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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
    X       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  -----     EXCHANGE ACT OF 1934

     FOR THE FISCAL YEAR ENDED JULY 31, 2005
                               -------------

                                       or

            TRANSITIONAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
  -----     SECURITIES EXCHANGE ACT OF 1934

     FOR THE TRANSITIONAL PERIOD FROM ______ TO ______

                         Commission File Number 00-23829

                          DOCUCORP INTERNATIONAL, INC.
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                     75-2690838
    ---------------------------------                  --------------------
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                    Identification No.)

             5400 LBJ Freeway, Suite 300, Dallas, Texas       75240
            ----------------------------------------------------------
              (Address of principal executive offices)      (Zip Code)

        Registrant's telephone number, including area code (214) 891-6500
        Securities registered pursuant to Section 12(b) of the Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $.01 per share
                    ----------------------------------------
                                (Title of class)

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [__]

        Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [__]

        Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ]

        As of October 5, 2005, there were 11,327,409 shares of Common Stock,
$.01 par value, of the Registrant outstanding. The aggregate market value of the
voting stock of the Registrant held by non-affiliates as of the last business
day of the second quarter of fiscal 2005 approximated $94,009,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

        Certain portions of the Registrant's Annual Report to Stockholders for
the fiscal year ended July 31, 2005 are incorporated by reference in Items 7 and
8 of Part II of this report.

        Part III of this Annual Report on Form 10-K incorporates by reference
portions of the Registrant's definitive proxy statement, to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.

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                                         DOCUCORP INTERNATIONAL, INC.
                                               TABLE OF CONTENTS
                                                   FORM 10-K
                                                 July 31, 2005
PART I.

Item 1.  Business...........................................................................................2

Item 2.  Properties........................................................................................14

Item 3.  Legal Proceedings.................................................................................14

Item 4.  Submission of Matters to a Vote of Security Holders...............................................14

PART II.

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
           Equity Securities...............................................................................15

Item 6.  Selected Consolidated Financial Data..............................................................16

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.............17

Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................17

Item 8.  Financial Statements and Supplementary Data.......................................................17

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............17

Item 9A. Controls and Procedures...........................................................................18

Item 9B. Other information.................................................................................18

PART III.

Item 10.  Directors and Executive Officers of the Registrant...............................................19

Item 11.  Executive Compensation...........................................................................19

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter....19

Item 13.  Certain Relationships and Related Transactions...................................................19

Item 14.  Principal Accounting Fees and Services...........................................................19

PART IV.

Item 15.  Exhibits and Financial Statement Schedules.......................................................20

Signatures.................................................................................................21

Index to Exhibits..........................................................................................25
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                                     PART I

ITEM 1. BUSINESS

GENERAL

Docucorp International, Inc. ("Docucorp") develops, markets and supports
Customer Communication Management (CCM) solutions via a portfolio of proprietary
information software, application service provider ("ASP") hosting and
professional services that enables companies to create, publish, manage and
archive complex, high-volume, individualized information. We support the entire
information lifecycle - from acquisition of the first raw data point to final
delivery of personalized information to the customer.

We were created on January 13, 1997 in connection with the acquisition of
FormMaker Software, Inc. by Image Sciences, Inc.

We are a leading authority in providing dynamic solutions for acquiring,
creating, managing, personalizing, presenting and marketing information of all
kinds. Servicing the entire CCM lifecycle, our comprehensive offering supports a
wide range of in-house and outsourced enterprise applications, including
customer statements and billings, electronic bill presentment and payment
("EBPP"), insurance policy production, content management, correspondence
automation, call center fulfillment, wealth management reporting and health care
provider directories. Our software solutions support leading hardware platforms,
operating systems, printers and imaging systems.

Our ASP hosting service allows customers to outsource their information
management to our ASP centers, where our software and facilities are used to
provide processing, print, mail, archival and Internet delivery of documents.
Our offerings include customer statement and bill generation, EBPP, insurance
policy production, health care provider directories, disaster recovery and
electronic document archival.

Additionally, we provide professional services related to our software
solutions. Our professional services offerings include implementation,
integration, training and consulting services.

Operating primarily in four key markets - insurance, utilities, financial
services and health care - we now help more than 1,300 customers worldwide
maximize the value of their enterprise information, reducing costs, increasing
productivity, improving customer service, building customer loyalty and
facilitating new revenue opportunities.

We believe we are the leading provider of enterprise information solutions for
the insurance industry. Our insurance customer base includes more than half of
the 200 largest United States insurance companies, including nine of the top 10
life and health insurance companies, nine of the top 10 property and casualty
insurance companies and more than 600 managing general agents (MGAs). Many of
the largest North American utility companies, major international financial
services institutions, and leading health care provider networks use our
products and services.

INDUSTRY BACKGROUND

Certain trends have accelerated the need for automating the process of
acquiring, creating, managing, personalizing, presenting and marketing of
enterprise-wide information. Increased competition in industries such as
insurance, utilities, financial services and health care has caused companies to
focus more closely on enhancing customer relationships while reducing associated
operating costs.

The current economic environment has prompted customers and prospects to focus
on Return On Investment ("ROI") when making purchasing decisions. In fact, few
companies are buying software or services unless ROI can be proven. We have
succeeded in this competitive economy because we have been able to successfully
demonstrate ROI for our solutions. With our solutions, customers can turn
resource-draining manual processes into electronic workflows that enable
personalized customer communications to be automatically created, stored and
accessed, significantly impacting their company's performance.

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Additionally, rapid technological advances in tiered client/server architecture
and the Internet, adoption of Microsoft's WindowsXP and .NET, emergence of Sun
Microsystems' Java and J2EE, and the acceptance of evolving XML standards have
expanded the benefits that businesses can derive from document automation.
Process automation and Web-based access and delivery of information enable our
customers to save substantial amounts of time and money.

With our solutions, companies are also able to:

o       Reduce time, errors and labor costs associated with manual processes and
        input;

o       Eliminate hard copy storage costs with electronic archiving;

o       Shorten document preparation time and reduce duplicate data entry by
        reusing electronically captured and stored data;

o       Reduce delays and processing time by automating routing and workflow;

o       Improve customer satisfaction and loyalty by delivering personalized
        communications across multiple channels; and

o       Speed customer service response time by electronically accessing file
        information.

The same advances that have enhanced the benefits of such process automation,
however, have rendered the development and implementation of solutions
increasingly complex. Consequently, businesses are increasingly outsourcing some
of their needs to skilled and experienced companies like ours that provide ASP
hosting services.

Information is critical to corporations as they endeavor to increase revenue,
improve customer communications and reduce costs. The emergence of call centers
has also increased the demand for access to and automation of customer services.
Companies can increase revenue by leveraging information through personalizing
and producing high-volume, one-to-one documents such as customer statements that
cross-sell additional products and services. Personalization and presentation of
information enables companies to provide better customer service by:

o       Presenting information in print and over the Internet in more
        attractive, easier-to-read formats;

o       Deliver information online, allowing for customer self-service;

o       Minimizing the time it takes to produce and deliver information; and

o       Providing customer service personnel with immediate access to
        electronically archived information.

Our clients are finding that personalization of customer communications can be a
powerful tool for increasing customer satisfaction. As a result, an increasing
number of companies are employing innovative comprehensive CCM processes.

GROWTH STRATEGY

Our strategy for growth consists of the following:

LEVERAGING EXISTING CUSTOMER RELATIONSHIPS

We have an installed base of more than 1,300 customers. Existing customers
expanding or upgrading their information solutions provide us with a market for
additional software solutions and services. The majority of our revenues are
generated from existing customers.

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EXPANSION IN VERTICAL MARKETS

It is our belief that we are a leading provider of information management
solutions for the insurance and utilities industries. During fiscal year 2005,
we expanded into the health care market through our acquisition of Newbridge.
For information regarding this acquisition see Note 2 - Acquisition to the
Consolidated Financial Statements. The health care industry, like insurance,
utilities and financial services, has an increasing need for reducing operating
costs as well as communicating more effectively with their customers. Revenues
from the health care industry represented 7% of our total revenues in fiscal
year 2005.

EXPANDING INTERNATIONALLY

For the year ended July 31, 2005, revenue from customers outside of North
America increased approximately 28%. We plan to continue expanding our
international customer base primarily through direct sales and by cultivating
and expanding our European distribution alliances. During fiscal 2005, we
expanded our international presence in the Europe, Middle East and Africa
("EMEA") region. The EMEA operations will serve the insurance and financial
services markets through our presence in Johannesburg, South Africa; Dubai, UAE;
Prague, Czech Republic; Vienna, Austria; Munich, Germany; Zurich, Switzerland;
and London.

DEVELOPING AND ENHANCING NEW TECHNOLOGIES

Our product development efforts are focused on developing new solutions as well
as enhancing and broadening our current software solutions. New solutions will
continue to emphasize state-of-the-art technologies for Internet-enablement and
information exchange including XML, SOAP, LINUX, Java and Microsoft.Net. During
fiscal 2006, our product development efforts will include development of new
functionality, integration of existing solutions to provide information exchange
through the Internet, improving the ease of use of our software products and
further development and packaging of applications for use in vertical industries
such as insurance, utilities, financial services and health care.

PURSUING ACQUISITIONS AND STRATEGIC ALLIANCES

We have successfully completed four acquisitions since 1997, including our
recent acquisition of Newbridge in September 2004. We will continue to evaluate
potential acquisitions of other companies or technologies to further expand our
solutions, services or market penetration. In addition, as we expand in our
targeted vertical markets, we intend to enter into additional sales and
marketing strategic alliances in such markets. We believe that new technical
skills, expanded software functionality, a broader client base and an expanded
geographic presence may result from these activities.

EXPANDING ASP HOSTING BUSINESS

In fiscal 2000, we adopted an outsourcing business model which provides hosted
software applications on a per transaction basis through our ASP centers. Our
ASP hosting offerings allow customers to off-load applications and free up
resources to concentrate on their core competencies and strategic projects. ASP
revenues increased 16% in fiscal 2005 as compared to fiscal 2004. Our United
States based ASP hosting centers are located in Dallas and Atlanta to meet
customer demands as well as offer off-site backup and disaster recovery
capabilities.

DOCUCORP SOLUTIONS

We focus on providing enterprise-wide CCM solutions that acquire, create,
manage, personalize, present and market information. Customers can purchase
these solutions by either licensing our software for in-house installation or by
utilizing the solutions through our ASP centers on a per transaction basis. We
market solutions primarily to four vertical markets: insurance, financial
services, utilities and health care. Set forth below is a list of representative
solutions that we provide to each of these vertical markets:

INSURANCE SOLUTIONS

INSURANCE POLICY PRODUCTION - Enables companies to create, publish, distribute
and archive high volumes of personalized insurance policies, quotes,
endorsements, cancellations and renewals.

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CORRESPONDENCE - Allows insurance representatives to electronically access
policies and other critical data to verify coverage, automate and personalize
subsequent document packages and correspondence.

POLICY XPRESS(TM) - Provides insurance companies with a complete library of
fully implemented Insurance Service Office (ISO) industry standard forms for the
property and casualty (P&C) marketplace.

LIBRARY XPRESS(TM) - Provides insurance companies with customized electronic
libraries of ISO industry standard forms for the P&C marketplace.

CONTENT MANAGEMENT - Provides insurance companies with a single, centralized
repository for storing, accessing, annotating, printing and electronically
routing all content, including customer data, electronic documents, video/audio
clips and scanned copies of printed material.

IMAGE RESOURCE(TM) - Provides an affordable content management and workflow
solution for the managing general agent (MGA) market.

ELECTRONIC BILL PRESENTMENT & PAYMENT - Provides policyholders with the ability
to view premium notices and pay premiums online.

FINANCIAL SERVICES SOLUTIONS

WEALTH MANAGEMENT REPORTING - Enables financial advisors and customers to
electronically access client data from multiple accounts for review and
analysis, while automating and personalizing subsequent consolidated customer
reports and presentations.

E-FORMS - Enables financial services companies to establish electronic workflows
for form creation, form fill, routing and distribution for both internal and
customer-facing forms.

FINANCIAL STATEMENTS - Enables financial services and retail finance companies
to produce dynamic, personalized statements, which reflect customer preferences
for content and format, from numerous data sources for multi-channel
distribution, including print, PDF, fax and e-mail.

FINANCIAL CORRESPONDENCE - Enables financial services companies to access data
electronically to automate personalized financial correspondence.

CONTENT MANAGEMENT - Provides financial services companies with a single,
centralized repository for storing, accessing, annotating, printing and
electronically routing all content, including customer data, electronic
documents, video/audio clips and scanned copies of printed material.

UTILITIES SOLUTIONS

BILL PRINT - Allows utility companies to cross-market and consolidate billing
statements for multiple services such as gas, electricity, cable TV, security
and Internet.

ELECTRONIC BILL PRESENTMENT & PAYMENT - Enables companies to give their
customers the ability to view and pay their bills online.

HEALTH CARE SOLUTIONS

WEB PROVIDER SEARCH SYSTEMS - Hosts a secure Web site, from which health care
plan members can search for provider information or create provider directories
based on geographic proximity.

PROVIDER DIRECTORIES - Produces and distributes health care provider directories
on demand, ensuring the most up-to-date provider data available.

ENROLLMENT KITS - Creates customized post-enrollment health care kits that can
include ID cards, introduction letters, benefit certification pages, insurance
policies, summary plan descriptions, benefit riders and tailored provider
directories.

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DOCUCORP SOFTWARE PRODUCTS

We offer our CCM solutions through a portfolio of scalable, high-performance
software applications that address each phase of the enterprise-wide information
process of acquiring, creating, managing, personalizing, presenting and
marketing information. Our philosophy of open architecture and support of
industry standards enables our customers to select software and hardware from
other leading vendors and integrate them with Docucorp solutions. Software
licenses accounted for 13%, 14% and 11% of our total revenues in fiscal 2005,
2004 and 2003, respectively. Revenues related to maintenance and support
agreements accounted for 27%, 28% and 27% of our total revenues in fiscal 2005,
2004 and 2003, respectively. Our software solutions are organized into the
following four primary categories.

ACQUIRING AND CREATING INFORMATION

DOCUCREATE products create forms that can be used repeatedly in high-volume
environments. These software products include editors that create forms and
insert fields for run-time variable data insertion. They also produce
device-independent data streams that can be printed, archived and distributed
over intranets and the Internet. Specific products include:

        DOCUCREATE WORKSTATION - A Microsoft Windows-based product that includes
        a WYSIWYG forms editor, field editors and print drivers necessary to
        create and edit both static and dynamic forms that can be output in
        Xerox Metacode, IBM AFP and other print data streams.

        DOCUCREATE SC (KOFAX) - A Microsoft Windows-based server product that
        enables document capture by a Kofax Ascent scanner.

        DOCUCREATE IC - A server product available for Microsoft NT, AIX, LINUX
        and IBM MVS platforms, which enables graphic images created by a
        personal computer or captured by scanner or fax to be incorporated
        within documents for print on high-speed Xerox and IBM printers, or to
        be published in digital formats over intranets and the Internet.

        TRANSALL - An Extract-Translate-Load (ETL) product that enables
        processes to be developed that accept data from multiple sources and in
        multiple formats, translate and manipulate that data into the new data
        outputs needed and put these processes into production.

MANAGING INFORMATION

DOCUMANAGE software delivers full document management and archival to
information-intensive companies. Specific products include:

        DOCUMANAGE WORKSTATION - A Microsoft Windows-based viewer that retrieves
        indexed documents from the Documanage Server and other repositories for
        viewing, annotating and routing with viewer support of more than 200
        images and print stream formats.

        DOCUMANAGE SERVER - Automatically indexes and stores various print data
        streams and imaging system formats and performs document management,
        including check-in/check-out, automated version control, multi-tier
        security and annotations. This product runs under Microsoft NT, LINUX
        and AIX, and accepts hundreds of image formats, as well as IBM AFP,
        Xerox Metacode, Docucorp DCD and line printer data streams.

PERSONALIZING INFORMATION

DOCUMAKER, DOCUMAKER FP AND DOCUFLEX are powerful, high-volume production
publishers for personalizing and presenting information. The publishing products
perform data merging, content assembly and business rules creation to automate
enterprise-wide production of applications such as insurance policies and
customer statements. These device-independent software products enable
individualized printing, archiving and delivery via networks and the Web.
Specific products include:

        DOCUMAKER WORKSTATION - A Microsoft Windows-based application that
        enables device-independent document production, including automated and
        dynamic forms fill, data editing and WYSIWYG viewing of documents.

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        DOCUMAKER SERVER - A server-based product for customized, business
        rule-intensive publishing applications that require unique documents,
        such as insurance policies, customer correspondence, flexible bills and
        statements. Documaker runs under Microsoft NT, LINUX, AIX and mainframe
        MVS.

        DOCUMAKER FP - A server-based product that personalizes and presents
        information repeatedly using the same forms in various combinations,
        such as insurance policies. Documaker FP runs under Microsoft NT, AIX
        and mainframe MVS.

        DOCUFLEX - An easy-to-use, powerful publishing engine for dynamically
        composing highly personalized booklets, catalogs, contracts and
        statements. Docuflex runs under Microsoft NT, LINUX, AIX and mainframe
        MVS.

        PPS - A Microsoft Windows-based insurance policy software product
        targeted for insurance agents.

PRESENTING AND MARKETING INFORMATION

We can help companies speed business applications to the Internet, Web-enabling
anything from forms fill and publishing to managing and viewing documents.
Solutions are platform-independent and fully scalable. Specific products
include:

        DOCUPRESENTMENT - A software product that bridges the gap between
        Internet browsers and legacy systems by enabling the viewing of
        documents in a variety of Internet formats, including PDF, HTML and XML.

        ELECTRONIC BILL PRESENTMENT & PAYMENT - A software product that allows
        companies to deliver and present bills to their customers and collect
        payments over the Internet.

        iENTRY - A software product that allows users to select and complete
        forms online, creating personalized documents.

        iPPS - A software product that enables insurance companies and their
        agents to assemble policies and view information via the Internet.

PROFESSIONAL SERVICES

We offer a broad range of professional services related to our software
solutions. As of July 31, 2005, we employed 126 professional service personnel,
who represent one of the largest services organizations in our industry. Our
professional services personnel have experience across many vertical industries
and types of information solutions.

A majority of our professional services consulting revenue is derived from
implementation and integration of our software solutions. We also receive
professional services revenue from consulting and training. Our professional
services group works with clients to develop and define enterprise information
strategies to meet specific business needs. Training classes are available to
assist clients with implementing and using our applications and are available in
standardized and customized formats. A majority of our consulting services are
related to Docucorp solutions that personalize information. Professional
services accounted for 26%, 27% and 31% of our total revenues in fiscal years
2005, 2004 and 2003, respectively.

ASP HOSTING

We offer ASP hosting services that utilize our software to provide processing,
print, mail, archival and Internet delivery of documents for customers who
outsource these activities. We operate two ASP hosting centers located in
Atlanta and Dallas. We also provide ASP hosting services at a customer facility
in Dallas. Using data received electronically from customers, the ASP centers
employ high-volume printers and mail handling equipment to produce insurance
policies, utility statements, health care directories and other customer
mailings, bundle the output for bulk mailings and host Internet bill
presentation and payment.

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ASP hosting services accounted for 34% in fiscal 2005 and 31% of our total
revenues in fiscal years 2004 and 2003.

PRODUCT DEVELOPMENT

We have made, and expect to continue to make, substantial investments in
research and product development. During fiscal 2005, our product development
efforts focused on the development of new Internet functionality, enhancing
multi-user development, integration of Web capabilities into existing solutions
and further development of new applications for the insurance, utilities,
financial services and health care markets.

In November 2004, we announced the availability of Docuflex 11.0, a new version
of Docucorp's dynamic publishing engine that enables companies to produce high
volumes of personalized, complex, data-driven documents.

Additionally, in November 2004, we announced the availability of Transall 11.0,
a new version of our data translation tool that enables data interchange between
enterprise-wide applications.

The following month we announced the availability of Documaker 11.0, a new
version of Docucorp's flexible publishing solution that enables companies to
produce high volumes of customized, forms-driven information.

In February 2005, we introduced our cooperative processing solution for the
insurance and financial services markets. Cooperative processing enables
companies to license Docucorp's premier software to support in-house
implementation of data acquisition, form design and personalization, and then
tap our ASP hosting services for back-end production, distribution and
archiving.

We have committed substantial resources to product development. As of July 31,
2005, we employed 107 technical personnel engaged in research, product
development and customer support activities. The product development process is
a cooperative effort between our customers and us. Early review of functionality
specifications and product demonstrations allows for the incorporation of
customer suggestions and comments in parallel with management review of the
process internally. We have a formal planning process for new software
solutions, as well as software upgrades and maintenance releases, to maximize
software quality, ensure timeliness of releases and meet or exceed our
customers' expectations. In fiscal years 2005, 2004 and 2003, our product
development expenditures were $13.8 million, $13.5 million and $12.0 million,
respectively.

SALES AND MARKETING

We market our software and services primarily through a direct sales force. We
also market our solutions through marketing alliances and distributors. Our
sales resources are organized by the vertical industry markets we serve. As of
July 31, 2005, we employed 50 direct sales and marketing representatives, who
operate primarily from Dallas, Atlanta and London. Sales representatives are
compensated through a combination of base salary and commission. Distributor
relationships are established in the United States, Canada, Europe, South
Africa, Australia and Asia.

We intend to increase our distribution channels through marketing, sales and
distribution and development relationships with other companies. Formal and
informal marketing and development partnerships currently exist with Adaptik,
Applied Systems, AscendantOne, ePolicy Solutions, Fidelity Outsourcing Services,
Epic Solutions, Inc., Firstlogic, Hitachi Europe Limited, Lynx Wealth Management
Systems, ISO, Kofax, Oce, Rackley Systems, SAP, Xerox, Microsoft, CSC, The
Weiland Financial Group, SynTel, LLC, CheckFree and BillMatrix. These
relationships provide sales leads for our solutions or provide access to certain
technological information and resources.

Our software solutions are generally licensed on a perpetual basis. A large
portion of our software license revenue is generated from a small number of
relatively large agreements, which typically range from

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$100,000 to $400,000. Most customers also enter into maintenance agreements,
which typically provide for annual maintenance fees ranging from 15% to 25% of
current license fees depending upon the vertical market, size of the customer
and license fee. Customers who enter into maintenance agreements are entitled to
software upgrades, software problem resolutions and use of our "Hotline"
support, which provides technical assistance to the software user. We generally
charge customers for professional services on a time and materials basis,
although certain service assignments are performed on a fixed charge basis. ASP
hosting services are charged primarily on a transaction fee basis.

CUSTOMERS

We generally market to large and mid-size organizations that have a need for
integrated solutions for the high-volume production of individualized
information. Currently, the majority of our revenues are generated from the
insurance industry. In fiscal 2005, 58% of our total revenues were derived from
the insurance industry. We believe that we have the largest installed customer
base for insurance policy production in the insurance industry, with more than
half of the 200 largest United States insurance companies using our software and
services, including nine of the 10 largest life and health insurance companies
and nine of the 10 largest property and casualty insurance companies. For the
year ended July 31, 2005, 19% of our total revenues were derived from the
utilities industry, 13% of our total revenues were derived from the financial
services industry and 7% of our total revenues were derived from the health care
industry. We also have an installed base of customers in the higher education,
telecommunications, transportation and government markets.

COMPETITION

The market for enterprise-wide CCM solutions is intensely competitive, subject
to rapid change and significantly affected by new product introductions and
other market activities of industry participants. We face direct and indirect
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 (i) systems developed in-house by the internal
MIS departments of large organizations, (ii) direct competition from numerous
software vendors, including Document Sciences Corporation, Group 1 Software,
Inc., ISIS Papyrus Group, InSystems Technologies, Inc., Metavante, Mobius
Management Systems, Inc. and Exstream Software and (iii) direct competition from
numerous outsourcing and ASP vendors, including Xerox XBS, KPT, Inc., DST Output
and Regulus Group. We believe that the principal competitive factors in the
information solutions software market are technology, performance and
functionality, ease of use, multi-platform offerings, reputation, quality of
customer support and service and price. The degree of competition varies
significantly by the solution being offered and the vertical market being
served.

We may also face competition from new entrants into the industry. As the market
for CCM solutions continues to develop, current or potential competitors who
have access to significantly greater resources could attempt to enter or
increase their presence in the market either independently or by acquiring or
forming strategic alliances with our competitors or otherwise increase their
focus on the industry. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
our current and prospective customers.

INTELLECTUAL PROPERTY, TRADEMARKS AND PROPRIETARY RIGHTS

We rely primarily on a combination of copyright, distribution software license
agreements, trademark and trade secret laws, employee and third-party
nondisclosure agreements and other methods to safeguard our software solutions.
Despite these precautions, it may be possible for unauthorized third parties to
copy certain portions of our solutions or obtain and use information we regard
as proprietary. While our competitive position may be affected by our ability to
protect our proprietary information, we believe that trademark and copyright
protections are not material to our success.

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Our software solutions are licensed to end-users on a "right to use" basis
pursuant to license agreements. Certain license provisions protecting against
unauthorized use, copying, transfer and disclosure of the licensed program may
be unenforceable under the laws of certain jurisdictions and foreign countries.
In addition, the laws of some foreign countries do not protect proprietary
rights to the same extent that the laws of the United States. Generally, we
distribute our software in object format only and do not provide access to the
underlying source code.

As the number of software solutions in the industry increases and the
functionality of these solutions further overlap, we believe that software
programs will increasingly become subject to infringement claims. Third parties
may assert infringement claims against us in the future with respect to current
or future solutions, and in this event could require us to enter into royalty
arrangements or result in costly litigation.

We also rely on certain software that we license from third parties, including
software that is integrated with internally developed software and used in our
solutions to perform key functions. These third-party software licenses may not
continue to be available to us on commercially reasonable terms and the related
software may not continue to be appropriately supported, maintained or enhanced
by the licensors. The loss of licenses to use, or the inability of licensors to
support, maintain and enhance, any of such software could result in increased
costs, delays or reductions in software shipments until equivalent software
could be developed or licensed and integrated.

EMPLOYEES

As of July 31, 2005, we had 455 employees, of which 126 were engaged in
professional services, 107 in product development and customer support, 123 in
ASP hosting, 50 in sales and marketing and 49 in finance, administration, human
resources and internal computer systems support. We believe our future success
will depend, in part, on our continued ability to attract and retain highly
qualified personnel in a competitive market for experienced and talented
software engineers and sales and marketing personnel. None of our employees are
represented by a labor union or are subject to a collective bargaining
agreement. We believe that our employee relations are strong.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K may include certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts included in this Form 10-K, are
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which include but are not limited to those discussed in the
section entitled "Risk Factors." Should one or more of these risks or
uncertainties, among others as set forth in this Form 10-K, materialize, actual
results may vary materially from those estimated, anticipated or projected.
Although we believe that the expectations reflected by such forward-looking
statements are reasonable based on information currently available to us, no
assurance can be given that such expectation will prove to have been correct.
Cautionary statements identifying important factors that could cause actual
results to differ materially from our expectations are set forth in this Form
10-K, including without limitation in conjunction with the forward-looking
statements included in this Form 10-K that are referred to above. All
forward-looking statements included in this Form 10-K and all subsequent oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary statements.

RISK FACTORS

The risks described below should not be considered to be comprehensive and
all-inclusive. Additional risks that we do not yet know of or that we currently
think are immaterial may also impair our business operations. If any events
occur that give rise to the following risks, our business, financial condition,
cash flow or results of operations could be materially and adversely affected,
and as a result, the trading price of our Common Stock could be materially and
adversely impacted. These risk factors should be read in

                                       10
<PAGE>

conjunction with other information set forth in this report, including our
Consolidated Financial Statements and the related Notes.

OUR RESULTS OF OPERATIONS ARE DEPENDENT ON SIGNIFICANT REVENUES FROM TWO
INDUSTRIES.

For the year ended July 31, 2005 and 2004, 58% and 64% of our total revenues,
respectively were derived from the insurance industry and 19% and 22% of our
total revenues, respectively, were derived from the utilities industry. Our
financial performance and future growth will depend upon our ability to continue
to market our solutions successfully in the insurance and utilities industries
and to enhance and market technologies for distribution in other markets. We
entered the financial services industry during fiscal year 2000, and with the
acquisition of Newbridge in fiscal 2005, we added the health care industry. We
plan to expand into additional vertical markets in the future. This will require
us to make substantial software development and distribution channel
investments. There can be no assurance that we will be able to continue
marketing our solutions successfully in the insurance and utilities industries
or will be able to successfully introduce new or existing solutions into the
financial services industry or other vertical markets. Further, we cannot
predict the impact the recent catastrophic hurricane losses will have on future
technology spending in the insurance industry.

OUR BUSINESS IS CURRENTLY EXPERIENCING DECLINES IN ASP HOSTING MARGINS.

We experienced a significant decline in our ASP hosting margins during fiscal
2005. Factors negatively impacting the ASP hosting margins include loss of a
significant customer, competitive pricing pressures for both new and renewal
business and excess ASP hosting capacity. There is no assurance that we will
retain all of our existing ASP hosting clients and the loss of a significant
customer would negatively impact our ASP hosting margins. In addition, we may
have to lower our pricing to win new business. Further deterioration of, or our
inability to improve, ASP hosting margins would reasonably be expected to have a
material adverse effect on our financial results.

OUR OPERATING RESULTS DEPEND HEAVILY ON SOFTWARE LICENSE REVENUE WHICH IS
DIFFICULT TO FORECAST.

We have experienced, and may in the future continue to experience, fluctuations
in our quarterly operating results due to the fact that software sales cycles,
from initial evaluation to purchase, vary substantially from customer to
customer. Delays in the sales cycle frequently occur as a result of competition,
changes in customer personnel, overall budget and spending priorities and the
economy. A large portion of our software license revenue is generated from a
small number of relatively large agreements executed in the latter half of a
quarter. The timing of such large agreements is often unpredictable and impacted
by events beyond our control, therefore making it difficult to forecast software
license revenue effectively. We have typically operated with little backlog for
license revenues because our software solutions are generally shipped soon after
orders are received. As a result, license revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter. The delay
of customer orders for a small number of licenses could adversely affect the
license revenues and profitability for a given fiscal quarter. The failure to
achieve such revenues in accordance with such trends could have a material
adverse effect on our financial results for each such interim period.


                                       11
<PAGE>

WE MAY FACE DIFFICULTIES IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES.

We believe that our future success will depend in large part upon our ability to
attract, retain and motivate highly skilled employees, particularly technical
employees. The employees that are in highest demand are software programmers,
software developers, application integrators and information technology
consultants. Additionally, maintaining and improving our sales productivity may
be impacted by our ability to retain, hire and train effective sales management
and direct sales personnel. There can be no assurance that we will be able to
attract and retain sufficient numbers of highly skilled employees. The loss of a
significant number of our technical or experienced sales employees could have a
material adverse effect on our business.

OUR OPERATIONS ARE DEPENDENT UPON KEY MANAGEMENT PERSONNEL.

We believe that our continued success depends to a significant extent upon the
efforts and abilities of our senior management. In particular, the loss of
Michael D. Andereck, our President and Chief Executive Officer, or any of our
other executive officers or senior managers, could have a material adverse
effect on our business. Currently, Mr. Andereck is performing certain duties of
the Chief Financial Officer and Senior Vice President of Sales and Marketing in
addition to his role as President and Chief Executive Officer, which may impede
his ability to devote adequate attention to any of these roles.

WE MAY NOT BE ABLE TO COMPETE FAVORABLY IN THE COMPETITIVE INFORMATION SOLUTIONS
INDUSTRY.

The market for our information solutions is intensely competitive. We face
competition from a broad range of competitors. The competition may have lower
cost structures or have greater financial, technical and marketing resources
than we do. There can be no assurance that we will be able to compete
effectively with such entities.

SOCIAL, POLITICAL AND ECONOMIC RISKS COULD ADVERSELY AFFECT OUR BUSINESS.

Acts of terrorism have caused major instability in the United States and other
financial markets. Armed hostilities or further acts of terrorism would cause
further instability in financial markets and could directly impact our financial
condition and the results of our operations. Our business is subject to general
economic conditions and fluctuation in corporate spending. Any adverse effect on
the economy, depending on the magnitude, could have a material adverse effect on
our operating results. There can be no assurance as to the future effect of
changes in social, political and economic conditions on our business or
financial condition.

WE ARE DEPENDENT ON MEETING THE CHALLENGES OF TECHNOLOGICAL ADVANCES IN THE
INFORMATION SOLUTIONS INDUSTRY.

The information solutions industry has experienced and will continue to
experience rapid technological advances, changes in customer requirements and
frequent new product introductions and enhancements. Development in both
software technology and hardware capability will require us to make substantial
investments in the development of our solutions. Any failure to anticipate or
respond adequately to technological developments and customer requirements, or
any significant delays in the development or introduction of our solutions,
could have a material adverse effect on our operating results. There can be no
assurance that our new solutions or enhancements, which are intended to respond
to technological change or evolving customer requirements, will achieve
acceptance.

WE MAY FACE DIFFICULTIES IN EXPANDING OUR OPERATIONS IN INTERNATIONAL MARKETS.

The expansion of our existing international operations and entry into additional
international markets requires significant management attention and financial
resources and will place additional burdens on our management, administrative,
operational and financial infrastructure. We have only limited experience in
establishing and managing international operations, and our EMEA operations have
not been profitable to date. We cannot be certain that our operations in
countries outside of North America will produce desired levels of revenues or
profitability. International expansion may negatively affect our operating
results because of numerous factors, including difficulties in staffing and
managing foreign operations; potential losses from foreign currency
fluctuations; seasonal reductions in business activity in Europe; increased
financial accounting and reporting burdens; potential adverse tax consequences;
compliance with a wide variety of complex foreign laws and treaties; reduced
protection for intellectual property rights in some countries and potential
language-specific requirements for software.

FUTURE BUSINESS ACQUISITIONS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

On September 24, 2004, we acquired Newbridge, and we may make additional
acquisitions in the future. Acquisitions may be difficult to integrate into our
business and could consume significant management and financial resources. There
is no assurance that any acquisition will be successful or generate a
satisfactory return on investment. Future acquisitions may also involve large
one-time write offs, amortization expenses related to intangible assets and
impairment expenses related to goodwill.


                                       12
<PAGE>

OUR SOLUTIONS ARE SUBJECT TO THE RISK OF SOFTWARE DEFECTS.

Complex software solutions such as ours can contain undetected errors or
performance problems. Such defects are most frequently found during the period
immediately following introduction of new solutions or enhancements to existing
solutions. Our solutions have from time to time contained software errors that
were discovered after commercial introduction. There can be no assurance that
performance problems or errors will not be discovered in our solutions in the
future. Any future software defects discovered after shipment of our solutions,
if material, could result in loss of revenues, delays in customer acceptance or
potential product liability.

OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATELY PROTECTED.

We rely on a combination of copyright and trademark laws, employee and
third-party nondisclosure agreements and other methods to protect our
proprietary rights. Despite these precautions, it may be possible for
unauthorized third parties to copy certain portions of our solutions or to
obtain and use information that we regard as proprietary. There can be no
assurance that our efforts will provide meaningful protection for our
proprietary technology against others who independently develop or otherwise
acquire substantially equivalent techniques or gain access to, misappropriate or
disclose our proprietary technology.

AVAILABLE INFORMATION

We electronically file our annual report on Form 10-K, quarterly reports on Form
10-Q, and current reports on Form 8-K with the Securities and Exchange
Commission ("SEC"). Copies of our filings with the SEC may be obtained from our
website at HTTP://WWW.DOCUCORP.COM or at the SEC's website at
HTTP://WWW.SEC.GOV. Access to these filings is free of charge.



                                       13
<PAGE>

ITEM 2. PROPERTIES

We lease approximately 38,900 square feet of office space in Dallas, Texas for
our corporate headquarters, including administrative, sales, marketing,
professional services, and product development departments. This lease expires
May 31, 2015.

We lease approximately 95,100 square feet of office space in Atlanta, Georgia,
which is utilized for administrative, sales, professional services, and product
development departments. The lease for this space expires on December 31, 2012.

We lease space for our ASP hosting facility located in Atlanta, Georgia. This
facility occupies approximately 24,600 square feet under a lease, which expires
on March 31, 2008.

We lease space for our ASP hosting facility located in Dallas, Texas. This
facility occupies approximately 44,600 square feet under a lease, which expires
on March 31, 2010, but we may terminate on March 31, 2007.

Our staff in Maryland is located in Silver Spring, Maryland. This facility is
principally used for product development activities and occupies approximately
10,300 square feet under a lease, which expires December 31, 2006.

Our staff in New Hampshire is located in a 5,700 square foot facility in
Bedford, New Hampshire. The lease for this facility expires on December 31, 2009
and is staffed primarily by professional services personnel.

We lease space for our European sales and services staff near London, England.
This facility occupies approximately 5,400 square feet under a lease, which
expires on September 27, 2013.

On September 24, 2004, in connection with the acquisition of Newbridge, we
assumed two leases for properties in Dallas, Texas. The lease related to
Newbridge's print and binding facility is for approximately 23,000 square feet
and expires on June 30, 2007. The lease for Newbridge's corporate office,
including administrative, sales and information services, is for approximately
11,700 square feet and expires on March 31, 2007. During the fourth quarter of
fiscal 2005, as part of our acquisition and integration plan, we vacated these
facilities.

We believe the existing office facilities and additional space available are
adequate to meet our requirements, and that in any event, suitable additional or
alternative space adequate to serve our foreseeable needs will be available on
commercially reasonable terms.

ITEM 3. LEGAL PROCEEDINGS

We are occasionally involved in legal proceedings and other claims arising out
of our operations in the normal course of business. No such claims are expected,
individually or in the aggregate, to have a material adverse effect on our
consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of fiscal 2005.



                                       14
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock has traded on the Nasdaq National Market under the symbol
"DOCC" since April 6, 1998. At October 5, 2005 there were approximately 500
holders of record of our Common Stock, although we believe that the number of
beneficial owners of our Common Stock is substantially greater. The table below
sets forth for the fiscal quarters indicated the high and low sales prices for
our Common Stock:


                                      HIGH                  LOW
                               ------------------    ------------------
FISCAL 2005:
Fourth quarter                    $      8.25           $      5.95
Third quarter                           10.95                  6.65
Second quarter                          10.15                  8.50
First quarter                            9.48                  6.84

FISCAL 2004:
Fourth quarter                    $     10.83           $      6.92
Third quarter                           14.50                 10.84
Second quarter                          13.70                  8.06
First quarter                            8.80                  5.35


We intend to retain any future earnings for use in our business and do not
intend to pay cash dividends in the foreseeable future. The payment of future
dividends, if any, will be at the discretion of our Board of Directors and will
depend, among other things, upon future earnings, operations, capital
requirements, restrictions in future financing agreements, our general financial
condition and general business conditions.



                                       15
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the years ended July 31,
2005, 2004, 2003, 2002, and 2001 has been derived from our audited financial
statements. The following data should be read in conjunction with, and is
qualified by, reference to our audited financial statements and the notes
thereto, included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                      Years ended July 31,
                                              --------------------------------------------------------------------

                                                  2005          2004          2003         2002**         2001*
                                              ------------  ------------  ------------  ------------  ------------
STATEMENTS OF OPERATIONS DATA:                              (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>           <C>           <C>           <C>           <C>
Total revenues                                 $   79,177    $   75,670    $   74,941    $   72,620    $   63,203

Operating income                               $    4,399    $    9,426    $    7,256    $    9,084    $    6,797

Income before income taxes and
  cumulative effect of accounting change       $    4,002    $    9,191    $    7,229    $    9,865    $    7,057

Income before cumulative effect of
  accounting change                            $    2,506    $    5,366    $    3,945    $    5,929    $    3,472

Net income                                     $    2,506    $    5,366    $    3,945    $    5,929    $    2,482

Income before cumulative effect
of accounting change per share:
   Basic                                       $     0.24    $     0.53    $     0.31    $     0.44    $     0.24
   Diluted                                     $     0.22    $     0.47    $     0.28    $     0.40    $     0.23

Net income per share:
   Basic                                       $     0.24    $     0.53    $     0.31    $     0.44    $     0.17
   Diluted                                     $     0.22    $     0.47    $     0.28    $     0.40    $     0.17

Weighted average number of
 shares outstanding:
   Basic                                           10,651        10,154        12,780        13,458        14,293
   Diluted                                         11,526        11,360        13,878        14,883        15,028
</TABLE>

*       We implemented Staff Accounting Bulletin No. 101, "Revenue Recognition
        in Financial Statements" ("SAB 101"), in the fourth quarter of fiscal
        2001. The one-time cumulative effect of applying SAB 101 for all years
        prior to fiscal 2001 resulted in a reduction of net income of
        approximately $990,000 for the year ended July 31, 2001, or $0.06 per
        diluted share.

**      We adopted Statement of Financial Accounting Standards No. 142,
        "Goodwill and Other Intangible Assets" ("SFAS 142"), effective August 1,
        2001. SFAS 142 discontinues amortization of goodwill and
        indefinite-lived intangible assets.


                                       16
<PAGE>
<TABLE>
<CAPTION>

                                                                           July 31,
                                              --------------------------------------------------------------------

                                                  2005          2004          2003          2002          2001
                                              ------------  ------------  ------------  ------------  ------------
BALANCE SHEET DATA:                                                      (IN THOUSANDS)
<S>                                            <C>           <C>           <C>           <C>           <C>
Working capital                                $    4,551    $   10,746    $    3,686    $   13,150    $   11,291

Total assets                                   $   63,635    $   59,239    $   53,440    $   55,750    $   51,784

Total debt, including lease obligations        $   10,841    $   12,696    $   16,828    $      -0-    $      -0-

Stockholders' equity                           $   27,529    $   22,799    $   13,732    $   33,064    $   31,067
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

The information required by this item is set forth in Docucorp's 2005 Annual
Report to Stockholders, which information is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have no derivative financial instruments. We invest our cash and cash
equivalents in investment-grade, highly liquid investments, consisting of money
market instruments and commercial paper. We have fixed rate debt instruments of
$7.1 million as of July 31, 2005. For further discussion see Note 5 to the
Consolidated Financial Statements.

We are exposed to market risk arising from changes in foreign currency exchange
rates as a result of selling our products and services outside the U.S.
(principally Europe). A portion of our sales generated from our non-U.S.
operations are denominated in currencies other than the U.S. dollar, principally
British pounds. Consequently, the translated U.S. dollar value of our non-U.S.
sales and operating results are subject to currency exchange rate fluctuations
which may favorably or unfavorably impact reported earnings and may affect
comparability of period-to-period operating results.

For the year ended July 31, 2005 and 2004, 8% and 6%, respectively, of our
revenues were denominated in British pounds. For the years ended July 31, 2005
and 2004, 8% and 9%, respectively of our costs of revenue and operating expenses
were denominated in British pounds. Historically, the effect of fluctuations in
currency exchange rates has not had a material impact on our operations on an
annual basis; however, there can be no guarantees that it will not have a
material impact in the future. The exposure to fluctuations in currency exchange
rates will increase as we expand operations outside the United States.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth in Docucorp's 2005 Annual
Report to Stockholders, which information is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

None.

                                       17
<PAGE>

ITEM 9A.  CONTROLS AND PROCEDURES

MANAGEMENT'S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with participation of our Principal Executive Officer and
Principal Financial Officer evaluated the effectiveness of our disclosure
controls and procedures as of July 31, 2005. Based upon that evaluation, the
Principal Executive Officer and the Principal Financial Officer concluded that
our disclosure controls and procedures, as of July 31, 2005, were designed and
were effective to ensure that the information required to be disclosed by
Docucorp in reports filed or submitted under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms and information required to be disclosed
is accumulated and communicated to the Principal Executive Officer and Principal
Financial Officer as appropriate to allow timely decision regarding required
disclosures.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In September 2004, we acquired the Newbridge business in a purchase business
combination. We have excluded Newbridge from the scope of our assessment of our
internal control over financial reporting as of July 31, 2005. Newbridge's total
assets and total revenues represent 3.9% and 7.4%, respectively, of the related
consolidated financial statement amounts as of and for the year ended July 31,
2005.

Management has evaluated the effectiveness of our internal control over
financial reporting as of July 31, 2005 using the criteria set forth in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
has concluded that, as of July 31, 2005, our internal control over financial
reporting was effective.

Management's assessment of the effectiveness of our internal control over
financial reporting as of July 31, 2005, has been audited by
PricewaterhouseCoopers LLP, the independent registered public accounting firm
who also audited our consolidated financial statements. Their report appears
under Item 8.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no significant change in our internal controls over financial
reporting or in other factors that could significantly affect these controls
that occurred during the period covered by this report.

ITEM 9B. OTHER INFORMATION

None

                                       18
<PAGE>

                                    PART III

Part III of this Annual Report on Form 10-K incorporates by reference portions
of the Registrant's definitive proxy statement, to be filed with the Securities
and Exchange Commission not later than 120 days after the close of its fiscal
year; provided that if such proxy statement is not filed with the Commission in
such 120-day period, an amendment to this Form 10-K shall be filed no later than
the end of the 120-day period.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to Directors of Docucorp is set forth in the Proxy
Statement (to be filed on or before October 28, 2005) under the heading
"Directors and Executive Officers," which information is incorporated herein by
reference. Information required by Item 405 of Regulation S-K is set forth in
the Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance," which information is incorporated herein by reference.

We have adopted a code of ethics that applies to all members of Board of
Directors and employees of Docucorp, including our Chief Executive Officer,
Principal Financial Officer, Corporate Controller, and/or other persons
performing similar functions. Our code of ethics may be viewed at and obtained,
free of charge, from our Internet website: http://www.docucorp.com.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation is set forth in the Proxy
Statement (to be filed on or before October 28, 2005) under the heading
"Executive Compensation," which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTER

Information with respect to security ownership of certain beneficial owners and
management and related stockholder matter is set forth in the Proxy Statement
(to be filed on or before October 28, 2005) under the heading "Beneficial
Ownership of Common Stock," which information is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions is
set forth in the Proxy Statement (to be filed on or before October 28, 2005)
under the heading "Certain Relationships and Related Transactions," which
information is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to principal accounting fees and services is set forth
in the Proxy Statement (to be filed on or before October 28, 2005) under the
heading "Fees Paid to, and Independence of, Auditors," which information is
incorporated herein by reference.


                                       19
<PAGE>

                                     PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)     The following is a list of the consolidated financial statements, which
        are included in this Form 10-K.

        1.      Financial Statements:

                Report of Independent Registered Public Accounting Firm

                As of July 31, 2005 and 2004:

                o       Consolidated Balance Sheets

                For the Years Ended July 31, 2005, 2004 and 2003:

                o       Consolidated Statements of Operations and Comprehensive
                        Income
                o       Consolidated Statements of Cash Flows
                o       Consolidated Statements of Changes in Stockholders'
                        Equity
                o       Notes to Consolidated Financial Statements

        2.      Financial Statement Schedule:

                o       Report of Independent Registered Public Accounting Firm
                        on Financial Statement Schedule
                o       Schedule II - Valuation and Qualifying Accounts

(b)     Exhibits:

                See Index to Exhibits on page 25 of this Form 10-K.




                                       20
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas.


   Docucorp International, Inc.
----------------------------------
           (Registrant)

/s/ Michael D. Andereck                  Date  October 11, 2005
----------------------------------            ----------------------------------
Michael D. Andereck
President, Chief Executive Officer,
Interim Senior Vice President,
Finance and Administration, and
Director



                        POWER OF ATTORNEY AND SIGNATURES


We, the undersigned officers and directors of Docucorp International, Inc.,
hereby severally constitute and appoint Michael D. Andereck, our true and lawful
attorney, with full power to sign for us in our names in the capacities
indicated below, amendments to this report, and generally to do all things in
our names and on our behalf in such capacities to enable Docucorp International,
Inc. to comply with the provisions of the Securities Exchange Act of 1934, as
amended, and all requirements of the Securities and Exchange Commission.



                                       21
<PAGE>

SIGNATURES (CONT.)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


/s/ Michael D. Andereck                  Date  October 11, 2005
----------------------------------            ----------------------------------
Michael D. Andereck
President, Chief Executive Officer,
Interim Senior Vice President,
Finance and Administration and Director
(Principal Executive Officer)
(Interim Principal Financial Officer)


/s/ Milledge A. Hart, III                Date  October 11, 2005
----------------------------------            ----------------------------------
Milledge A. Hart, III
Chairman of the Board


/s/ Anshoo S. Gupta                      Date  October 11, 2005
----------------------------------            ----------------------------------
Anshoo S. Gupta
Director


/s/ John D. Loewenberg                   Date  October 11, 2005
----------------------------------            ----------------------------------
John D. Loewenberg
Director


/s/ George F. Raymond                    Date  October 11, 2005
----------------------------------            ----------------------------------
George F. Raymond
Director


/s/ Arthur R. Spector                    Date  October 11, 2005
----------------------------------            ----------------------------------
Arthur R. Spector
Director


                                       22
<PAGE>






           REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
                          FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and Stockholders
   of Docucorp International, Inc.:

Our audits of the consolidated financial statements, of management's assessment
of the effectiveness of internal control over financial reporting and of the
effectiveness of internal control over financial reporting referred to in our
report dated October 11, 2005 appearing in the 2005 Annual Report to
Shareholders of Docucorp International, Inc. (which report, consolidated
financial statements and assessment are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedule
listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.



PricewaterhouseCoopers LLP

Dallas, Texas
October 11, 2005




                                       23
<PAGE>
<TABLE>
<CAPTION>
                               VALUATION AND QUALIFYING ACCOUNTS
                            YEARS ENDED JULY 31, 2005, 2004 AND 2003
                                          SCHEDULE II



                                       Balance at    Charged to
                                       Beginning     Costs and     Deductions    Balance at
            Description                of Period      Expenses         (a)      End of Period
-----------------------------------------------------------------------------------------------
<S>                                    <C>           <C>           <C>          <C>
2005
   Allowance for doubtful accounts     $   375,000   $   166,257   $ (248,686)  $     292,571
   Amortization of intangibles         $ 4,952,981   $   116,018   $      -0-   $   5,068,999
   Valuation allowance against
     deferred tax assets               $ 2,792,105   $     3,899   $      -0-   $   2,796,004

2004
   Allowance for doubtful accounts     $   562,159   $   145,139   $ (332,298)  $     375,000
   Amortization of intangibles         $ 4,948,625   $     4,356   $      -0-   $   4,952,981
   Valuation allowance against
     deferred tax assets               $ 2,432,566   $   359,539   $      -0-   $   2,792,105

2003
   Allowance for doubtful accounts     $   670,000   $   305,306   $ (413,147)  $     562,159
   Amortization of intangibles         $ 4,945,442   $     3,183   $      -0-   $   4,948,625
   Valuation allowance against
     deferred tax assets               $ 1,940,041   $   492,525   $       -0-  $   2,432,566


(a)     Deductions from the allowance for doubtful accounts relate to the utilization of the
        valuation and qualifying accounts for specific items for which they were established
        in the accounts receivable account.



                                              24
</TABLE>

<PAGE>

                                INDEX TO EXHIBITS

      EXHIBIT NO.   DESCRIPTION

          3.1       Certificate of Incorporation. (filed as exhibit 3.1 to the
                    Company's Registration Statement on Form S-4 No. 333-22225
                    and incorporated herein by reference)

          3.2       Bylaws. (filed as exhibit 99.1 to the Company's August 18,
                    2005 Form 8-K and incorporated herein by reference)

          10.2      Employment Agreement between Michael D. Andereck and the
                    Registrant dated January 15, 1997. (filed as exhibit 10.2 to
                    the Company's Registration Statement on Form S-4 No.
                    333-22225 and incorporated herein by reference)

          10.3      1997 Equity Compensation Plan. (filed as exhibit 10.3 to the
                    Company's 1997 Annual Report on Form 10-K and incorporated
                    herein by reference)

          10.4      Asset Purchase Agreement dated as of September 24, 2004
                    between Newbridge Corporation and Docucorp International,
                    Inc. (filed as exhibit 10.4 to the Company's 2004 Annual
                    Report on Form 10-K and incorporated herein by reference)

          10.5*     Form of Restricted Stock Agreement dated August 22, 2005
                    between certain executive officers and Docucorp
                    International Inc.

          13.1*     2005 Annual Report to Stockholders.

          21.1*     Subsidiaries of the Registrant.

          23.1*     Consent of PricewaterhouseCoopers LLP, Independent
                    Registered Public Accounting Firm.

          31.1*     Certification pursuant to Rule 13a-14(a) of the Securities
                    Exchange Act of 1934.

          31.2*     Certification pursuant to Rule 13a-14(a) of the Securities
                    Exchange Act of 1934.

          32.1*     Certification pursuant to 18 U.S.C. Section 1350, as adopted
                    pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

          --------------

          *         Filed herewith.





                                       25
<PAGE>

                                  EXHIBIT 13.1

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Certain information contained herein may include "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts included herein, are forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which include, but are not limited to, the economy, technological advances,
dependence upon the insurance and utilities industries, attraction and retention
of technical and sales employees, fluctuations in operating results and the
other risk factors and cautionary statements listed from time to time in our
periodic reports filed with the Securities and Exchange Commission. Should one
or more of these risks or uncertainties, among others as set forth herein,
materialize, actual results may vary materially from those estimated,
anticipated or projected. Although we believe that the expectations reflected by
such forward-looking statements are reasonable based on information currently
available to us, no assurance can be given that such expectations will prove to
have been correct. Cautionary statements identifying important factors that
could cause actual results to differ materially from our expectations are set
forth herein. All forward-looking statements included herein and all subsequent
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary statements.

OVERVIEW

Docucorp International, Inc. ("Docucorp") develops, markets and supports
Customer Communication Management (CCM) solutions via a portfolio of proprietary
information software, application service provider ("ASP") hosting and
professional services that enables companies to create, publish, manage and
archive complex, high-volume, individualized information. We support the entire
information lifecycle - from acquisition of the first raw data point to final
delivery of personalized information to the customer.

Our software products support leading hardware platforms, operating systems,
printers and imaging systems. These products are designed to personalize,
produce and manage documents such as insurance policies, utility statements,
telephone bills, bank and mutual fund statements, invoices, health care provider
directories, correspondence, bills of lading and other customer-oriented
documents. Our ASP offerings include customer statement and bill generation,
electronic bill presentment and payment, insurance policy production, provider
directory generation, disaster recovery and electronic document archival.

Operating in four key markets, insurance, utilities, financial services and
health care, we currently have an installed base of more than 1,300 customers
worldwide. More than half of the 200 largest United States insurance companies
use our software products and services, including nine of the top 10 life and
health insurance companies, nine of the top 10 property and casualty insurance
companies and more than 600 managing general agents (MGAs). Many of the largest
North American health care, utility companies and major international financial
services institutions use our products and services.

We derive our revenues from ASP hosting fees, professional services fees,
software license fees and recurring maintenance fees related to our software
products. ASP hosting revenue consists of transactional fees earned from
customers who outsource the production of customer statements, insurance
policies, utility statements and provider directories. Professional services
revenue includes fees for implementation, integration, training and consulting
services. Software license revenue is generally derived from the sale of
perpetual licenses of software products. Maintenance revenue consists primarily
of annual software maintenance and support agreements.

As set forth in the criteria of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), we are organized into two reportable segments: Software and ASP.
The Software segment consists of initial software license sales, professional

                                       26
<PAGE>

services derived from implementation and integration of our software products
and continued customer support and maintenance of the software products. The ASP
segment provides processing, print, mail, archival and Internet delivery of
documents for customers who outsource these activities.

Our operating results are strongly tied to software license revenue. Software
license sales have a high margin and ultimately drive additional professional
services and maintenance revenues. A large portion of our software license
revenue is generated from a small number of relatively large agreements executed
in the latter half of a quarter. The timing of such large agreements is often
unpredictable and impacted by events beyond our control, therefore making it
difficult to forecast software license revenue effectively. Due to the nature of
our software license sales, revenues and profits may vary from quarter to
quarter.

For the year ended July 31, 2005, total revenue increased 5% to $79.1 million,
net income decreased 53%, to $2.5 million and earnings per diluted share
decreased 53%, to $0.22. Our revenue was favorably impacted by the Newbridge
acquisition and the addition of a large ASP hosting contract in the fourth
quarter. The decrease in profitability is primarily due to lower margins in our
ASP business, increased software amortization and expenses associated with
Sarbanes-Oxley compliance. Additionally, stock-based compensation expense
increased approximately $529,000, including a charge of approximately $100,000
in the fourth quarter for the accelerated vesting of stock options. The decision
to accelerate the vesting of stock options was made primarily to reduce
compensation expense that would be recorded in future periods following our
required adoption of SFAS 123R.

Revenue and operating results from our Europe, Middle East and Africa ("EMEA")
operations significantly improved in fiscal 2005. For fiscal 2005, revenue
generated by EMEA increased approximately 28%, representing record revenue.
Operating results for the EMEA operations improved from an operating loss of
approximately $1.2 million for the year ended July 31, 2004 to essentially break
even in the current year.

On September 24, 2004, we completed the acquisition of Newbridge, a leading
information services company for the health care market. Operating results of
Newbridge are primarily reflected in our ASP hosting segment from the date of
acquisition. Full integration of Newbridge with our Dallas ASP center was
completed during the fourth quarter of fiscal 2005.

Our ASP hosting revenue grew 16% for the year ended July 31, 2005 due primarily
to revenue generated by the acquisition of Newbridge and revenue generated by a
large outsourcing contract with Capgemini Energy which was signed during the
fourth quarter of fiscal 2005, partially offset by a decrease in revenue from
existing ASP customers. The decline in revenue from existing customers is
primarily due to the roll off of certain accounts over the last 12 months,
primarily as a result of a large customer being acquired by a company with
significant print facilities of their own, and lower pricing on renewing
accounts due to competitive pricing pressures. The decrease in revenue from
existing customers and lower utilization of equipment, facilities and personnel,
have negatively impacted the gross margins achieved from our ASP segment during
the current year.

Our financial position remains strong with $8.4 million of cash on hand and
available borrowings under our credit facility of $10.0 million at July 31,
2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accompanying "Management's Discussion and Analysis of Financial Condition
and Results of Operations" is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reported period. We base our estimates and assumptions on historical
experiences and various other factors that are believed to be reasonable under
the circumstances. These estimates and assumptions are evaluated on an ongoing
basis. Actual results may differ from previously estimated amounts under
different assumptions or conditions. The following critical accounting policies,

                                       27
<PAGE>

which involve significant judgments and estimates, are used in the preparation
of our consolidated financial statements:

REVENUE RECOGNITION

We derive our revenues from the sale of software licenses, annual software
maintenance and support agreements, professional services and ASP hosting
services. We recognize revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition", and Staff Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB 104"). Revenue is recognized when a contract exists, the fee
is fixed or determinable, delivery has occurred and collection of the receivable
is deemed probable.

We use the residual method to recognize revenue from the sale of software
licenses that are bundled with maintenance and support. Under the residual
method, the fair value of the undelivered element(s) is deferred and the
remaining value of the contract is recognized as revenue. Fair value of an
element is based on vendor-specific objective evidence ("VSOE"). VSOE is based
on the price charged when the same element is sold separately. We do not
generally sell software licenses without selling maintenance and support for the
licensed software. As a result, we have established VSOE only for the
undelivered element(s) included in a multi-element arrangement. VSOE for
maintenance and support is based upon prices customers pay to renew maintenance
and support agreements. After expiration of the initial maintenance term,
maintenance and support agreements are renewable on an annual basis and include
rights to upgrades, when and if available, telephone support, updates,
enhancements and bug fixes. Revenue generated from maintenance and support is
recognized ratably over the maintenance term of the agreement. We record
deferred revenue for maintenance amounts invoiced prior to the performance of
the related services.

Our standard software license agreements do not provide for rights of software
return and/or conditions of acceptance. However, in the rare case that
acceptance criteria are provided, revenue is deferred and not recognized until
all acceptance provisions are satisfied. Revenue from software licenses, which
include a cancellation clause, is recognized upon expiration of the cancellation
period. License revenue related to products still in the testing phase is
deferred until formal acceptance of the product by the customer.

Professional services revenue includes implementation, integration, training and
consulting services related to our software products. The services offered are
not essential to the functionality of the software sold. Professional services
revenue is recognized as the services are performed.

Professional services revenue derived from the installation and integration of
software packages under a fixed price contract is recognized on a
percentage-of-completion basis measured by the relationship of hours worked to
total estimated contract hours. We follow this method because reasonably
dependable estimates of the revenue and contract hours applicable to various
elements of a contract can be made. Since the financial reporting of these
contracts depends upon estimates, which are assessed continually during the term
of these contracts, recognized revenue and profit are subject to revisions as
the contract progresses to completion. Revisions in profit estimates are
reflected in the period in which the facts that give rise to the revisions
become known. Accordingly, favorable changes in estimates result in additional
revenue recognition and net income, and unfavorable changes in estimates result
in a reduction of recognized revenue and net income. When estimates indicate
that a loss will be incurred on a contract upon completion, a provision for the
expected loss is recorded in the period in which the loss becomes evident.

Revenue from our ASP hosting operations is recognized in accordance with SAB
104, generally on a per transaction basis. ASP hosting agreements are generally
one-to-five years in duration and provide for monthly billing based on
transaction volume or contract minimums, if applicable. Revenue related to the
customer's initial set up and implementation is deferred and subsequently
recognized over the expected term of the ASP hosting agreement.


                                       28
<PAGE>

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. We take into
consideration the current financial condition of our customers, the specific
details of the customer accounts, the age of the outstanding balance and the
current economic environment when assessing the adequacy of the allowance. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances might be
required.

SOFTWARE DEVELOPMENT COSTS

Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires
the capitalization of certain software development costs once technological
feasibility is established. The capitalized costs are then amortized on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever provides the greater
amortization. Management periodically assesses the realizability of software
development costs when events and circumstances indicate a potential decline in
value.

BUSINESS COMBINATIONS

Upon acquisition of a business, we allocate the purchase price to tangible
assets and liabilities acquired and identifiable intangible assets. Any residual
purchase price is recorded as goodwill. The allocation of the purchase price
requires management to make significant estimates in determining the fair values
of assets acquired and liabilities assumed, especially with respect to
intangible assets. These estimates are based on historical experience and
information obtained from valuation specialists and the management from the
acquired company. These estimates can include, but are not limited to,
appraisals by valuation specialists, the cash flows that an asset is expected to
generate in the future and the appropriate weighted average cost of capital.
Estimates used in determining the fair value of assets acquired and liabilities
assumed are inherently uncertain and unpredictable. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such
estimates.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL

We recognize an impairment charge associated with our long-lived assets,
including property and equipment, goodwill and other intangible assets whenever
we determine that recovery of such long-lived asset is not probable. Such
determination is made in accordance with the applicable GAAP requirement
associated with the long-lived asset, and is based upon, among other things,
estimates of the amount of future net cash flows to be generated by the
long-lived asset and estimates of the current fair value of the asset. Adverse
changes in future net cash flows or fair value could result in the inability to
recover the carrying value of the long-lived asset, thereby requiring an
impairment charge to be recognized. We perform an impairment analysis in
accordance with Statement of Financial Accounting Standard No. 142, "Goodwill
and Other Intangible Assets," annually, during the third quarter, and whenever
events and circumstances indicate that an impairment might be present. Our
impairment analysis for our existing goodwill utilizes various assumptions and
factors to estimate future cash flows to determine the fair value of the
business. No impairment was recognized during the fiscal year 2005; however, if
our estimates of cash flow or other factors adversely change, an impairment
charge might be recorded in the future.

DEFERRED TAXES AND VALUATION ALLOWANCE

We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of the assets
and liabilities. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon generation of future taxable income during
the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. It is
possible that in the future we may change our

                                       29
<PAGE>

estimate of the amount of the deferred income tax assets that will more likely
than not be realized, which will result in an adjustment to the valuation
allowance that would either increase or decrease, as applicable, reported net
income in the period such change in estimate was made.

TRANSLATION OF FOREIGN CURRENCY

We translate the financial statements of our European subsidiary into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Assets and liabilities of our European
subsidiary, whose functional currency is other than the U.S. dollar, are
translated at period-end rates of exchange, and revenues and expenses are
translated at average exchange rates prevailing during the period. Gains and
losses on foreign currency transactions and the translation of our intercompany
loan to a consolidated foreign subsidiary are recognized in other income as
incurred.

We account for unrealized gains or losses on our foreign currency translation
adjustments in accordance with Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which requires adjustments to be
accumulated in stockholders' equity as part of other comprehensive income.
Currently, we do not engage in foreign currency hedging activities.




                                       30
<PAGE>

HISTORICAL OPERATING RESULTS FOR THE YEARS ENDED JULY 31, 2005, 2004 AND 2003

The following table sets forth for the periods indicated selected consolidated
statements of operations data. The information presented below, expressed in
dollars and as a percentage of total revenues for the periods indicated, has
been derived from our consolidated financial statements (dollars in thousands).

<TABLE>
<CAPTION>
                                                               Years ended July 31,
                                                  ----------------------------------------------

(dollars in thousands)                                 2005            2004           2003
                                                  --------------  --------------  --------------
<S>                                               <C>             <C>             <C>
REVENUES
     ASP hosting                                  $      27,002   $      23,332   $     22,867
     Professional services                               20,966          20,637         23,287
     License                                             10,063          10,480          8,412
     Maintenance                                         21,146          21,221         20,375
                                                  --------------  --------------  --------------
       Total revenues                             $      79,177   $      75,670   $     74,941
                                                  --------------  --------------  --------------

COST OF REVENUES
     ASP hosting                                         24,195          19,023         19,526
     Professional services                               16,563          16,985         17,753
     License                                              4,199           3,232          3,006
     Maintenance                                          1,524           1,340          1,849
                                                  --------------  --------------  --------------
       Total cost of revenues                            46,481          40,580         42,134
                                                  --------------  --------------  --------------
Gross profit                                             32,696          35,090         32,807
                                                  --------------  --------------  --------------
OPERATING EXPENSES
     Product development                                  8,555           7,974          7,793
     Sales and marketing                                 11,781          11,167         11,339
     General and administrative                           7,961           6,523          6,419
                                                  --------------  --------------  --------------
       Total operating expenses                          28,297          25,664         25,551
                                                  --------------  --------------  --------------

Operating income                                          4,399           9,426          7,256
Interest expense                                           (570)           (620)          (211)
Other income, net                                           173             385            184
                                                  --------------  --------------  --------------

Income before income taxes                                4,002           9,191          7,229
Provision for income taxes                                1,496           3,825          3,284
                                                  --------------  --------------  --------------

Net income                                        $       2,506   $       5,366   $      3,945
                                                  ==============  ==============  ==============

PERCENTAGE RELATIONSHIP TO TOTAL REVENUES
REVENUES
     ASP hosting                                             34%             31%            31%
     Professional services                                   26              27             31
     License                                                 13              14             11
     Maintenance                                             27              28             27
                                                  --------------  --------------  --------------
         Total revenues                                     100             100            100
                                                  --------------  --------------  --------------
COST OF REVENUES
     ASP hosting                                             31              25             26
     Professional services                                   21              23             24
     License                                                  5               4              4
     Maintenance                                              2               2              2
                                                  --------------  --------------  --------------
         Total cost of revenues                              59              54             56
                                                  --------------  --------------  --------------
Gross profit                                                 41              46             44
                                                  --------------  --------------  --------------
Operating expenses
     Product development                                     11              10             10
     Sales and marketing                                     15              15             15
     General and administrative                              10               9              9
                                                  --------------  --------------  --------------
         Total operating expenses                            36              34             34
                                                  --------------  --------------  --------------
Operating income                                              5              12             10
Other income, net                                             0               0              0
                                                  --------------  --------------  --------------
Income before income taxes                                    5              12             10
Provision for income taxes                                    2               5              5
                                                  --------------  --------------  --------------
Net income                                                    3%              7%             5%
                                                  ==============  ==============  ==============
</TABLE>

COMPARATIVE ANALYSIS OF RESULTS FOR THE FISCAL YEAR ENDED JULY 31, 2005 AND 2004

REVENUES

For the year ended July 31, 2005, total revenues increased approximately $3.5
million or 5%, due primarily to an increase in ASP hosting revenue and
professional services revenue, partially offset by a decrease in license
revenue. ASP hosting revenue grew 16%, or $3.7 million when compared to the
prior year, primarily due to revenue related to the acquisition of Newbridge and
revenue generated by a large outsourcing contract with Capgemini Energy, which
was signed during the fourth quarter. Partially offsetting this increase was a
decline in revenue from existing customers as certain accounts rolled off over
the last 12

                                       31
<PAGE>

months as a result of a significant customer being acquired by a company with
print facilities of their own, and lower pricing on renewing accounts due to
competitive pricing pressures. Professional services revenue increased 2%, or
approximately $329,000 due largely to an increase in revenue generated by our
EMEA operations of approximately $230,000 and improved billing rates for our
domestic professional services. License revenue of $10.1 million declined 4% for
the year ended July 31, 2005, as a result of fewer license sales in North
America, partially offset by an increase in license sales in EMEA. Maintenance
revenue decreased approximately $75,000 in fiscal 2005 due to certain legacy
customers consolidating multiple existing licenses when upgrading to
enterprise-wide versions of our latest technology.

Backlog for our products and services was $57.9 million as of July 31, 2005, of
which $28.3 million is scheduled to be satisfied within one year. Backlog has
increased when compared to $51.5 million at July 31, 2004. Backlog is primarily
composed of recurring maintenance revenue for ongoing maintenance and support,
software implementation and consulting services and ASP hosting services.
Maintenance agreements generally have an initial non-cancelable term of up to
five years and may generally be terminated after the initial term upon 30 to 60
days' notice; however, we have not historically experienced material
cancellations of such contracts. Software implementation and consulting services
are principally performed under time and material agreements, of which some have
cancellation provisions. The estimated future revenues with respect to software
implementation and consulting are based on management's estimate of revenues
over the remaining life of the respective contract. ASP hosting agreements
generally have one to five year terms and generally provide that fees are
charged on a per transaction basis. Estimated future revenues of ASP hosting
services are based on contractual monthly minimums multiplied by the remaining
term of the respective contract or management's estimate of revenues over the
remaining life of the respective contract.

COST OF REVENUES

COST OF ASP HOSTING REVENUE. Cost of ASP hosting revenue is composed primarily
of salary and personnel related costs, facility and equipment costs and postage
and supplies expense related to our ASP hosting centers. For the year ended July
31, 2005, cost of ASP hosting revenue increased 27%, or $5.2 million, primarily
due to the operating expenses associated with Newbridge of $5.6 million. For
fiscal 2005 and 2004, cost of ASP hosting revenue represented 90% and 82% of ASP
hosting revenue, respectively. The increase in cost as a percentage of ASP
revenue is due to a decrease in revenue from existing customers due to the roll
off of certain accounts over the last 12 months primarily as a result of a
significant customer being acquired by a company with print facilities of their
own, lower pricing on renewing accounts and lower utilization of equipment,
facilities and personnel. Additionally, the costs to integrate Newbridge into
our expanded Dallas hosting center adversely impacted our margins. We expect the
variable components of cost of ASP hosting revenue will continue to increase as
ASP hosting revenue increases.

COST OF PROFESSIONAL SERVICES REVENUE. Cost of professional services revenue
consists primarily of salary and personnel related costs incurred in providing
implementation, integration, training and consulting services. For the year
ended July 31, 2005, cost of professional services revenue decreased
approximately $422,000, or 2%. This decline is primarily due to costs associated
with our bi-annual user group conference held in March 2004. For the years ended
July 31, 2005 and 2004, cost of professional services revenue represented 79%
and 82% of professional services revenue, respectively. The decrease in costs as
a percentage of professional services revenue is primarily due to improved staff
utilization, an increase in average billing rates and the user group conference
held in the prior year. We expect the cost of professional services revenue to
increase as professional services activities and revenue increase both
domestically and internationally.

COST OF LICENSE REVENUE. Cost of license revenue includes amortization of
capitalized software development costs and royalties paid to third parties. For
fiscal 2005, cost of license revenue increased 30% to $4.2 million. The increase
is primarily due to additional amortization expense of approximately $1.0
million

                                       32
<PAGE>

related to new products introduced to the marketplace during fiscal 2005. We
anticipate cost of license revenue to increase as amortization of capitalized
development costs increases as new products become generally available.

COST OF MAINTENANCE REVENUE. Cost of maintenance revenue consists of costs
incurred in providing customer telephone and online support. Cost of maintenance
revenue increased 14%, or approximately $184,000, for the year ended July 31,
2005, primarily due to an increase in customer support costs from our EMEA
operations. For the years ended July 31, 2005 and 2004, cost of maintenance
revenue represented 7% and 6% of maintenance revenue, respectively. The cost of
maintenance revenue is expected to increase as salaries and personnel related
costs increase due to annual merit raises and extending customer support hours
to accommodate certain international customers.

OPERATING EXPENSES

PRODUCT DEVELOPMENT. Product development expense consists primarily of costs
associated with developing new products prior to establishing technological
feasibility, enhancing existing products, testing software products and
developing product documentation. For the year ended July 31, 2005, product
development expense increased 7% to $8.6 million, primarily due to an increase
in salary and personnel related costs associated with additions to our product
development staff.

SALES AND MARKETING. Sales and marketing expense consists primarily of salaries
and personnel related costs, incentive compensation and costs associated with
marketing programs. For the year ended July 31, 2005, sales and marketing
expense increased approximately $614,000, or 5%, primarily due to increased
salary and personnel related costs.

GENERAL AND ADMINISTRATIVE. General and administrative expense consists
primarily of salary and personnel related costs for accounting, human resources,
legal and information technology, as well as outside legal, accounting and other
services. General and administrative expense increased 22%, or approximately
$1.4 million, for the year ended July 31, 2005. This increase is primarily due
to costs associated with Sarbanes-Oxley compliance and increased salary and
personnel related costs.

INTEREST EXPENSE

Interest expense is composed of interest incurred on our debt obligations and
capital leases. For the year ended July 31, 2005, interest expense decreased
approximately $50,000, primarily due to a reduction of our principal balance on
our bank term note, partially offset by increased interest attributed to the
assumption of capital leases from the Newbridge acquisition.

OTHER INCOME, NET

Other income, net decreased approximately $212,000 for the year ended July 31,
2005, primarily due to losses incurred on foreign currency exchange rates,
partially offset by an increase in interest income. For the year ended July 31,
2005, our foreign currency exchange rate loss was approximately $34,000, as
compared to a foreign currency exchange rate gain of approximately $297,000 for
the year ended July 31, 2004.

PROVISION FOR INCOME TAXES

The effective tax rate for the years ended July 31, 2005 and 2004 was 37% and
42%, respectively. During fiscal 2004, the rates differ from the federal
statutory rate due primarily to losses generated by our EMEA operations, for
which we did not recognize a tax benefit. The decrease in the effective rate
from the prior year is primarily due to the improved performance of our EMEA
operations. We used a portion of our net operating loss carryforwards to offset
our current tax liability for the years ended July 31, 2005 and 2004.

                                       33
<PAGE>

NET INCOME

Net income decreased 53% to $2.5 million for the year ended July 31, 2005,
primarily due to a decrease in margins in our ASP segment, an increase in
operating expense and increased amortization of software development costs.

COMPARATIVE ANALYSIS OF RESULTS FOR THE FISCAL YEARS ENDED JULY 31, 2004 AND
2003

REVENUES

Total revenues increased approximately $729,000, or 1%, for the year ended July
31, 2004, due to an increase in license revenue, maintenance revenue and ASP
hosting revenue, partially offset by a decrease in professional services
revenue. License revenue of $10.5 million increased 25% for the year ended July
31, 2004, as a result of better execution by our sales force and a more stable
economic and geopolitical environment. Maintenance revenue increased 4%, or
approximately $846,000, for the year ended July 31, 2004, due to maintenance
agreements associated with new license sales and annual maintenance fee
increases for existing maintenance agreements. ASP hosting revenue increased 2%
to $23.3 million for the year ended July 31, 2004, primarily due to revenue
generated from new customers. For the year ended July 31, 2004, professional
services revenue decreased 11%, or $2.7 million, due primarily to the
recognition of $1.3 million in the prior year of previously deferred revenue
related to one large consulting contract and the utilization of otherwise
billable professional services personnel in the development of our new Policy
Xpress product offering.

COST OF REVENUES

COST OF ASP HOSTING REVENUE. Cost of ASP hosting revenue decreased 3% to $19
million for the year ended July 31, 2004, primarily due to a decrease in
consumable expenses and continued emphasis on controlling costs. For the years
ended July 31, 2004 and 2003, cost of ASP hosting revenue represented 82% and
85% of ASP hosting revenue, respectively. The decrease in cost as a percentage
of ASP revenue is primarily due to the mix of ASP revenues and lower levels of
consumable expenses.

COST OF PROFESSIONAL SERVICES REVENUE. Cost of professional services revenue
decreased approximately $768,000, or 4%, for the year ended July 31, 2004. This
decrease is due primarily to an increase in capitalization of development work
performed by professional services personnel related to Policy Xpress, our new
pre-packaged product offering for the insurance industry. For the years ended
July 31, 2004 and 2003, cost of professional services revenue represented 82%
and 76% of professional services revenues, respectively. The increase in costs
as a percentage of professional services revenue is primarily due to expenses
incurred during the current year to host our bi-annual user group conference,
lower billing rates and the recognition of previously deferred revenue and
related recognition of deferred costs in the prior year associated with one
large consulting contract.

Cost of license revenue. Cost of license revenue increased 8% to $3.2 million
for the year ended July 31, 2004. The increase is primarily due to royalty
expense related to the licensing of our Policy Xpress product, partially offset
by a decrease in amortization of merger-related capitalized software costs that
were fully amortized as of July 31, 2003.

COST OF MAINTENANCE REVENUE. Cost of maintenance revenue decreased 28% for the
year ended July 31, 2004, due primarily to a decrease in salaries and personnel
related costs. For the years ended July 31, 2004, salaries and personnel related
costs decreased approximately $367,000, due to a reduction in staffing late in
fiscal 2003 that was enabled by continued departmental automation and a lower
demand for support of our mature legacy products. For the year ended July 31,
2004 and 2003, cost of maintenance revenue represented 6% and 9% of maintenance
revenue, respectively.

                                       34
<PAGE>

OPERATING EXPENSES

PRODUCT DEVELOPMENT. Product development expense increased 2% to $8.0 million,
for the year ended July 31, 2004, primarily due to an increase in contract labor
as we had more contractors working on development projects.

SALES AND MARKETING. Sales and marketing expense decreased approximately
$172,000, or 2%, for the year ended July 31, 2004, primarily due to decreased
travel and living expenses.

GENERAL AND ADMINISTRATIVE. General and administrative expense increased 2%, or
approximately $104,000, for the year ended July 31, 2004. This increase is due
to an increase in outside legal and accounting fees, partially offset by a
decrease in bad debt and travel and living expenses.

INTEREST EXPENSE

Interest expense is composed of interest incurred on our bank term note and
capital leases. Interest expense increased approximately $409,000, for the year
ended July 31, 2004, primarily due to interest expense associated with our bank
note, which was entered into in June 2003 in connection with the repurchase of
our Common Stock from Safeguard Scientifics, Inc. The bank note bears interest
at a fixed annual rate of 3.32%.

OTHER INCOME, NET

Other income, net increased approximately $201,000 for the year ended July 31,
2004, primarily due to gains on foreign currency exchange rates, partially
offset by a decrease in interest income. For the year ended July 31, 2004, we
incurred a foreign currency exchange rate gain of approximately $297,000, as
compared to a foreign currency exchange rate gain of approximately $45,000 for
the year ended July 31, 2003.

PROVISION FOR INCOME TAXES

The effective tax rate for the years ended July 31, 2004 and 2003 was 42% and
45%, respectively. The rates differ from the federal statutory rate due
primarily to losses generated by our European subsidiary, for which we did not
recognize a tax benefit. The decrease in the effective rate from the prior year
is primarily due to the improved performance of our European subsidiary. We used
a portion of our net operating loss carryforwards to offset our current tax
liability for the years ended July 31, 2004 and 2003.

NET INCOME

Net income increased 36% to $5.4 million for the year ended July 31, 2004,
primarily due to the increase in software license revenue and continued efforts
to maintain controllable expenses at acceptable levels.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 2005, our principal sources of liquidity consisted of cash and cash
equivalents of $8.4 million and our revolving credit facility, which has
available borrowings of $10.0 million. Cash and cash equivalents for the year
ended July 31, 2005, decreased $4.0 million from $12.3 million at July 31, 2004,
primarily as a result of cash used to acquire Newbridge and make payments on
their outstanding past due liabilities and debt obligations.

During the year ended July 31, 2005, we generated $12.0 million in cash flow
from operations compared to $14.2 million for the year ended July 31, 2004. The
decrease of approximately $2.2 million from the prior year was primarily a
result of lower net income. Significant changes in assets and liabilities for
the year ended July 31, 2005 that impacted cash flow from operations include an
increase in cash due to the combined change in our income tax receivable and
payable of approximately $814,000 and a decrease in cash due to the changes in
accounts payable and deferred revenue of $1.2 million.

                                       35
<PAGE>

During the years ended July 31, 2005 and 2004, cash used in investing activities
was $10.9 million and $7.0 million, respectively. For the year ended July 31,
2005, we used $2.5 million, net of cash received of $115,000, for the purchase
of Newbridge. Cash used for the purchase of property and equipment was $3.2
million and $1.5 million for the years ended July 31, 2005 and 2004,
respectively. This increase is primarily due to the relocation of our corporate
headquarters, expansion of our Dallas ASP center in order to integrate the
Newbridge operations and purchases of equipment primarily used in our ASP
operations. Cash used in the investment of capitalized software development
costs was $5.2 million and $5.5 million for the year ended July 31, 2005 and
2004, respectively.

Cash used in financing activities was $5.0 million and $2.1 million for the
years ended July 31, 2005 and 2004, respectively. Cash used in financing
activities during the year ended July 31, 2005, primarily related to repayments
of our bank note of $3.6 million, principal payments made under the assumed debt
obligations of Newbridge of $1.2 million and payments under capital lease
obligations of $1.4 million, partially offset by proceeds received from the
exercise of stock options of $964,000. For the year ended July 31, 2004, cash
used in financing activities primarily related to principal payments made under
our bank note of $3.6 million, partially offset by proceeds from the exercise of
stock options of $1.8 million.

In December 2002, we entered into various capital lease arrangements for the
rental of computer equipment at our ASP hosting facilities in the aggregate
amount of $3.2 million. The lease agreements require monthly payments of
principal and interest of approximately $65,000 and expire in December 2007. For
each of the years ended July 31, 2005 and 2004, we made payments in the
approximate amount of $777,000 related to these leases.

With the acquisition of Newbridge in September 2004, we assumed several capital
lease obligations in the aggregate amount of $2.3 million. These leases require
monthly payments of principal and interest of approximately $52,000. The
Newbridge leases expire at varying dates over the next three years. For the year
ended July 31, 2005, we made payments of principal and interest of approximately
$759,000 under these leases.

On June 3, 2003, we repurchased 3.1 million shares of our Common Stock along
with warrants to purchase approximately an additional 161,000 shares of Common
Stock from Safeguard Scientifics, Inc ("Safeguard") and a former officer of
Safeguard for $5.95 per share. In connection with the repurchase, we entered
into a $14.2 million bank term note, of which $6.8 million is outstanding at
July 31, 2005. The bank note bears interest at a fixed annual rate of 3.32% and
is repayable in equal monthly installments over four years.

As of July 31, 2005, we had approximately 5,459,000 shares of treasury stock
outstanding at an average per share cost of $5.56. Since inception of our stock
repurchase program in fiscal 1999, we have repurchased approximately 9,366,000
shares of stock at an average purchase price of $5.37. Our Board of Directors
believes the repurchase program is an appropriate means of increasing
shareholder value; however, we have not made any purchases of stock since the
safeguard transaction in June 2003.

Working capital was $4.6 million at July 31, 2005, compared with $10.7 million
at July 31, 2004. The decrease in working capital of $6.1 million is primarily
due to cash expenditures of $2.6 million to purchase Newbridge and payments of
approximately $2.0 million on their outstanding and past due liabilities and
debt obligations.

At July 31, 2005, we had a $10.0 million revolving credit facility, which
expires on August 31, 2006. The credit facility bears interest at the bank's
prime rate less 100 basis points or LIBOR rate of interest plus 150 basis
points, and is collateralized by substantially all of our assets. Under the
credit facility and our bank note, we are required to maintain certain financial
and non-financial covenants. As of July 31, 2005, there were no borrowings under
this credit facility.

Our liquidity needs are expected to arise primarily from the repayment of debt,
obligations under capital leases, funding the continued development, enhancement
and support of our software offerings and sales and marketing costs associated
with expansion in new vertical and international markets. A portion of our

                                       36
<PAGE>

cash or borrowings under our revolving credit facility could be used to acquire
complementary businesses or obtain the right to use complementary technologies.

Our liquidity could be negatively impacted by a decrease in demand for our
products, which are subject to rapid technology changes, reduction in capital
expenditures by our customers and intense competition, among other factors.
Operating leases and purchase obligations related to services agreements are our
only off balance sheet arrangements.

We currently anticipate that existing cash and cash equivalents, together with
cash generated from operations and available borrowings under our credit
facility, will be sufficient to satisfy our operating cash needs for the next
twelve months. The following is a schedule of our future contractual cash
obligations as of July 31, 2005 (in thousands):

<TABLE>
<CAPTION>
                                              Less than                                      After
                                 Total          1 year      2 - 3 years    4 - 5 years      5 years
                             -------------  -------------  -------------  -------------  -------------
<S>                            <C>            <C>            <C>            <C>            <C>
Operating leases               $  29,541      $   4,117      $   7,793      $   7,235      $  10,396
Capital lease obligations          3,623          1,395          2,155             73              0
Debt obligations                   7,314          3,793          3,456             65              0
                             -------------  -------------  -------------  -------------  -------------
Total contractual cash
  obligations                  $  40,478      $   9,305      $  13,404      $   7,373      $  10,396
                             =============  =============  =============  =============  =============
</TABLE>

RECENTLY ISSUED ACCOUNTING GUIDANCE

The American Jobs Creation Act of 2004 (the "Act") was signed into law on
October 22, 2004. The Act contains numerous amendments and additions to the U.S.
corporate income tax rules. Among other things, the Act will provide a deduction
with respect to income from certain U.S. manufacturing activities and will
provide a reduced tax upon certain repatriated foreign earnings. Although the
provisions of the Act did not impact the year ended July 31, 2005, the Act may
impact our future consolidated financial statements. We are currently evaluating
the financial impact of this Act.

In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R"),
which is a revision to SFAS 123. SFAS 123R requires employee stock based
compensation awards to be accounted for under the fair value method and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB 25. SFAS 123R requires the use of an option
pricing model for estimating fair value, which is then recognized as
compensation expense over the service periods. SFAS 123R is effective for fiscal
periods beginning after June 15, 2005. We will be required to adopt SFAS 123R
beginning August 1, 2005 for new awards of stock-based compensation granted
after that date. At July 31, 2005, all outstanding options were fully vested,
therefore management does not anticipate future compensation expense, related to
existing options, to be significant under SFAS 123R.

In March 2005, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"). SAB 107 provides
the SEC's view on the interaction between SFAS 123R and certain SEC rules and
regulations. Specifically, SAB 107 provides guidance on share-based payment
transactions with non-employees, valuation methods, accounting for certain
redeemable financial instruments issued under share-based payment arrangements,
the classification of compensation expense, non GAAP financial measures,
capitalization of compensation costs related to share-based payments
arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS 123R, the modification of employee share
options prior to adoption of SFAS 123R and disclosures in Management's
Discussion and Analysis subsequent to adoption of SFAS 123R. The adoption of SAB
107 will not have a material impact on our implementation of SFAS 123R.

Statement of Financial Accounting Standards No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154") which replaces Accounting Principals Board
Opinions No. 20 "Accounting Changes" and

                                       37
<PAGE>

SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements - An
Amendment of APB Opinion No. 28" was issued in May 2005. SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error
corrections. Specifically, this statement requires "retrospective application"
of the direct effect for a voluntary change in accounting principle to prior
periods' financial statements, if it is practicable to do so. SFAS 154 also
strictly redefines the term "restatement" to mean the correction of an error by
revising previously issued financial statements. SFAS 154 replaces APB No. 20,
which requires that most voluntary changes in accounting principle be recognized
by including in net income of the period of the change the cumulative effect of
changing to the new accounting principle. Unless adopted early, SFAS 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. We do not expect the adoption of SFAS 154 to
have a material impact on our financial position or results of operations.





                                       38

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

--------------------------------------------------------------------------------






             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
of Docucorp International, Inc.:

We have completed an integrated audit of Docucorp International, Inc.'s 2005
consolidated financial statements and of its internal control over financial
reporting as of July 31, 2005 and audits of its 2004 and 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.

CONSOLIDATED FINANCIAL STATEMENTS

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, cash flows and
changes in stockholders' equity present fairly, in all material respects, the
financial position of Docucorp International, Inc and its subsidiaries at July
31, 2005 and 2004, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
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 of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Also, in our opinion, management's assessment, included in Management's Report
on Internal Control over Financial Reporting appearing under item Item 9A, that
the Company maintained effective internal control over financial reporting as of
July 31, 2005 based on criteria established in INTERNAL CONTROL - INTEGRATED
FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of July 31,
2005, based on criteria established in INTERNAL CONTROL - INTEGRATED FRAMEWORK
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal


                                       39
<PAGE>

control over financial reporting in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

As described in Management's Report on Internal Control over Financial
Reporting, management has excluded the Newbridge business from its assessment of
internal control over financial reporting as of July 31, 2005 because it was
acquired by the Company in a purchase business combination during 2005. We have
also excluded the Newbridge business from our audit of internal control over
financial reporting. The Newbridge business has total assets and total revenues
that represent 3.9% and 7.4%, respectively, of the related consolidated
financial statement amounts as of and for the year ended July 31, 2005.



PricewaterhouseCoopers LLP

Dallas, Texas
October 11, 2005


                                       40
<PAGE>
<TABLE>
<CAPTION>

                                           DOCUCORP INTERNATIONAL, INC.
                                            CONSOLIDATED BALANCE SHEETS
                                              JULY 31, 2005 AND 2004
                                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
-----------------------------------------------------------------------------------------------------------------


                                                                                   2005                2004
                                                                              ---------------     ---------------
<S>                                                                           <C>                 <C>
ASSETS
  Current assets:
    Cash and cash equivalents                                                 $         8,381     $        12,336
    Accounts receivable, net of allowance
         of $293 and $375, respectively                                                17,132              16,752
    Current portion of deferred taxes                                                     170                 112
    Income tax receivable                                                                 248                 817
    Other current assets                                                                2,559               2,461
                                                                              ---------------     ---------------
                  Total current assets                                                 28,490              32,478

  Property and equipment, net of accumulated depreciation
      of $20,122 and $16,664, respectively                                             10,261               8,073
  Software development costs, net of accumulated
      amortization of $25,909 and $22,096, respectively                                13,687              12,269
  Goodwill                                                                              9,842               5,846
  Identifiable intangibles, net of accumulated amortization
     of $113 and $0, respectively                                                         907                   0
  Other assets                                                                            448                 573
                                                                              ---------------     ---------------
                  Total assets                                                $        63,635     $        59,239
                                                                              ===============     ===============


LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
     Accounts payable                                                         $         2,423     $         1,473
     Accrued liabilities:
       Accrued compensation                                                             3,067               2,104
       Other                                                                            1,491               1,783
     Income taxes payable                                                                 403                 158
     Current portion of lease obligations                                               1,459                 626
     Current portion of long-term debt                                                  3,617               3,550
     Deferred revenue                                                                  11,479              12,038
                                                                              ---------------     ---------------
                  Total current liabilities                                            23,939              21,732

  Deferred taxes                                                                        5,178               4,835
  Long-term lease obligations                                                           2,303               1,716
  Long-term debt                                                                        3,462               6,804
  Other long-term liabilities                                                           1,224               1,353

  Commitments and contingencies

  Stockholders' equity:
    Preferred stock, $0.01 par value, 1,000,000 shares
       authorized; none issued                                                              0                   0
    Common stock, $0.01 par value, 50,000,000 shares
       authorized; 16,593,849 shares issued                                               166                 166
    Additional paid-in capital                                                         48,035              47,350
    Treasury stock at cost, 5,458,912 and 6,050,429 shares, respectively              (30,347)            (33,635)
    Retained earnings                                                                  12,268               9,821
    Unearned compensation                                                              (2,100)               (402)
    Foreign currency translation adjustment                                              (493)               (501)
                                                                              ---------------     ---------------
                  Total stockholders' equity                                           27,529              22,799
                                                                              ---------------     ---------------
                  Total liabilities and stockholders' equity                  $        63,635     $        59,239
                                                                              ===============     ===============


                           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                        41
<PAGE>
<TABLE>
<CAPTION>

                                            DOCUCORP INTERNATIONAL, INC.
                                      CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                                COMPREHENSIVE INCOME
                                  FOR THE YEARS ENDED JULY 31, 2005, 2004 AND 2003
                                       (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------------------


                                                                         2005             2004             2003
                                                                     ------------     ------------     ------------
<S>                                                                  <C>              <C>              <C>
REVENUES
     ASP hosting                                                     $     27,002     $     23,332     $     22,867
     Professional services                                                 20,966           20,637           23,287
     License                                                               10,063           10,480            8,412
     Maintenance                                                           21,146           21,221           20,375
                                                                     ------------     ------------     ------------
                Total revenues                                             79,177           75,670           74,941
                                                                     ------------     ------------     ------------

COST OF REVENUES
     ASP hosting                                                           24,195           19,023           19,526
     Professional services                                                 16,563           16,985           17,753
     License                                                                4,199            3,232            3,006
     Maintenance                                                            1,524            1,340            1,849
                                                                     ------------     ------------     ------------
                Total cost of revenues                                     46,481           40,580           42,134
                                                                     ------------     ------------     ------------

Gross profit                                                               32,696           35,090           32,807
                                                                     ------------     ------------     ------------

OPERATING EXPENSES
     Product development                                                    8,555            7,974            7,793
     Sales and marketing                                                   11,781           11,167           11,339
     General and administrative                                             7,961            6,523            6,419
                                                                     ------------     ------------     ------------
                Total operating expenses                                   28,297           25,664           25,551
                                                                     ------------     ------------     ------------

Operating income                                                            4,399            9,426            7,256
Interest expense                                                             (570)            (620)            (211)
Other income, net                                                             173              385              184
                                                                     ------------     ------------     ------------

Income before income taxes                                                  4,002            9,191            7,229
Provision for income taxes                                                  1,496            3,825            3,284
                                                                     ------------     ------------     ------------

Net income                                                           $      2,506     $      5,366     $      3,945
                                                                     ============     ============     ============

Other comprehensive income:
     Foreign currency translation adjustment, net of tax                        8             (200)              (8)
                                                                     ------------     ------------     ------------
Comprehensive income                                                 $      2,514     $      5,166     $      3,937
                                                                     ============     ============     ============

Basic net income per share                                           $       0.24     $       0.53     $       0.31
                                                                     ============     ============     ============

Weighted average basic shares outstanding                                  10,651           10,154           12,780
                                                                     ============     ============     ============

Diluted net income per share                                         $       0.22     $       0.47     $       0.28
                                                                     ============     ============     ============

Weighted average diluted shares outstanding                                11,526           11,360           13,878
                                                                     ============     ============     ============


                            SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                         42
<PAGE>
<TABLE>
<CAPTION>

                                             DOCUCORP INTERNATIONAL, INC.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   FOR THE YEARS ENDED JULY 31, 2005, 2004 AND 2003
                                                    (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------


                                                                           2005            2004             2003
                                                                       ------------    ------------     ------------
<S>                                                                    <C>             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                         $      2,506    $      5,366     $      3,945
    Adjustments to reconcile net income to
      net cash provided by operating activities:
          Stock-based compensation expense                                      577              48               31
          Depreciation and amortization                                       4,089           3,455            3,357
          Amortization of capitalized software                                3,813           2,830            3,021
          Loss (gain) on foreign currency                                       125            (266)             (78)
          Provision for doubtful accounts                                       166             145              305
          Deferred income taxes                                                 285           2,803            1,972
          Tax benefit related to stock option exercises                         466           1,860              803
          Changes in assets and liabilities:
                (Increase) decrease in accounts receivable                      146            (715)             283
                (Increase) decrease in income tax receivable                    569             257           (1,074)
                (Increase) decrease in other assets                             284             553              (45)
                Increase (decrease) in accounts payable                        (574)           (185)             152
                Decrease in accrued liabilities                                 (54)         (1,150)          (1,225)
                Increase (decrease) in income taxes payable                     245            (265)            (934)
                Increase (decrease) in deferred revenue                        (613)           (517)             871
                                                                       ------------    ------------     ------------
                   Total adjustments                                          9,524           8,853            7,439
                                                                       ------------    ------------     ------------
                   Net cash provided by operating activities                 12,030          14,219           11,384
                                                                       ------------    ------------     ------------


CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of short-term investments                                            0               0           (2,981)
    Sale of short-term investments                                                0               0            6,970
    Purchase of Newbridge                                                    (2,482)              0                0
    Purchase of property and equipment                                       (3,223)         (1,464)          (3,170)
    Capitalized software development costs                                   (5,231)         (5,532)          (4,197)
                                                                       ------------    ------------     ------------
                  Net cash used in investing activities                     (10,936)         (6,996)          (3,378)
                                                                       ------------    ------------     ------------


CASH FLOWS FROM FINANCING ACTIVITIES
    Principal payments under lease obligations                               (1,355)           (582)            (321)
    Principal payments under debt obligations                                (4,781)         (3,550)            (296)
    Proceeds from bank note                                                       0               0           14,200
    Purchase of treasury stock                                                    0               0          (25,285)
    Proceeds from exercise of options and warrants                              964           1,802            1,233
    Purchase of warrants                                                          0               0             (274)
    Proceeds from stock issued to employees under Employee
       Stock Purchase Plan ("ESPP")                                             209             191              221
                                                                       ------------    ------------     ------------
                  Net cash used in financing activities                      (4,963)         (2,139)         (10,522)
                                                                       ------------    ------------     ------------

Effect of exchange rates on cash flows                                          (86)            (17)              52
                                                                       ------------    ------------     ------------

Net increase (decrease) in cash and cash equivalents                         (3,955)          5,067           (2,464)
Cash and cash equivalents at beginning of year                               12,336           7,269            9,733
                                                                       ------------    ------------     ------------
Cash and cash equivalents at end of year                               $      8,381    $     12,336     $      7,269
                                                                       ============    ============     ============

                                See non-cash activities disclosed in Notes 4, 5 and 7.


                             SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                         43
<PAGE>
<TABLE>
<CAPTION>

                                                    DOCUCORP INTERNATIONAL, INC.
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED JULY 31, 2005, 2004 AND 2003
                                                 (IN THOUSANDS EXCEPT SHARE AMOUNTS)
------------------------------------------------------------------------------------------------------------------------------------


                                                                                                          Foreign
                                                 Additional                                               currency
                                       Common     paid-in     Treasury     Retained      Unearned       translation
                                       Stock      capital       Stock       Earnings     compensation     adjustment       Total
                                     ---------  -----------  -----------  ------------  --------------  --------------  -----------
<S>                                  <C>        <C>          <C>          <C>           <C>             <C>             <C>
Balance at July 31, 2002             $     166  $    43,725  $   (15,758) $      5,224  $            0  $         (293) $    33,064
Exercise of stock options and
   warrants to purchase 578,988
   shares of Common Stock                             1,169        2,967        (2,903)                                       1,233
Purchase of 4,239,580 shares of
   Treasury Stock                                                (25,285)                                                   (25,285)
Issuance of 39,927 shares of Common
   Stock to employees under ESPP                         10          211                                                        221
Purchase of 161,242 warrants                           (274)                                                                   (274)
Stock-based compensation/Other                           33                                                                     33
Tax benefit from stock option
   exercises                                            803                                                                     803
Foreign currency translation
   adjustment                                                                                                       (8)          (8)
Net income                                                                       3,945                                        3,945
                                     ---------  -----------  -----------  ------------  --------------  --------------  -----------
Balance at July 31, 2003                   166       45,466      (37,865)        6,266               0            (301)      13,732
Exercise of stock options to
   purchase 676,047 shares of
   Common Stock                                        (145)       3,758        (1,811)                                       1,802
Issuance of 55,000 shares of
   Restricted Stock                                     145          305                          (450)                           0
Issuance of 29,898 shares of Common
   Stock to employees under ESPP                         24          167                                                        191
Stock-based compensation                                                                            48                           48
Tax benefit from stock option
   exercises                                          1,860                                                                   1,860
Foreign currency translation
   adjustment                                                                                                     (200)        (200)
Net income                                                                       5,366                                        5,366
                                     ---------  -----------  -----------  ------------  --------------  --------------  -----------
Balance at July 31, 2004                   166       47,350      (33,635)        9,821            (402)           (501)      22,799
Exercise of stock options to
   purchase 277,379 shares of
   Common Stock                                        (519)       1,542           (59)                                         964
Issuance of 268,357 shares of
   Restricted Stock                                     568        1,492                        (2,060)                           0
Issuance of 31,116 shares of Common
   Stock to employees under ESPP                         36          173                                                        209
Issuance of 14,665 shares of Common
   Stock                                                 39           81                          (120)                           0
Stock-based compensation                                 95                                        482                          577
Tax benefit from stock option
   exercises                                            466                                                                     466
Foreign currency translation
   adjustment                                                                                                        8            8
Net income                                                                       2,506                                        2,506
                                     ---------  -----------  -----------  ------------  --------------  --------------  -----------
Balance at July 31, 2005             $     166  $    48,035  $   (30,347) $     12,268  $       (2,100) $         (493) $    27,529
                                     =========  ===========  ===========  ============  ==============  ==============  ===========


                                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
                                                                 44
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Docucorp International, Inc. ("Docucorp"), a Delaware corporation, was organized
on January 13, 1997 in connection with the acquisition of FormMaker Software,
Inc. ("FormMaker") by Image Sciences, Inc ("Image Sciences") (the "Merger"). The
accompanying consolidated financial statements include the accounts of Docucorp
and our wholly owned subsidiaries, Image Sciences, FormMaker, EZPower Systems,
Maitland Software, Newbridge Information Services, Matrix Digital Technologies
and Docucorp Europe Ltd. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year presentation. We operate primarily
in the United States, Canada and Europe.

We develop, market and support Customer Communication Management ("CCM")
solutions via a portfolio of proprietary information software, application
service provider ("ASP") hosting and professional services that enable companies
to create, publish, manage and archive complex, high-volume, individualized
information. We support the entire information life cycle - from acquisition of
the first raw data point to final delivery of personalized information to the
customer. The majority of our business is currently derived from companies in
the insurance industry.

REVENUE RECOGNITION

We derive our revenues from the sale of software licenses, annual software
maintenance and support agreements, professional services and ASP hosting
services. We recognize revenue in accordance with Statement of Position 97-2,
"Software Revenue Recognition" and Staff Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB 104"). Revenue is recognized when a contract exists, the fee
is fixed or determinable, delivery has occurred and collection of the receivable
is deemed probable.

We use the residual method to recognize revenue from the sale of software
licenses that are bundled with maintenance and support. Under the residual
method, the fair value of the undelivered element(s) is deferred and the
remaining value of the contract is recognized as revenue. Fair value of an
element is based on vendor-specific objective evidence ("VSOE"). VSOE is based
on the price charged when the same element is sold separately. We do not
generally sell software licenses without selling maintenance and support for the
licensed software. As a result, we have established VSOE only for the
undelivered element(s) included in a multi-element arrangement. VSOE for
maintenance and support is based upon prices customers pay to renew maintenance
and support agreements. After expiration of the initial maintenance term,
maintenance and support agreements are renewable on an annual basis and include
rights to upgrades, when and if available, telephone support, updates,
enhancements and bug fixes. Revenue generated from maintenance and support is
recognized ratably over the maintenance term of the agreement. We record
deferred revenue for maintenance amounts invoiced prior to the performance of
the related services.

Our standard software license agreements do not provide for rights of software
return and/or conditions of acceptance. However, in the rare case that
acceptance criteria are provided, revenue is deferred and not recognized until
all acceptance provisions are satisfied. Revenue from software licenses, which
include a cancellation clause, is recognized upon expiration of the cancellation
period. License revenue related to products still in the testing phase is
deferred until formal acceptance of the product by the customer.

Professional services revenue includes implementation, integration, training and
consulting services related to our software products. The services offered are
not essential to the functionality of the software. Professional services
revenue is recognized as the services are performed.

Professional services revenue derived from the installation and integration of
software packages under a fixed price contract is recognized on a
percentage-of-completion basis measured by the relationship of hours


                                       45
<PAGE>

worked to total estimated contract hours. We follow this method because
reasonably dependable estimates of the revenue and contract hours applicable to
various elements of a contract can be made. Since the financial reporting of
these contracts depends upon estimates, which are assessed continually during
the term of these contracts, recognized revenue and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are reflected in the period in which the facts that give rise to the
revisions become known. Accordingly, favorable changes in estimates result in
additional revenue recognition and net income, and unfavorable changes in
estimates result in a reduction of recognized revenue and net income. When
estimates indicate that a loss will be incurred on a contract upon completion, a
provision for the expected loss is recorded in the period in which the loss
becomes evident.

Revenue from our ASP hosting operations is recognized in accordance with SAB
104, generally on a per transaction basis. ASP hosting agreements are generally
one to five years in duration and provide for monthly billing based on
transaction volume or contract minimums, if applicable. Revenue related to the
customer's initial set up and implementation is deferred and subsequently
recognized over the expected term of the ASP hosting agreement.

CASH EQUIVALENTS

We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair market value.

ACCOUNTS RECEIVABLE

Accounts receivable is composed of billed and unbilled accounts receivable.
Unbilled accounts receivable include amounts recognized as revenue, primarily
software license, which have not yet been billed in accordance with the contract
terms.

Accounts receivable consist of the following at July 31 (in thousands):

                                    2005              2004
                               --------------    --------------

Trade                          $       15,421    $       14,188
Unbilled                                1,850             2,784
Other                                     154               155
                               --------------    --------------
                               $       17,425    $       17,127
                               ==============    ==============

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. We take into
consideration the current financial condition of the customers, the specific
details of the customer accounts, the age of the outstanding balance and the
current economic environment when assessing the adequacy of the allowance. If
the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances might be
required.

The following are the changes in the allowance for doubtful accounts during the
years ended July 31 (in thousands):


                                       46
<PAGE>
<TABLE>
<CAPTION>

                                                             2005             2004             2003
                                                        --------------   --------------   --------------
<S>                                                     <C>              <C>              <C>
Balance at beginning of period                          $          375   $          562   $          670
     Provision for uncollectible accounts receivable               166              145              305
     Losses sustained, net of recoveries                          (248)            (332)            (413)
                                                        --------------   --------------   --------------
Balance at end of period                                $          293   $          375   $          562
                                                        ==============   ==============   ==============
</TABLE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash, cash equivalents, accounts
receivable, accounts payable, accrued liabilities, bank note, capital lease
obligations and notes payable. The current carrying amount of these instruments
approximates fair market value due to the relatively short period of time to
maturity for these instruments. The fair market value of our capital lease
obligations and Newbridge debt approximate their carrying values based upon
current market rates of interest. The fair value of our bank note was $6.8
million at July 31, 2005, based on current market interest rates.

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), requires all derivative
instruments be recorded on the balance sheet at fair value. Currently, we do not
hold derivative instruments or engage in hedging activities.

PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION

Property and equipment are carried at cost, less accumulated depreciation and
amortization. Software developed for internal use is accounted for in accordance
with AICPA Statement of Position No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Depreciation and amortization
are computed over the estimated service lives using the straight-line method.
Amortization of assets recorded under capital leases was approximately $869,000
for the year ended July 31, 2005 and is included in depreciation expense.
Cumulative amortization on capital leases was approximately $1.9 million and
July 31, 2005. Estimated service lives are as follows:

        Leasehold improvements                    Lesser of useful life
                                                       or life of lease
        Computer equipment                                    4-5 years
        Furniture and fixtures                                  5 years
        Equipment under capital leases            Lesser of useful life
                                                       or life of lease

Costs related to repairs and maintenance are expensed as incurred. Major
renewals and betterments are capitalized and depreciated over the assets'
remaining estimated service lives. Upon retirement or sale of an asset, the cost
and accumulated depreciation are removed from the accounts with any resulting
gain or loss included in income.

SOFTWARE DEVELOPMENT COSTS

Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). SFAS 86 requires
the capitalization of certain software development costs, which include salaries
and personnel related costs incurred in the development activities, once
technological feasibility of the software has been established. Research and
development costs incurred prior to the establishment of the technological
feasibility of a product are expensed as incurred. The cost of capitalized
software is amortized on a straight-line basis to cost of license revenue over
its estimated useful life,


                                       47
<PAGE>

generally three to six years, or the ratio of current revenues to current and
anticipated revenues from the software, whichever provides the greater
amortization.

BUSINESS COMBINATIONS AND GOODWILL AND INTANGIBLE ASSETS

Upon acquisition of a business, we allocate the purchase price to tangible
assets and liabilities acquired and identifiable intangible assets. Any residual
purchase price is recorded as goodwill. The allocation of the purchase price
requires management to make significant estimates in determining the fair values
of assets acquired and liabilities assumed, especially with respect to
intangible assets. These estimates are based on historical experience and
information obtained from valuation specialists and the management from the
acquired company. These estimates can include, but are not limited to,
appraisals by valuation specialists, the cash flows that an asset is expected to
generate in the future and the appropriate weighted average cost of capital.
Estimates used in determining the fair value of assets acquired and liabilities
assumed are inherently uncertain and unpredictable. Unanticipated events and
circumstances may occur which may affect the accuracy or validity of such
estimates.

In accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", we assess
the impairment of goodwill within our reportable units annually, during the
third quarter, or more often if events or changes in circumstances indicate that
the carrying value may not be recoverable. For the year ended July 31, 2005,
there was no impairment of goodwill. We assess the impairment of identifiable
intangible assets whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable.

IMPAIRMENT OF LONG-LIVED ASSETS

We have evaluated our long-lived assets for impairment, and will continue to do
so as events or changes in circumstances indicate that the carrying value of
such assets may not be fully recoverable. If facts or circumstances support the
possibility of impairment, we prepare a projection of future operating cash
flows, undiscounted and without interest. If based on this projection we do not
expect to recover our carrying cost, an impairment loss equal to the difference
between the fair value of the asset and its carrying value will be recognized in
operating income.

DEFERRED REVENUE

Deferred revenue relates primarily to maintenance and support agreements that
have been invoiced to customers prior to the performance of the related
services. Maintenance and support services are generally billed annually in
advance for services to be performed over a twelve month period. Maintenance and
support provided under an initial software license contract is recorded as
deferred revenue based on the VSOE of that maintenance, and is recognized over
the term of the associated agreement.

GUARANTEES

In the ordinary course of business, we include standard indemnification
provisions in our customer and distributor agreements. Pursuant to these
agreements, we typically indemnify, hold harmless and reimburse the indemnified
party for those losses suffered or incurred by the indemnified party arising
from any trade secret, trademark, copyright, patent or other intellectual
property infringement claim by any third party with respect to our software and
services. The term of these indemnification agreements is generally perpetual
any time after execution of the agreement. The maximum potential amount of
future payments that we could be required to make under these indemnification
agreements is unlimited; however, consequential damages are excluded. Since we
have never incurred costs to defend lawsuits or settle claims related to these
indemnification agreements, we believe the estimated fair value of our
obligation under these


                                       48
<PAGE>

agreements is minimal. Accordingly, we have no liabilities recorded for these
agreements as of July 31, 2005.

We currently provide software product warranties to our customers. The product
warranties generally provide that the licensed software shall operate
substantially in accordance with the applicable user documentation for a period
typically 90 days from delivery. At July 31, 2005, we had no material product
warranty liability. From time to time, in order to manage our customer
relationships, we incur costs outside of our product warranty program. These
costs are expensed as incurred.

We have agreements in place with our directors and officers whereby we indemnify
them for certain events or occurrences while the officer or director is, or was,
serving at our request in such capacity. The maximum potential amount of future
payments we could be required to make under these indemnification agreements is
unlimited; however, we have a director and officer insurance policy that may
enable us to recover a portion of any future amounts paid.

TRANSLATION OF FOREIGN CURRENCIES

We translate the financial statements of our European subsidiary into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation". Assets and liabilities of our European
subsidiary, whose functional currency is other than the U.S. dollar, are
translated at period-end rates of exchange, and revenues and expenses are
translated at average exchange rates prevailing during the period. Gains and
losses on foreign currency transactions and the translation of our intercompany
loan to a consolidated foreign subsidiary are recognized in other income as
incurred.

We account for unrealized gains or losses on our foreign currency translation
adjustments in accordance with Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which requires the adjustments be
accumulated in stockholders' equity as part of other comprehensive income.

During the year ended July 31, 2003, we determined that a portion of the
intercompany loan balance to a consolidated foreign subsidiary is of a long-term
investment nature and we will not seek repayment of this portion of the
intercompany loan in the foreseeable future. In accordance with SFAS 52, we
recognize the translation of this long-term investment as a component of other
comprehensive income. We recognize the translation of the remaining portion of
the intercompany loan as other income.

TREASURY STOCK

We account for Treasury Stock using the cost method. Gains on sales of Treasury
Stock are credited to Additional Paid-in Capital ("APIC"), losses are charged to
APIC to the extent that previous net gains from sales are included therein,
otherwise to Retained Earnings.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
for the year in which those temporary differences are expected to be recovered
or settled. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts more likely than not to be realized.


                                       49
<PAGE>

NET INCOME PER SHARE

Our basic and diluted net income per share is computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
net income per share is computed using the weighted average number of common
shares outstanding. Diluted net income per share is computed using the weighted
average number of common shares outstanding and the assumed exercise of stock
options and unvested restricted stock awards, using the treasury stock method.
The treasury stock method recognizes the use of proceeds that could be obtained
upon exercise of options and the assumed proceeds on unvested restricted stock
in computing diluted net income per share. It assumes that any proceeds would be
used to purchase common stock at the average market price during the period.
Options and unvested restricted stock will have a dilutive effect under the
treasury stock method only when the average market price of common stock during
the period exceeds the exercise price of the options or calculated exercise
price of the unvested restricted stock. Following is a reconciliation of the
shares used in computing basic and diluted net income per share for the periods
indicated (in thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Shares used in computing basic net
   income per share                                           10,651         10,154         12,780
Dilutive effect of stock options, warrants and
  unvested restricted stock                                      875          1,206          1,098
                                                        ------------   ------------   ------------
Shares used in computing diluted net
   income per share                                           11,526         11,360         13,878
                                                        ============   ============   ============
</TABLE>

At July 31, 2005, options to purchase approximately 348,000 shares of Common
Stock at an average exercise price of $8.23 per share were anti-dilutive and not
included in the computation of diluted net income per share, because the
options' exercise price was greater than the average market price of the Common
Stock for the period. At July 31, 2004 and 2003, there were approximately 50,000
and 393,000 anti-dilutive options to purchase Common Stock at an average
exercise price of $13.50 and $8.11 per share, respectively.

STOCK-BASED COMPENSATION

We provide equity incentives to our employees and directors by means of
non-qualified stock options and restricted stock awards issued from the 1997
Equity Compensation Plan (the "Plan"). In addition, we granted restricted stock
awards outside of the Plan in connection with our acquisition of Newbridge. We
account for stock-based compensation under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related Interpretations. For the periods
presented, stock-based compensation cost related to options is not reflected in
net income, as all options granted under the Plan had an exercise price equal to
the market value of the underlying Common Stock on the date of grant; therefore
generally no compensation expense is recognized. We recognize compensation
expense related to the fair value of restricted stock ratably over the vesting
period. Compensation cost was $577,000, $48,000 and $31,000 for the years ended
July 31, 2005, 2004 and 2003, respectively.

In July 2005, the Compensation Committee of our Board of Directors approved the
full vesting of all options with vesting dates occurring after July 31, 2005.
This action was taken to reduce the expense related to unvested stock option
awards under Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment" ("SFAS 123R"). The vesting of approximately 451,000 options was
accelerated, of which approximately 137,000 options had an exercise price
greater than our closing stock price on the modification date. Under the
guidance of APB 25 and the Financial Accounting Standard Board Interpretation
No. 44, the accelerated vesting resulted in a stock-based compensation charge of
approximately $100,000, which is included in our results for the year ended July
31, 2005.


                                       50
<PAGE>

We have implemented the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") and Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation Transition and Disclosure." Had compensation cost for
our stock-based compensation plans been determined under the fair value method
of SFAS 123, our net income and net income per share would have been reduced to
the pro forma amounts indicated below (in thousands except per share amounts):


<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Net income as reported                                  $      2,506   $      5,366   $      3,945
     Plus, stock-based compensation expense
       included in reported income, net of tax                   361             28             17
     Less, stock-based compensation expense under
       fair value based methods, net of tax                   (1,179)          (973)          (931)
                                                        ------------   ------------   ------------
Pro forma net income                                    $      1,688   $      4,421   $      3,031
                                                        ============   ============   ============

Net income per share:
     As reported
        Basic                                           $       0.24   $       0.53   $       0.31
        Diluted                                         $       0.22   $       0.47   $       0.28
     Pro forma
        Basic                                           $       0.16   $       0.44   $       0.24
        Diluted                                         $       0.15   $       0.39   $       0.22
</TABLE>

There were no options granted during the year ended July 31, 2005. The weighted
average fair value of options granted during the years ended July 31, 2004 and
2003 was $3.41 and $4.27 per option, respectively. The fair value of our
stock-based awards to employees was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2004 and 2003, respectively: risk-free interest rates of 3.18% and 2.86%; no
expected dividend yields; expected lives of 4.50 years, and volatility of 62.8%
and 75.6%. The Black-Scholes model was not developed for use in valuing employee
stock options, but was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, it requires the use of subjective assumptions including expectations
of future dividends and stock price volatility. Such assumptions are only used
for making the required fair value estimate and should not be considered as
indicators of future dividend policy or stock price appreciation. Because
changes in the subjective assumptions can materially affect the fair value
estimate, and because employee stock options have characteristics significantly
different from those of traded options, the use of the Black-Scholes
option-pricing model may not provide a reliable estimate of the fair value of
employee stock options.

MANAGEMENT ESTIMATES

The preparation of our financial statements, in accordance with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses at the date of the financial
statements. On an ongoing basis, management


                                       51
<PAGE>

evaluates its estimates and judgments. Actual results could differ from those
estimates. Certain accounting policies require higher degrees of judgment than
others in their application. The following accounting policies require
significant estimates: revenue recognition, accounts receivable and allowance
for doubtful accounts, fair value of acquired intangible assets and goodwill,
impairment of long-lived assets, software development costs and income taxes.

ADVERTISING COSTS

We expense advertising costs as incurred. Advertising expenses for the years
ended July 31, 2005, 2004 and 2003 were $1.2 million, $1.2 million and $1.0
million, respectively.

ROYALTY COSTS

We incur royalty costs associated with the licensing of certain software
products. These fees vary based upon the terms of the royalty agreement. Royalty
costs for the year ended July 31, 2005, 2004 and 2003, were approximately
$386,000, $423,000 and $0, respectively.

RECENTLY ISSUED ACCOUNTING GUIDANCE

The American Jobs Creation Act of 2004 (the "Act") was signed into law on
October 22, 2004. The Act contains numerous amendments and additions to the U.S.
corporate income tax rules. Among other things, the Act will provide a deduction
with respect to income from certain U.S. manufacturing activities and will
provide a reduced tax upon certain repatriated foreign earnings. Although the
provisions of the Act did not impact the year ended July 31, 2005, the Act may
impact our future consolidated financial statements. We are currently evaluating
the financial impact of this Act.

In December 2004, the Financial Accounting Standards Board issued SFAS 123R,
which is a revision to SFAS 123. SFAS 123R requires employee stock based
compensation awards to be accounted for under the fair value method and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB 25. SFAS 123R requires the use of an option
pricing model for estimating fair value, which is then recognized as
compensation expense over the service periods. SFAS 123R is effective for fiscal
periods beginning after June 15, 2005. We will be required to adopt SFAS 123R
beginning August 1, 2005 for new awards of stock-based compensation granted
after that date. At July 31, 2005, all outstanding options were fully vested,
therefore management does not anticipate future compensation expense, related to
existing options, to be significant under SFAS 123R.

In March 2005, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"). SAB 107 provides
the SEC's view on the interaction between SFAS 123R and certain SEC rules and
regulations. Specifically, SAB 107 provides guidance on share-based payment
transactions with non-employees, valuation methods, accounting for certain
redeemable financial instruments issued under share-based payment arrangements,
the classification of compensation expense, non GAAP financial measures,
capitalization of compensation costs related to share-based payments
arrangements, the accounting for income tax effects of share-based payment
arrangements upon adoption of SFAS 123R, the modification of employee share
options prior to adoption of SFAS 123R and disclosures in Management's
Discussion and Analysis subsequent to adoption of SFAS 123R. The adoption of SAB
107 will not have a material impact on our implementation of SFAS 123R.

Statement of Financial Accounting Standards No. 154, "Accounting Changes and
Error Corrections" ("SFAS 154") which replaces Accounting Principals Board
Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28"
was issued in May 2005. SFAS 154 provides guidance on the accounting for and
reporting of accounting changes and error corrections. Specifically, this
statement requires "retrospective application" of the direct effect for a
voluntary change in accounting principle to prior periods' financial statements,
if it is practicable to do so. SFAS 154 also strictly redefines the term
"restatement" to mean the


                                       52
<PAGE>

correction of an error by revising previously issued financial statements. SFAS
154 replaces APB No. 20, which requires that most voluntary changes in
accounting principle be recognized by including in net income of the period of
the change the cumulative effect of changing to the new accounting principle.
Unless adopted early, SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. We
do not expect the adoption of SFAS 154 to have a material impact on its
financial position or results of operations.

NOTE 2 - ACQUISITION

On September 24, 2004, we acquired the assets of Newbridge Corporation, which
include the capital stock of Newbridge Information Services, Inc. and Matrix
Digital Technologies, Inc. (collectively, "Newbridge") Newbridge is a leading
information services company for the health care market. Newbridge composes,
produces and distributes health care provider directories, ID cards and policy
kits, as well as provides health care provider information over the Internet.
Operating results of Newbridge are primarily included in the ASP hosting segment
of our financial statements from the effective date of the acquisition.

The purchase price for the transaction was approximately $4.0 million, comprised
of approximately $2.6 million paid in cash and $1.4 million of net liabilities
assumed. The purchase price allocation consists of assets acquired of
approximately $5.1 million, including $1.0 million for the acquired customer
relationships, liabilities assumed of approximately $6.5 million and goodwill of
approximately $4.0 million. At the completion of the transaction, we paid
approximately $2.0 million of debt obligations and past due liabilities.

The acquired customer relationships have an estimated useful life of ten years
and are being amortized on the basis of projected future cash flow. Amortization
expense for this identifiable intangible asset was $113,000 for the year ended
July 31, 2005. Estimated aggregate future amortization expense for this asset in
future fiscal years are as follows (in thousands):

<TABLE>
<CAPTION>
                             2006        2007        2008        2009        2010     THEREAFTER
                          ----------  ----------  ----------  ----------  ----------  ----------
<S>                       <C>         <C>         <C>         <C>         <C>         <C>
Amortization expense      $      177  $      163  $      153  $      128  $       95  $      191
</TABLE>

The acquisition of Newbridge is not considered material to our results of
operations; therefore no pro forma information is presented.

NOTE 3 -PROPERTY AND EQUIPMENT

Property and equipment balances at July 31, 2005 and 2004 are as follows (in
thousands):

                                                    2005           2004
                                                ------------   ------------
Computer equipment                              $     21,011   $     16,831
Furniture and fixtures                                 3,516          3,105
Leasehold improvements                                 1,939          1,473
Equipment under capital lease                          3,917          3,328
                                                ------------   ------------
                                                      30,383         24,737
Less accumulated depreciation                        (20,122)       (16,664)
                                                ------------   ------------
                                                $     10,261   $      8,073
                                                ============   ============


                                       53
<PAGE>

NOTE 4 - COMMITMENTS AND CONTINGENCIES

In December 2002, we entered into various capital lease arrangements for the
rental of computer equipment at our ASP hosting facilities in the aggregate
amount of $3.2 million. The lease agreements require monthly payments of
principal and interest of approximately $65,000. These leases expire in December
2007.

In connection with the acquisition of Newbridge on September 24, 2004, we
assumed numerous capital lease agreements for rental equipment in the aggregate
amount of $2.3 million. Monthly payments of principal and interest on these
leases are approximately $52,000. The Newbridge leases expire at various dates
over the next three years.

Equipment leases and our obligation under leases for office space are treated as
operating leases and the rentals are expensed as incurred. Rent expense on these
operating leases for each of the years ended July 31, 2005, 2004, and 2003 was
$4.4 million, $3.9 million and $4.4 million, respectively. Generally, our leases
provide for renewals for various periods at stipulated rates.

We recorded as part of our purchase price allocation an abandoned facility
provision of approximately $462,000 associated with abandoning Newbridge's
corporate headquarters and print center. This provision is included in our
obligations under leases on the Consolidated Balance Sheets. At July 31, 2005,
the remaining provision was approximately $383,000.

Future minimum lease obligations on leases in effect at July 31, 2005 are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         Capital         Operating
                                                         leases            leases           Total
                                                      --------------   --------------   -------------
<S>                                                   <C>              <C>              <C>
2006                                                  $        1,395   $        4,117   $       5,512
2007                                                           1,359            4,056           5,415
2008                                                             796            3,737           4,533
2009                                                              73            3,647           3,720
2010                                                               0            3,588           3,588
Thereafter                                                         0           10,396          10,396
                                                      --------------   --------------   -------------
Minimum lease payments                                         3,623           29,541          33,164
Less interest                                                   (244)               0            (244)
                                                      --------------   --------------   -------------
                                                      $        3,379   $       29,541   $      32,920
                                                      ==============   ==============   =============

Current portion of obligations under leases           $        1,234   $          225   $       1,459
Long-term portion of obligations under leases                  2,145              158           2,303
                                                      --------------   --------------   -------------
Total obligation under leases                         $        3,379   $          383   $       3,762
                                                      ==============   ==============   =============
</TABLE>

We are occasionally involved in legal proceedings and other claims arising out
of our operations in the normal course of business. No such claims are expected,
individually or in the aggregate, to have a material adverse effect on our
consolidated financial statements.

NOTE 5 - DEBT

At July 31, 2005, we had a $10.0 million revolving credit facility, which
expires on August 31, 2006. The credit facility bears interest at the bank's
prime rate less 100 basis points or LIBOR rate of interest plus 150 basis
points. As of July 31, 2005, there were no borrowings under this credit
facility.

On June 3, 2003, we repurchased 3.1 million shares of our Common Stock along
with warrants to purchase approximately an additional 161,000 shares of our
Common Stock from Safeguard Scientifics, Inc.


                                       54
<PAGE>

("Safeguard") and a former officer of Safeguard for $5.95 per share. In
connection with the repurchase, we entered into a $14.2 million bank term note.
The bank note bears interest at a fixed annual rate of 3.32% and is repayable in
equal monthly installments over four years. The outstanding balance of the bank
note at July 31, 2005 was $6.8 million. Under the credit facility and bank note,
we are required to maintain certain financial and non-financial covenants. The
credit facility and bank note are collateralized by substantially all of our
assets.

In connection with the acquisition of Newbridge on September 24, 2004, we
assumed approximately $1.5 million of certain debt obligations. At July 31, 2005
the remaining outstanding balance of these obligations was $275,000, which is
payable in equal monthly installments through May 2009.

For the years ended July 31, 2005, 2004 and 2003, we made cash payments for
interest on our bank note, capital lease and other interest bearing obligations
in the aggregate amount of approximately $581,000, $610,000 and $151,000,
respectively.

Long-term debt consists of the following at July 31, 2005 and 2004 (in
thousands):

                                                    2005           2004
                                                ------------   ------------
Bank term note                                  $      6,804   $     10,354
Newbridge debt                                           275              0
Less current portion of debt                          (3,617)        (3,550)
                                                ------------   ------------
                                                $      3,462   $      6,804
                                                ============   ============

NOTE 6 - STOCKHOLDERS' EQUITY

PREFERRED STOCK

We have authorized 1,000,000 shares of Preferred Stock, which our Board of
Directors may issue with such preferences and rights as it may designate. As of
July 31, 2005 and 2004, there were no issued or outstanding shares of Preferred
Stock.

EMPLOYEE STOCK PURCHASE PLAN

During the year ended July 31, 1998, we adopted the Employee Stock Purchase
Plan, which allowed eligible employees to elect to contribute up to 15% of their
regular compensation through payroll deductions, toward the purchase of our
Common Stock at 85% of the fair market value. The purchase price of Common Stock
was based on the fair market value as of either the date the right was granted
(first day of each semi-annual period), or the date it was exercised (last day
of the semi-annual period), whichever had the lower fair market value. During
the year ended July 31, 2005, we amended the Employee Stock Purchase Plan to
allow the purchase of Common Stock at 95% of the fair market value at the
exercise date. An aggregate of 600,000 shares of Common Stock has been reserved
for issuance upon purchases pursuant to the stock purchase plan. At July 31,
2005 and 2004, we have issued approximately 447,000 and 416,000 shares under the
plan, respectively.

STOCK OPTIONS

We provide equity incentives to employees and directors by means of incentive
stock options and non-qualified stock options, which historically have been
provided under various stock option plans. We now issue options from the 1997
Equity Compensation Plan. As of July 31, 2005, under this plan, we have reserved
4,500,000 shares for issuance of Common Stock pursuant to awards, of which a
maximum of 1,000,000 shares may be used for grants of restricted stock, SARs and
performance units. At July 31, 2005, approximately 985,000 shares were available
for future grants.


                                       55
<PAGE>

Stock options generally vest over a period of four to five years. We may grant
non-qualified stock options at an option price per share determined by the Board
of Directors; however, the option price per share shall be equal to or greater
than the fair market value on the date of grant. Options generally expire 10
years from the date of grant. Activity under all plans is summarized as follows
(in thousands except per share amounts):

                                                                Weighted
                                         Outstanding            average
                                           options           exercise price
                                      ------------------   ------------------
Balance at July 31, 2002                           3,224     $           3.30
   Granted                                           590                 7.07
   Exercised                                        (347)                2.98
   Expired                                           (35)                3.62
                                      ------------------   ------------------
Balance at July 31, 2003                           3,432     $           3.97
   Granted                                           285                 6.44
   Exercised                                        (676)                2.64
   Expired                                           (24)                4.07
                                      ------------------   ------------------
Balance at July 31, 2004                           3,017     $           4.50
   Granted                                             0                    -
   Exercised                                        (277)                3.48
   Expired                                           (99)                4.83
                                      ------------------   ------------------
Balance at July 31, 2005                           2,641     $           4.60
                                      ==================   ==================

The following table summarizes information about employee stock options
outstanding at July 31, 2005 (in thousands except per share amounts):

                                  Options Outstanding and Exercisable
                          ----------------------------------------------------
                                             Weighted      Weighted average
        Range of exercise     Number         average          remaining
              prices       outstanding    exercise price   contractual life
      ------------------------------------------------------------------------
      $0.58 to $0.87               61           $0.74           0.60
      $2.59 to $3.97            1,430           $3.45           4.83
      $4.25 to $5.91              545           $4.85           4.67
      $6.40 to $7.34              555           $6.92           7.62
      $13.50                       50          $13.50           7.00

WARRANTS

In connection with the Merger, we assumed warrants with a seven-year term held
by stockholders and a director of FormMaker to purchase Common Stock. Additional
warrants with a three-year term were issued by FormMaker to stockholders
immediately prior to the Merger in connection with $3.0 million of subordinated
notes. All of the above warrants, exercisable at the date of issuance, were
converted into warrants to purchase approximately 627,000 shares of Common Stock
based on the Merger exchange ratios.

There were no warrants outstanding as of July 31, 2005 and 2004. During the year
ended July 31, 2003, warrants to purchase approximately 188,000 shares of Common
Stock were exercised with an exercise price per share of $0.03. In connection
with the repurchase of our Common Stock from Safeguard in June 2003, we
purchased warrants representing approximately 161,000 shares of Common Stock
with an exercise price per share of $4.25.


                                       56
<PAGE>

RESTRICTED STOCK

In November 2003, the Compensation Committee of the Board of Directors granted
55,000 shares of restricted stock to certain executives. Based on the market
value of our Common Stock, the restricted stock grant was valued at
approximately $450,000. The restricted stock vests over seven years with
acceleration of cumulative vesting to 25%, 50% and 100% in the first three years
if specific performance goals are attained. Compensation expense related to the
restricted stock grant is being recognized ratably over the vesting period. As
of July 31, 2005 the performance goals were not attained.

In August 2004, the Compensation Committee of the Board of Directors granted
112,500 shares of restricted stock to certain executive officers and directors.
Based on the market value of our Common Stock, this restricted stock grant was
valued at approximately $821,000. The restricted stock vests over five years
with acceleration of cumulative vesting to 50% and 100% in the first two years
if specific performance goals are attained. Compensation expense related to the
restricted stock grant is being recognized ratably over the vesting period. As
of July 31, 2005 the performance goals were not attained.

In September 2004, we entered into employment agreements with several key
employees of Newbridge. As a part of these agreements, the Compensation
Committee of our Board of Directors granted an aggregate of 175,000 shares of
restricted stock to those key Newbridge employees. Based on the market value of
our Common Stock at the date of acquisition, this restricted stock grant was
valued at $1.4 million. The restricted shares vest over seven years with 33%,
67% and 100% acceleration of cumulative vesting in the first three years if
certain financial performance goals are achieved by Newbridge. The value of the
restricted stock grant is being recognized as compensation expense ratably over
the vesting period. As of July 31, 2005 the performance goals were not attained.

Subsequent to July 31, 2005, the Compensation Committee of the Board of
Directors granted 108,500 shares of restricted stock to certain executive
officers and directors. Based on the market value of our Common Stock, this
restricted stock grant was valued at approximately $758,000. The restricted
stock vests ratably over five years. Compensation expense related to the
restricted stock grant is being recognized ratably over the vesting period.

NOTE 7 - INCOME TAXES

Pretax income from continuing operations for the years ended July 31, 2005, 2004
and 2003 consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Income (loss) before taxes:
  Domestic                                              $      4,015   $     10,390   $      8,870
  Foreign                                                        (13)        (1,199)        (1,641)
                                                        ------------   ------------   ------------
                                                        $      4,002   $      9,191   $      7,229
                                                        ============   ============   ============
</TABLE>

The provision for income taxes charged to operations was as follows (in
thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Current tax expense:
  U.S. federal                                          $      1,085   $        916   $      1,136
  State, local and foreign                                       126            106            176
                                                        ------------   ------------   ------------
Total current                                                  1,211          1,022          1,312
                                                        ------------   ------------   ------------
Deferred tax expense:
  U.S. federal                                                   255          2,512          1,837
  State, local and foreign                                        30            291            135
                                                        ------------   ------------   ------------
Total deferred                                                   285          2,803          1,972
                                                        ------------   ------------   ------------
 Total provision                                        $      1,496   $      3,825   $      3,284
                                                        ============   ============   ============
</TABLE>


                                       57
<PAGE>

The provision for income taxes differs from the amount of income taxes
determined by applying the applicable U.S. statutory federal income tax rate to
pre-tax income as a result of the following differences (in thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Statutory U.S. tax expense                              $      1,361   $      3,125   $      2,451
Increase (decrease) in rates resulting from:
   Permanent differences                                          30             30             48
   State and local taxes (net)                                   102            262            207
   Valuation allowance                                             3            360            493
   Other                                                           0             48             85
                                                        ------------   ------------   ------------
Provision for income taxes                              $      1,496   $      3,825   $      3,284
                                                        ============   ============   ============
</TABLE>

Deferred tax assets (liabilities) are composed of the following at July 31 (in
thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Gross deferred tax assets:
   Deferred revenue                                     $        153   $        210   $        374
   Loss carryforwards                                          2,803          3,069          3,561
   Tax credit carryforwards                                      235            235            235
   Accounts receivable allowance                                  61             81            185
   Deferred lease costs                                          357            310            270
   Compensation expense related to stock
     Options and restricted stock                                122             58            263
   Other                                                         366            371            304
                                                        ------------   ------------   ------------
                                                               4,097          4,334          5,192
                                                        ------------   ------------   ------------
Gross deferred tax liabilities:
   Property and equipment                                       (590)        (1,189)          (538)
   Capitalized software                                       (5,136)        (4,572)        (3,690)
   Other                                                        (583)          (504)          (451)
                                                        ------------   ------------   ------------
                                                              (6,309)        (6,265)        (4,679)
                                                        ------------   ------------   ------------
   Net                                                        (2,212)        (1,931)           513
   Less valuation allowance                                   (2,796)        (2,792)        (2,433)
                                                        ------------   ------------   ------------
   Net deferred tax liability                           $     (5,008)  $     (4,723)  $     (1,920)
                                                        ============   ============   ============
</TABLE>

At July 31, 2005, we had net operating loss carryforwards for federal income tax
purposes of approximately $2.2 million that generally expire in the years ending
2012 through 2018. Due to ownership changes, a


                                       58
<PAGE>

portion of our federal net operating loss and tax credit carryforwards are
subject to an annual cumulative limitation. In any one year, approximately
$205,000 of carryforwards may be utilized. We also had a foreign net operating
loss carryforward of approximately $6.7 million. A valuation allowance against
the entire foreign net operating loss carryforward has been established, as the
realizability of this asset is uncertain.

At July 31, 2005, 2004 and 2003, $800,000 of the valuation allowance is related
to deferred tax assets for which subsequently recognized tax benefits, if any,
will be allocated to reduce goodwill.

We have approximately $235,000 of general business tax credit carryforwards. Our
tax credit carryforwards generally expire in the years ending 2009 through 2013.

Federal, state and foreign income taxes payments during the years ended July 31,
2005, 2004 and 2003 were approximately $178,000, $262,000 and $2.5 million,
respectively.

During the third quarter of fiscal 2005, the Internal Revenue Service ("IRS")
completed its examination of our tax year ended July 31, 2002 and issued a
notice of proposed adjustment for transfer pricing issues impacting intercompany
interest and royalty income. Although these proposed adjustments would increase
our U.S. taxable income for 2002, we vigorously disagree with the proposed
adjustments and are aggressively contesting these matters through applicable IRS
and judicial processes, as appropriate. We have filed a written protest to these
proposed adjustments thereby requesting an appeals conference with the IRS
Office of Appeals. As of July 31, 2005, we concluded that the potential loss was
not probable. With respect to the tax year under audit, the potential exposure
ranges between $0 and $360,000, excluding interest and penalties.

Subsequent to July 31, 2005, the IRS also completed its examination of our tax
year ended July 31, 2000 and issued a notice of proposed adjustment for the 2000
tax year based on the same issues identified for 2002. Similar to 2002, we
disagree with these proposed adjustments and intend to contest these matters as
appropriate. Although we again concluded that the potential loss is not
probable, the potential exposure for this tax year ranges between $0 and
$83,000, excluding interest and penalties.

Assurance cannot be given that these tax matters will be resolved in our favor
in view of the inherent uncertainties involved in settlement initiatives and tax
proceedings. Further, an unfavorable settlement may result in additional
exposure for other open tax years. An unfavorable resolution of these tax
matters may also have a material adverse impact on our consolidated financial
position and results of operations.

NOTE 8 - RETIREMENT PLAN

We maintain a discretionary defined contribution 401(k) plan, as defined by the
United States Internal Revenue Code, which allows participants to contribute a
percentage of their compensation. The plan also allows for a discretionary
matching contribution by us as determined by our Board of Directors. Currently,
we match an amount not to exceed 50% of the first 6% of the employee's
compensation contributed as an elective deferral. Our matching contributions for
the years ended July 31, 2005, 2004 and 2003 were approximately $741,000,
$648,000 and $681,000, respectively.

NOTE 9 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION

As set forth in the criteria of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), we are organized into two reportable segments: Software and ASP.
The Software segment consists of initial software license sales, professional
services derived from implementation and integration of our software products
and continued customer support and maintenance of the software products. The ASP
segment provides processing, print, mail, archival and Internet delivery of
documents for customers who outsource these activities.

The accounting policies of the segments are the same as those described in Note
1. Sales between segments are insignificant. Corporate expenses related to our
corporate offices are allocated to the segments. Other general and
administrative expenses are not allocated to the segments.

We report information regarding operating segments on the basis used internally
by management to evaluate segment performance. Segments are based on products
and services provided. Management evaluates


                                       59
<PAGE>

performance based on revenues and operating income. We do not track operating
results by segment below the operating income line nor do we track assets,
depreciation and amortization by segment.

The table below presents information about reported segments for the years ended
July 31 (in thousands):

<TABLE>
<CAPTION>
                                                                    2005           2004           2003
                                                                ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>
Revenues:
       Software                                                 $     52,175   $     52,338   $     52,074
       ASP                                                            27,002         23,332         22,867
                                                                ------------   ------------   ------------
              Total revenues                                    $     79,177   $     75,670   $     74,941
                                                                ============   ============   ============

Software gross profit, net of product development costs         $     21,334   $     22,807   $     21,673
ASP gross profit                                                       2,807          4,309          3,341
Sales and marketing                                                  (11,781)       (11,167)       (11,339)
General and administrative                                            (7,961)        (6,523)        (6,419)
                                                                ------------   ------------   ------------
              Consolidated operating income                     $      4,399   $      9,426   $      7,256
                                                                ============   ============   ============
</TABLE>

Revenue is based on the country in which the sales originated (i.e., where the
legal subsidiary is domiciled). We have two geographic areas including North
America and EMEA. Long-lived assets consist of net property plant and equipment,
goodwill, capitalized software development costs and other intangibles. The
following table presents sales and long-lived asset information by geographic
area as of and for the years ended July 31 (in thousands):

<TABLE>
<CAPTION>
                                                            2005           2004           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
Revenues:
       North America                                    $     72,775   $     70,673   $     71,009
       EMEA                                                    6,402          4,997          3,932
                                                        ------------   ------------   ------------
              Total revenues                            $    79,177    $     75,670   $     74,941
                                                        ============   ============   ============

Long - lived assets:
       North America                                    $     34,760   $     26,269   $     25,477
       EMEA                                                      385            492            558
                                                        ------------   ------------   ------------
              Total long - lived assets                 $     35,145   $     26,761   $     26,035
                                                        ============   ============   ============
</TABLE>

NOTE 10 - MAJOR CUSTOMERS AND RELATED PARTY TRANSACTIONS

For the years ended July 31, 2005, 2004 and 2003, no customer accounted for
greater than 10% of our total revenues.

Through December 31, 2002, one of the members of our Board of Directors served
as President of the Production Systems Group at Xerox Corporation ("Xerox").
During the period August 1, 2002 through December 31, 2002, we paid Xerox
approximately $875,000 for expenses related to various services agreements for
the right to use equipment and associated maintenance. During the period August
1, 2002 through December 31, 2002, we recognized revenue from Xerox of
approximately $128,000 related to the license of our products, maintenance fees
and professional services consulting. Additionally, in December 2002, we entered
into various capital lease arrangements with Xerox for the rental of computer
equipment at our ASP hosting facilities in the aggregate amount of $3.2 million.


                                       60
<PAGE>

NOTE 11 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                         First                Second               Third               Fourth
                                        Quarter               Quarter             Quarter              Quarter
                                   ------------------   ------------------   ------------------   ------------------
                                                        (in thousands except per share amounts)
<S>                                <C>                  <C>                  <C>                  <C>
2005:
Total revenues                     $          19,665    $          20,296    $          19,779    $          19,437
Gross profit                                   9,163                8,014                8,081                7,438
Operating income                               2,321                  853                  797                  428
Net income                                     1,407                  496                  468                  135
Net income per share:
    Basic                          $            0.13    $            0.05    $            0.04    $            0.01
    Diluted                        $            0.12    $            0.04    $            0.04    $            0.01


2004:
Total revenues                     $          18,905    $          19,639    $          18,510    $          18,616
Gross profit                                   9,085                9,362                7,771                8,872
Operating income                               2,503                2,719                1,413                2,791
Net income                                     1,449                1,607                  707                1,603
Net income per share:
    Basic                          $            0.15    $            0.16    $            0.07    $            0.15
    Diluted                        $            0.13    $            0.14    $            0.06    $            0.14
</TABLE>

Net income per share calculations for each period are based on the weighted
average number of shares outstanding in each period; therefore, the sum of the
net income per share amounts for the quarters does not necessarily equal the
year-to-date net income per share amounts.


                                       61