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

FORM 10-Q

þ    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission File Number 0-20981

DOCUMENT SCIENCES CORPORATION

6339 Paseo del Lago
Carlsbad, California 92009
(Address of Principal Executive Offices including Zip Code)

(760) 602-1400
(Registrant’s Telephone Number including Area Code)

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

               As of August 12, 2002, there were 3,858,553 shares of common stock of the registrant outstanding.

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DOCUMENT SCIENCES CORPORATION

					Page
					No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Consolidated balance sheets (unaudited)					3
	Consolidated statements of operations (unaudited)					4
	Consolidated statements of cash flows (unaudited)					5
	Notes to consolidated financial statements					6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						8
Item 3. Quantitative and Qualitative Disclosures About Market Risk						20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings						21
Item 4. Submission of Matters to a Vote of Security Holders						21
Item 5. Other Information						21
Item 6. Exhibits and Reports on Form 8-K						22
Signatures						24

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PART I.   FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)

DOCUMENT SCIENCES CORPORATION

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DOCUMENT SCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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DOCUMENT SCIENCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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DOCUMENT SCIENCES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A—Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain amounts for 2001 have been reclassified to conform with the 2002 presentation. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto, together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2001 Annual Report on Form 10-K. Operating results for the three and six-month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

We recognize revenue in accordance with SOP 97-2, Software Revenue Recognition and SAB No. 101, Revenue Recognition in Financial Statements. Initial license fees are recognized when a contract exists, the fee is fixed and determinable, software delivery has occurred and collection of the receivable is deemed probable. We use the residual method to recognize revenue for all of our license models. Our contracts specifically state the amount of initial and annual license fees due for each type of software licensed. If an undelivered element of the arrangement exists under the license arrangement, revenue is deferred based on vendor-specific objective evidence of the fair value of the undelivered element. If vendor-specific objective evidence of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered. We recognize revenue on transactions with payment terms greater than 30 days but less than twelve months from the contract date if we have a history of successfully collecting from the specific customer without providing concessions. Amounts billed or payments received in advance of revenue recognition are recorded as deferred revenue.

Our goodwill was recorded on May 7, 1997, and had been amortized on a straight-line basis over 15 years. On January 1, 2002, we adopted FAS 142, Goodwill and Other Intangible Assets and ceased amortizing our goodwill. Pursuant to this adoption, we reassessed the underlying value of our goodwill by analyzing future net cash flows and determined that no adjustment to the carrying value was required. We amortized $17,500 and $35,000 for the three and six months ended June 30, 2001.

Note B—Transactions with Affiliates

We have distribution agreements with Xerox affiliates providing the non-exclusive right to sub-license our software in Europe, Australia, Canada and Latin America. The terms of the distribution agreements provide that these affiliates receive a discount from the list price of our licensed products and annual license fees. We also have agreements with Xerox affiliates providing the non-exclusive right to sub-license our software in the United States. Revenues from these affiliates, net of discounts, were $1.0 million and $897,500 for the three months ended June 30, 2002 and 2001, respectively, and $1.8 million for the six-month periods ended June 30, 2002 and 2001. Included in accounts receivable are $1.2 million and $1.4 million from these affiliates at June 30, 2002 and 2001, respectively.

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Note C—Net Income Per Share

We present our earnings per share information in accordance with FAS No. 128, “Earnings per Share” (EPS). Basic EPS is computed by dividing income or loss available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Basic EPS excludes any dilutive effects of options, warrants and convertible securities.

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the common shares underlying outstanding options and warrants had been issued. The dilutive effect of outstanding options and warrants has been reflected in EPS by application of the treasury stock method. The treasury stock method recognizes the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period. Options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options or warrants.

The following table reconciles the shares used in computing basic and diluted EPS for the periods indicated:

Note D—Sales Commitments

In 1999, we began selectively licensing software to a subset of our customers for non-cancelable three-year terms. Where we provide extended payment terms to customers (allowing them to make payments on a quarterly or annual basis), we recognize license revenue when invoices come due, as SOP 97-2 precludes us from recognizing the portion of these licenses that is not currently due from the customer. Amounts not currently due from customers on these agreements are not reflected on our Balance Sheet and are identified below. In 2002, we have not licensed any software in this manner and are not likely to make significant additions.

We also began signing customers to non-cancelable three-year maintenance agreements, which we recognize ratably over the service period. As we invoice these agreements, the amounts are recorded initially to Deferred Revenue. Amounts to be invoiced are not reflected on our Balance Sheet and are identified below.

The following table summarizes these multi-year license and maintenance agreement activities showing ending balances not reflected on our Balance Sheet at June 30, 2002:

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