1994, respectively, to the plan.
10. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." This statement
establishes financial accounting and reporting standards for deferred income tax
liabilities that arise as a result of differences between the reported amounts
of assets and liabilities for financial reporting and income tax purposes. The
adoption of SFAS No. 109 had no effect on the Company's financial position or
net income.
As of December 31, 1995, the Company had net operating loss carryforwards of
approximately $6.5 million for federal income tax purposes which are available
to reduce future taxable income and will expire in 2004 through 2010 if not
utilized.
The components of income tax expense attributable to continuing operations are
as follows:
YEAR ENDED DECEMBER 31
------------------------------
1995 1994 1993
-------- -------- --------
Federal $ - $ - $ 1,800
State - 13,200 23,800
-------- -------- --------
Total income tax expense $ - $13,200 $ 25,600
======== ======= ========
Total income tax expense differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The reasons for
these differences are as follows:
YEAR ENDED DECEMBER 31
---------------------------------------
1995 1994 1993
---------- ----------- ----------
Expected federal income tax expense (benefit) $ (206,000) $ (581,000) $ 79,300
State income taxes, net of federal income tax benefit - 13,200 15,700
Deferred compensation - - (23,700)
Other, net - 19,000 1,500
Utilization of tax loss carryforwards - - (47,200)
Provision for valuation reserve 206,000 562,000 -
---------- ----------- ----------
Total income tax expense $ - $ 13,200 $ 25,600
========== =========== ==========
The tax effect of significant temporary differences representing income tax
assets is as follows:
DECEMBER 31
-------------------------
1995 1994
----------- -----------
Deferred income tax assets-
Tax loss carryforwards $ 2,200,000 $ 2,187,000
Depreciation 135,000 55,000
Deferred revenues 115,000 28,000
Other 74,000 48,000
----------- -----------
$ 2,524,000 $ 2,318,000
=========== ===========
A valuation reserve of $2,524,000 and $2,318,000 as of December 31, 1995 and
1994, respectively, representing the total of deferred tax assets has been
recognized by the Company as it cannot determine that it is more likely than not
that all of the deferred tax assets will be realized.
11. RELATED-PARTY TRANSACTIONS:
During 1993 and prior, the Company leased its offices at a market rate from a
joint venture partially comprised of an investor in the Company. Office rent
expense under this lease for the year ended December 31, 1993, was approximately
$120,000.
12. QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED):
The results of operations by quarter for the years ended December 31, 1995 and
1994, were as follows:
EARNINGS
OPERATING NET INCOME (LOSS)
REVENUES (LOSS) PER SHARE
----------------------------------------
1995-
Quarter ended-
March 31 $ 2,618,941 $ (434,066) $(.04)
June 30 3,267,566 (272,876) (.02)
September 30 2,304,773 (182,273) (.02)
December 31 2,846,566 283,652 .02
------------ ----------
Total $ 11,037,846 $ (605,563)
============ ==========
1994-
Quarter ended-
March 31 $ 1,995,232 $ (160,106) $(.02)
June 30 2,274,443 (403,674) (.04)
September 30 2,230,335 (496,763) (.04)
December 31 2,116,470 (662,158) (.06)
------------- -------------
Total $ 8,616,480 $ (1,722,701)
============= ============
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
The Company has not changed independent accountants within the
twenty-four months prior to December 31, 1995 or subsequent to that date.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS, EXECUTIVE OFFICERS AND KEY TECHNICAL PERSONNEL
The following table sets forth certain information with respect to the
Company's Directors, executive officers and key technical personnel:
NAME AGE POSITION
-----------------------------------------------------
Edward P. Gistaro 60 Chairman of the Board and Chief
Executive Officer and Director
Allan H. Hobgood 57 President and Chief Operating Officer
and Director
Lori A. Turner 38 Vice President of Finance and Treasurer
Ralph Brown 62 Secretary and Director
Al R. Ireton 61 Director
Philip J. Romano 56 Director
Chauncey E. Schmidt 64 Director
Jim Feuerstein * 46 Senior Vice President and Chief
Technical Officer, JFS Division
Jane Gennarelli * 40 Vice President/Senior Consultant
* Not considered "executive officers", as defined in Rule 405
promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
28
Edward P. Gistaro has served as Chief Executive Officer of the Company
since June 4, 1988 and served as President from July 10, 1988 until March 18,
1991. Mr. Gistaro was employed by Datapoint Corporation, a company involved in
the manufacturing of computer systems, in various managerial positions from 1973
to 1987. From 1982 to 1985 Mr. Gistaro served as the President and Chief
Operating Officer of Datapoint Corporation, and he served from 1985 to 1987 as
its President and Chief Executive Officer.
Allan H. Hobgood was elected Chief Operating Officer of the Company on
April 16, 1991 and President of the Company on November 4, 1992. Mr. Hobgood had
served as the Company's Vice President of Marketing from August 25, 1988 to
April 16, 1991. From January 1988 until August 1988, Mr. Hobgood served as Vice
President of Sales for Advanced Signing, Inc., a commercial sign firm, and from
1981 to March, 1987, Mr. Hobgood held several managerial positions relating to
marketing, including Vice President of U.S. Sales, at Datapoint Corporation.
Lori A. Turner, C.P.A., C.M.A., was appointed Vice President in early
1996. She joined the Company in May 1990 as Controller and was appointed
Treasurer in June 1990. In July 1991, Ms. Turner was elected Assistant Secretary
to the Company. From 1984 through 1989, Ms. Turner held various financial
positions at Fuddruckers, Inc., a fast-food restaurant chain. Prior to joining
Docucon, she worked as a consultant for Fuddruckers and other firms.
Ralph Brown, an attorney in private practice since 1968, has served as
Secretary of the Company since May 1, 1987. From 1987 to 1989, he served also as
Treasurer of the Company. Mr. Brown has also served since 1975 as President of
Cherokee Ventures, Inc., a real estate leasing firm, since 1978 as President of
East Central Development Corporation and since 1982 as President of Southeast
Suburban Properties, Inc. The latter two businesses are real estate development
firms.
Al R. Ireton was elected as a Director of the Company in May 1993. Mr.
Ireton has been Chairman of Manchester Partners, an investment and growth
strategy advisory organization providing capital and strategic assistance to
growing companies, since October 1988. From 1985 through September 1988, he
served as President and Chief Executive Officer of Texet Corporation, a desktop
publishing company. Mr. Ireton has 25 years' experience serving as president and
chief executive officer of growth-oriented companies, and has served on several
corporate boards.
Philip J. Romano served as Chairman of the Board of the Company from
September 6, 1988 until June 4, 1989. Mr. Romano founded Fuddruckers, Inc. and
served as a director of that company from its inception in 1979 until November
1988. Mr. Romano was President of Fuddruckers, Inc. from its inception until
January 1985. Since January 1985, Mr. Romano has been a private investor.
Chauncey E. Schmidt was elected to the Board of Directors of the
Company in February 1993. He has been Chairman of C. E. Schmidt & Associates, an
investment firm, since April 1989. From 1987 to March 1989, he was Vice Chairman
of the Board of AMFAC, Inc., a New York Stock Exchange-listed company engaged in
diversified businesses. He has previously served as President of The First
National Bank of Chicago and Chairman of the Board and Chief Executive Officer
of The Bank of California, N.A. Mr. Schmidt is on the Board of Trustees of the
U. S. Naval War College Foundation and is active in several civic and charitable
organizations.
Jim Feuerstein joined the Company as Senior Vice President and Chief
Technical Officer of the JFS Division in March 1994 in connection with the JFS
transaction. Mr. Feuerstein founded J. Feuerstein
29
Systems in 1981 as a consulting firm for information management in large-scale
litigation, establishing a strong reputation in the pharmaceutical, insurance
and legal markets.
Jane Gennarelli was appointed Vice President/Senior Consultant in
January 1996. She joined the Company as Vice President of Operations of the JFS
Division in March 1994 in connection with the JFS transaction. Ms. Gennarelli
served J. Feuerstein Systems as Project Manager and as Director of Litigation
Support Services from September 1985 to March 1994. Previously, she was employed
by Control Data Corporation (now Quorum Systems) of Minneapolis, Minnesota and
Informatics of Rockville, Maryland.
GENERAL
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company are elected annually by, and serve
at the discretion of the Board of Directors. There are no arrangements or
understandings known to the Company between any of the Directors, nominees for
Director or executive officers of the Company and any other person pursuant to
which any of such persons was elected as a Director or an executive officer,
except as set forth below under Item 10, "Executive Compensation Employment
Agreements". There are no family relationships between any Directors, nominees
for Director or executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC") and the Boston Stock Exchange. Officers, Directors and beneficial
owners of more than 10% of the Company's Common Stock are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms that
they file. Based solely on review of the copies of such forms furnished to the
Company, or written representations that no reports on Form 5 were required, the
Company believes that for the period from January 1, 1995 through March 31,
1996, all officers, Directors and greater-than-10% beneficial owners complied
with all Section 16(a) filing requirements applicable to them.
30
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION GENERAL
The following table sets forth compensation paid or awarded to the
Chief Executive Officer and the only other executive officer of the Company
whose compensation exceeded $100,000 for all services rendered to the Company in
1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
BONUS/ANNUAL SECURITIES LONG-TERM ALL
INCENTIVE UNDERLYING INCENTIVE OTHER COM-
NAME AND PRINCIPAL POSITION YEAR SALARY AWARD (1) OPTIONS PAYOUTS PENSATION (2)
- ------------------------------------------------------------------------------------------------------------------
Edward P. Gistaro 1995 $129,192 $ --- --- $ --- $ 697
Chairman of the Board 1994 102,701 20,000 45,000 --- 1,541
and Chief Executive Officer 1993 99,998 43,760 50,000 --- 2,220
Allan H. Hobgood 1995 100,256 68,637 --- ---
President and 1994 99,732 48,047 45,000 --- 2,250
Chief Operating Officer 1993 96,000 106,421 40,000 --- 2,539
- --------------------
(1) Mr. Gistaro is eligible to receive target bonus payments totalling $76,000
under the 1996 Management Incentive Bonus Plan as approved by the
Compensation Committee of the Board of Directors. These payments may
be increased or decreased depending upon the percentage of
achievements of specified goals, which include revenues and returns
on assets.
Mr. Hobgood is eligible to receive 5.5% of the government and
commercial division profits.
(2) Matching contributions under the Company's 401(k) Plan.
STOCK OPTION GRANTS IN 1995
There were no stock options granted in 1995 to the Chief Executive Officer or
any other executive officer of the Company whose compensation exceeded $100,000
for all services rendered to the Company.
STOCK OPTION EXERCISES IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1995 AT DECEMBER 31, 1995
ON VALUE -----------------------------------------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------
Edward P. Gistaro........ --- --- 250,000 15,000 $ _ $ _
Allan H. Hobgood......... --- --- 240,000 15,000 _ _
31
EMPLOYMENT AGREEMENTS
Both Edward P. Gistaro and Allan H. Hobgood have employment agreements
with the Company. Pursuant to such agreements, Mr. Gistaro is to be paid
$100,000 per annum and Mr. Hobgood is to be paid $96,000 per annum and 5.5% of
the profits of the government and commercial divisions. The agreements do not
have fixed terms, and are terminable upon 30 days' prior written notice by
either the Company or the employee, or by the Company "for cause" at any time.
Further, each agreement requires that the employee keep Company matters
confidential, restricts the employee from being directly or indirectly involved
with any entity in a business competitive with that of the Company for a period
of years following the termination of the agreement, and provides for a
severance payment to the employee in the event he is terminated by the Company
without cause.
STOCK OPTIONS
1988 STOCK OPTION PLAN
The Company has a 1988 Stock Option Plan, currently covering an
aggregate of 1,360,000 shares of Common Stock. The 1988 Stock Option Plan
provides for the grant to officers, Directors and key employees of the Company
of incentive stock options ("ISOs") intended to qualify under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options ("NQSOs"). The 1988 Stock Option Plan was approved by the
stockholders of the Company on November 15, 1988. Amendments to the 1988 Stock
Option Plan increasing the number of shares covered thereby were approved by the
stockholders of the Company on April 21, 1989, May 14, 1991 and May 7, 1992. As
of March 15, 1996, under the 1988 Stock Option Plan there were outstanding
options to purchase 1,144,650 shares of the Company's Common Stock at prices
ranging from $.41 to $.875 per share.
Under the 1988 Stock Option Plan, which is administered by the Stock
Option Committee of the Board of Directors, key employees may be granted options
to purchase shares of the Company's Common Stock at 100% of fair market value on
the date of grant (or 110% of fair market value in the case of an ISO granted to
a 10% stockholder/grantee). The 1988 Stock Option Plan expires on October 31,
1998. Options granted under the 1988 Stock Option Plan must be exercised within
ten years from the date of grant, vest at varying times, as determined by the
Stock Option Committee, are nontransferable except by will or pursuant to the
laws of descent and distribution, are protected against dilution and expire
within three months after termination of employment, unless such termination is
by reason of death or disability or for cause. All shares purchased upon
exercise of any option must be paid in full at the time of purchase, in
accordance with the terms set forth in the option. Such payment must be made in
cash or through delivery of shares of Common Stock or a combination of cash and
Common Stock, all as determined by the Stock Option Committee. The Stock Option
Committee may determine other terms applicable to particular options. No one
person may receive ISO options for which the aggregate fair market value
(determined at the time each ISO is granted) of options exercisable for the
first time during any calendar year exceeds $100,000.
32
1991 DIRECTOR NON-STATUTORY STOCK OPTION PLAN
The Company also has a 1991 Director Non-Statutory Stock Option Plan
(the "1991 Director Plan"), currently covering an aggregate of 500,000 shares of
Common Stock. The 1991 Director Plan was approved by the stockholders of the
Company on May 7, 1992 and provides for the grant of NQSOs to non-employee
Directors of the Company. As of March 15, 1996, there were outstanding under the
1991 Director Non-Statutory Stock Option Plan options to purchase 320,000 shares
of the Company's Common Stock at prices ranging from $.53 to $.56 per share.
Under the 1991 Director Plan, which is administered by the Board of
Directors, non-employee Directors are granted options to purchase 40,000 shares
of the Company's Common Stock upon their initial election as Directors and
30,000 shares on the second anniversary date of such election at the
then-current market price of such shares. One-third of the initial grant shall
vest on each anniversary of the date of grant, and one-third of the second grant
shall vest every six months after the date of grant. The 1991 Director Plan
expires on February 10, 2001. Under an amendment to the 1991 Director Plan
adopted by the Board of Directors in February 1992, each eligible Director will
receive an additional annual grant of options covering 10,000 shares of Common
Stock, commencing with the fiscal year of the Company immediately following the
fiscal year in which all shares of Common Stock covered by the initial grant and
the second grant described above are fully vested, and such annual grant will
continue each fiscal year thereafter until options covering all shares reserved
for issuance under the 1991 Director Plan have been granted. Options granted
under the 1991 Director Plan must be exercised within ten years from the date of
grant, are nontransferable except by will or pursuant to the laws of descent and
distribution, are protected against dilution and expire within three months
after termination of service as a Director of the Company, unless such
termination is by reason of death or disability or for cause. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth in the option. Such payment
must be made in cash or through delivery of shares of Common Stock or a
combination of cash and Common Stock. The 1991 Director Plan may be amended at
any time by vote of the Board of Directors.
During 1995, Messrs. Ralph Brown and Philip J. Romano, both Directors
of the Company, were granted options covering 10,000 shares each of Common Stock
at an exercise price of $.53 per share. Messrs. Schmidt and Ireton were granted
options covering 30,000 shares each of Common Stock, also at an exercise price
of $.53 per share. The exercise price per share of each such option was not less
than the closing bid price of the Common Stock reported on The Nasdaq Stock
Market on the date of the grant.
33
REPRICING OF OUTSTANDING OPTIONS
Set forth below is certain information concerning a repricing of
options held by the executive officers named in the Summary Compensation Table
set forth in Item 10, "Executive Compensation General", during the period
October 24, 1986 through February 28, 1995:
LENGTH OF
ORIGINAL
MARKET PRICE EXERCISE OPTION TERM
NUMBER OF OF STOCK AT PRICE AT REMAINING AT
OPTIONS/ TIME OF TIME OF DATE OF
SARS REPRICING REPRICING NEW REPRICING OR
REPRICED OR OR OR EXERCISE AMENDMENT
NAME DATE AMENDED AMENDMENT AMENDMENT PRICE (MONTHS)
-----------------------------------------------------------------------------------------------------------
Edward P. Gistaro 6/23/89 90,000 .56 .70 .56 51
8/28/91 50,000 .56 1.25 .56 77
8/13/92 30,000 .56 1.375 .56 88
8/10/93 50,000 .56 1.218 .56 100
Allan H. Hobgood 6/23/89 60,000 .56 .70 .56 51
5/28/91 50,000 .56 1.25 .56 74
8/28/91 30,000 .56 1.25 .56 77
8/13/92 30,000 .56 1.375 .56 88
8/10/93 40,000 .56 1.218 .56 100
In order to ensure that the Company's equity-based compensation
programs meet their goals of providing motivation and incentive for key
executives of the Company, the Board of Directors determined at a meeting held
on February 14, 1995, that it was desirable to reprice all outstanding options
held by officers, Directors and employees of the Company to bring their exercise
prices into line with the then-current market price of the Company's Common
Stock. The Company's stock option plans generally provide that the Board of
Directors has the discretion to effect such a repricing in the exercise of their
business judgment.
EMPLOYEE STOCK PURCHASE PLAN
In order to promote ownership of the Company's Common Stock by its
employees, effective January 1, 1994, the Board of Directors adopted the
Company's 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which
was approved by the stockholders at the 1994 Annual Meeting of Stockholders.
Under the Stock Purchase Plan, eligible employees may elect to have up to 10% of
their Base Pay (as defined) deducted and utilized for the purchase of Common
Stock of the Company in annual or semiannual offerings to be made by the Company
to eligible employees. The Company has reserved 800,000 shares of Common Stock
for issuance pursuant to the Stock Purchase Plan. The Company issued 100,583 and
70,983 shares in January 1996 and 1995 pursuant to this Plan at purchase prices
of $.32 and $.345 per share, which represents 85% of the closing price on
December 29, 1995 and December 30, 1994, respectively.
Under the Stock Purchase Plan, the Company will make available in each
year from January 1, 1994 through December 31, 1997 up to 200,000 shares of
Common Stock (plus any unused balance from prior years). Such shares will be
offered to participating employees in annual or semiannual offerings.
Participating employees will be deemed to have been granted options to purchase
Common Stock in each offering in an amount equal to the amount of their
respective payroll deductions divided by 85% of the market value of the Common
Stock of the Company on the applicable Offering Commencement Date. The option
price shall be the lesser of 85% of the closing price of the Common Stock on the
Offering
34
Commencement Date (or the next preceding trading day) or 85% of the closing
price of Common Stock on the Offering Termination Date (or the next preceding
trading day). Unless a participating employee terminates participation as
provided in the Stock Purchase Plan, such employee shall be deemed to have
exercised such option on the Offering Termination Date and shall be issued a
corresponding number of shares of Common Stock.
The Stock Purchase Plan is administered by the Compensation Committee
of the Board of Directors and will expire on December 31, 1997 unless sooner
terminated or amended by the Board of Directors.
35
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 1, 1996, by all persons
known to the Company to own beneficially more than 5% of the Company's Common
Stock.
NAME AND AMOUNT AND
ADDRESS OF NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS(3)
------------------------------------------------------------------------------------------------------------------
Common Stock, Demuth, Folger & Terhune 900,000 (1) 7.0%
par value $.01 One Exchange Plaza
per share 55 Broadway
New York, New York 10006
(1) Consists of 900,000 shares of Common Stock underlying a Warrant to
Purchase Common Stock exercisable at an exercise
price of $2.00 per share. The percentage of
ownership is calculated based on 13,491,137
shares of outstanding.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 1, 1996 (a) by each of the
Company's directors, (b) by the Company's Chief Executive Officer and its only
other executive officer whose 1995 compensation exceeded $100,000, and (c) by
all Directors and executive officers as a group.
NAME AND AMOUNT AND
ADDRESS OF NATURE OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS (3)
----------------------------------------------------------------------------------------------------------------
Common Stock, Edward P. Gistaro 488,529 (4) 3.80%
par value $.01 Allan H. Hobgood 327,687 (5) 2.55%
per share Ralph Brown 273,100 (6) 2.15%
Al R. Ireton 36,666 (7) .29%
Philip J. Romano 220,763 (6) 1.74%
Chauncey E. Schmidt 50,000 (8) .40%
All Directors and
Executive Officers
as a Group (7
persons including
the above) 1,461,504 (9) 10.9 %
- --------------------
(1) The address for all persons named is 7461 Callaghan Road, San Antonio,
Texas 78229.
(2) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as
beneficially owned by them, except as otherwise indicated.
36
(3) Unless otherwise indicated below, the percentage of ownership is based
upon 12,591,137 shares of Common Stock outstanding, which
includes 766,659 shares of Common Stock into which outstanding
shares of Preferred Stock are convertible and which the
holders of the Preferred Stock are entitled to vote.
(4) Includes 265,000 shares subject to currently exercisable stock
options. The percentage of ownership is based on 12,856,137
shares outstanding.
(5) Includes 255,000 shares subject to currently exercisable stock
options. The percentage of ownership is based on 12,846,137
shares outstanding.
(6) Includes 85,000 shares subject to currently exercisable stock
options. The percentage of ownership is based on 12,676,137
shares outstanding.
(7) Includes 36,666 shares subject to currently exercisable stock
options. The percentage of ownership is based on 12,627,803
shares outstanding.
(8) Includes 50,000 shares subject to currently exercisable stock
options. The percentage of ownership is based on 12,641,137
shares outstanding.
(9) Includes 813,833 shares subject to currently exercisable stock
options. The percentage of ownership is based on 13,404,970
shares outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since January 1, 1995, no officer, executive officer, or affiliate of
the Company has entered into any direct or indirect material transaction, or
series of transactions, or had any direct or indirect material interest in any
proposed transaction, or series of transactions, to which the Company is to be a
party where the amount involved exceeds $60,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The Exhibits required by Regulation S-B are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-KSB, as so indicated in such list.
2.1 Asset Purchase Agreement dated March 15, 1994, between
Docucon, Incorporated and J. Feuerstein Systems, Inc.,
including the related Letter Agreement, dated January 28,
1994, between Jim Feuerstein and Docucon, Incorporated, as
filed as Exhibit 2.1 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1993,
is hereby incorporated herein by reference.
37
3.1 Certificate of Incorporation of Docucon, Incorporated,
filed as Exhibit 3.1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-25561), is
hereby incorporated herein by reference.
3.2 Certificate of Amendment to Certificate of Incorporation
of Docucon, Incorporated, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992, is hereby incorporated herein by
reference.
3.3 Bylaws of Docucon, Incorporated, filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-25561), is hereby incorporated herein by reference.
3.4 Certificate of Merger of Docucon, Incorporated, a
Delaware corporation, and Docucon, Incorporated, a Texas
corporation, October 11, 1988.
3.5 Certificate of Designation Preferences of Series A
Convertible Preferred Stock of Docucon, Incorporated, May
29, 1990.
3.6 Certificate of Designation Preferences of Series B
Non-Convertible, Cumulative, Non-Voting, Redeemable
Preferred Stock of Docucon, Incorporated, June 12, 1991.
3.7 Certificate of Correction of Certificate of Designation
Preferences of Series A Convertible Preferred Stock of
Docucon, Incorporated, June 1, 1990.
4.1 Warrant to Purchase Common Stock of Docucon, Incorporated,
entitling D. H. Blair Investment Banking Corp. to purchase
80,000 shares of Common Stock at an exercise price of $.75
per share, expiring on November 5, 1995, as filed as
Exhibit 4.1 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Registration No.
33-82018), is hereby incorporated by reference.
4.2 Warrant to Purchase Common Stock of Docucon, Incorporated,
entitling D. H. Blair Investment Banking Corp. to purchase
160,000 shares of Common Stock at an exercise price of
$.70 per share, expiring on November 5, 1995, as filed as
Exhibit 4.2 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (Registration No.
33-82018), is hereby incorporated by reference.
4.3 Warrant to Purchase Common Stock of Docucon, Incorporated,
entitling James Coleman to purchase 20,000 shares of
Common Stock at an exercise price of $.75 per share,
expiring on November 5, 1995, as filed as Exhibit 4.5 to
Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (Registration No. 33-82018), is hereby
incorporated by reference.
4.4 Warrant to Purchase Common Stock of Docucon, Incorporated,
entitling James Coleman to purchase 40,000 shares of
Common Stock at an exercise price of $.70 per share,
expiring on November 5, 1995, as filed as Exhibit 4.6 to
Amendment No. 1 to the Company's Registration Statement on
Form SB-2 (Registration No. 33-82018), is hereby
incorporated by reference.
38
4.5 Stock Option Agreement, dated August 31, 1992, in which
Docucon, Incorporated granted The Wall Street Group, Inc.
a stock option to purchase up to 72,727 shares of Common
Stock at a price of $1.375 per share, as filed as Exhibit
4.14 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-82018), is
hereby incorporated by reference.
10.1 Contract, dated as of May 8, 1991, between the Company
and the U. S. Department of Defense, filed as Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, is hereby
incorporated herein by reference.
10.2 Employment Agreements between the Company and each of
Edward P. Gistaro and Allan H. Hobgood, filed as Exhibit
10.5 to the Company's Registration Statement on Form S-1
(Registration No. 33-25561), are hereby incorporated
herein by reference.
10.3 Amendment to Employment Agreement between the Company and
Allan H. Hobgood, filed as Exhibit 10.7 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992, is hereby incorporated herein by
reference.
10.5 1988 Stock Option Plan, filed as Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, is hereby incorporated herein by
reference.
10.6 1991 Director Non-Statutory Stock Option Plan, filed as
Exhibit 10.10 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1992, is
hereby incorporated herein by reference.
10.8 Note and Warrant Purchase Agreement, dated as of December 15,
1992, between the Company and Demuth, Folger & Terhune,
including all Exhibits thereto (which include the form of
Promissory Note, the form of Common Stock Purchase Warrant
and the form of Deed of Trust executed and delivered in
connection with the transaction), filed as Exhibit 5.1 to
the Company's Current Report on Form 8-K dated December
16, 1992, is hereby incorporated herein by reference.
10.9 Employment Agreement, dated March 15, 1994, between Docucon,
Incorporated and James Feuerstein, filed as Exhibit 10.9
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, is hereby
incorporated herein by reference.
10.10 Employment Agreement, dated March 15, 1994, between Docucon,
Incorporated and Jane Gennarelli, filed as Exhibit 10.10
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, is hereby
incorporated herein by reference.
10.11 1993 Employee Stock Purchase Plan, filed as Exhibit 10.11
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1993, is hereby
incorporated herein by reference.
11 Computation of Earnings Per Share.
39
23 Consent of Arthur Andersen, L.L.P.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on January 23, 1996 for
the purpose of reporting fourth quarter 1995 earnings and to evidence the
Company's compliance with the NASDAQ alternative capital and surplus requirement
of $2,000,000.
40
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DOCUCON, INCORPORATED
By: /s/ EDWARD P. GISTARO
Edward P. Gistaro
Chairman of the Board and
Chief Executive Officer
Date: March 29, 1996
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
SIGNATURE CAPACITY DATE
-------------------------------------------------------------------------------------------
EDWARD P. GISTARO March 29, 1996
- ----------------------------------------- Chairman of the Board and
Edward P. Gistaro Chief Executive Officer and Director
(Principal Executive and Financial
Officer)
ALLAN H. HOBGOOD March 29, 1996
- ----------------------------------------- President and
Allan H. Hobgood Chief Operating Officer
and Director
LORI TURNER March 29, 1996
- ----------------------------------------- Vice President, Finance
Lori Turner Treasurer
(Principal Accounting Officer)
RALPH BROWN
- ----------------------------------------- Director March 29, 1996
Ralph Brown
AL R. IRETON
- ----------------------------------------- Director March 29, 1996
Al R. Ireton
PHILIP J. ROMANO
- ----------------------------------------- Director March 29, 1996
Philip J. Romano
CHAUNCEY E. SCHMIDT
- ----------------------------------------- Director March 29, 1996
Chauncey E. Schmidt
41