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<SEC-DOCUMENT>0000912057-01-509237.txt : 20010418
<SEC-HEADER>0000912057-01-509237.hdr.sgml : 20010418
ACCESSION NUMBER:		0000912057-01-509237
CONFORMED SUBMISSION TYPE:	10KSB40
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010417

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			DOCUCON INCORPORATED
		CENTRAL INDEX KEY:			0000843006
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370]
		IRS NUMBER:				742418590
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB40
		SEC ACT:		
		SEC FILE NUMBER:	001-10185
		FILM NUMBER:		1604933

	BUSINESS ADDRESS:	
		STREET 1:		140 E HOUSTON ST SUITE 200
		CITY:			SAN ANTONIO
		STATE:			TX
		ZIP:			78205
		BUSINESS PHONE:		2105259221

	MAIL ADDRESS:	
		STREET 1:		140 E HOUSTON ST SUITE 200
		CITY:			SAN ANTONIO
		STATE:			TX
		ZIP:			78205
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB40
<SEQUENCE>1
<FILENAME>a2045728z10ksb40.txt
<DESCRIPTION>FORM 10-KSB
<TEXT>

<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                                  FORM 10-KSB
(Mark One)
|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      FOR THE YEAR ENDED DECEMBER 31, 2000; OR

|_|   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 1-10185

                             DOCUCON, INCORPORATED
                             ---------------------
                 (Name of Small Business Issuer in its Charter)

            DELAWARE                                      74-2418590
- --------------------------------                     -------------------
 (State or Other Jurisdiction                         (I.R.S. Employer
of Incorporation or Organization)                    Identification No.)

   8 Airport Park Boulevard
       Latham, New York                                      12110
- ------------------------------------                 -------------------
(Address of Principal Executive                           (Zip Code)
          Offices)

Issuer's Telephone Number, Including Area Code:         (518) 786-7733
                                                        --------------

Securities Registered Under Section 12(b) of the Exchange Act:

                                                    NAME OF EACH EXCHANGE
     TITLE OF EACH CLASS                             ON WHICH REGISTERED
- -----------------------------                       ---------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE                      NONE

Securities Registered Under Section 12(g) of the Exchange Act: NONE

      Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such Reports), and (2)
has been subject to such filing requirements for the past 90 days.
                   Yes  |X|                            No  |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

      State Issuer's revenues for its most recent fiscal year:  NONE(a)

      State the aggregate market value of the voting stock held by
non-affiliates as of March 15, 2001:

               Common Stock, par value $.01 per share - $343,192

      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.

(a) excluded revenue of approximately $1.2 million for discontinued operations.

<PAGE>

          CLASS                             OUTSTANDING AT March 15, 2001
- --------------------------------------------------------------------------------
   COMMON STOCK, PAR VALUE                            3,658,767 SHARES
       $.01 PER SHARE
                       DOCUMENTS INCORPORATED BY REFERENCE
Certain documents are incorporated by reference into this Annual Report on Form
                              10-KSB. See Item 13.

           Transitional Small Business Issuer Format: Yes |_| No |X|

================================================================================

                                     PART I

Certain statements contained in this Form 10-KSB, including statements regarding
the anticipated development and expansion of the Company's business,
expenditures, the intent, belief or current expectations of the Company, its
directors or its officers, primarily with respect to the future operating
performance of the Company and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements.

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

      Docucon, Incorporated ("Docucon" or the "Company") was incorporated
under the laws of the State of Delaware in 1988 and is the successor by
merger to a Texas corporation organized in 1986. In May 2000, Docucon sold
substantially all of its operating assets to TAB Products Co. (TAB). Prior to
the asset sale to TAB, the Company's primary business was in document
conversion. As a result of the sale to TAB, the Company effectively became a
"shell" company with no revenues and continuing general and administrative
expenses. The Company's on-going activities are related to the efforts to
realize value for its remaining assets.

ASSET PURCHASE AGREEMENT WITH TAB PRODUCTS CO.

      On May 25, 2000, the Company completed the sale of substantially all of
its operating assets and certain liabilities and obligations (TAB Sale) to Bunt
Acquisition Corporation, a Delaware corporation, a wholly owned subsidiary of
TAB. The TAB Sale was consummated in accordance with the terms of an Asset
Purchase Agreement dated as of March 7, 2000 (Asset Purchase Agreement).

      Under the Asset Purchase Agreement with TAB, the consideration paid to the
Company was approximately $2,800,000, and the liabilities and obligations
assumed by TAB were valued at about $2,300,000. The total consideration paid in
the TAB Sale was determined through arm's length negotiations between the
parties. Neither the Company or any of its affiliates had, nor to the knowledge
of the Company did any director or officer, or any associate of any such
director or officer of the Company, have any material relationship with TAB.

DISCONTINUED OPERATIONS

      As a result of the sale of substantially all of the Company's operating
assets to TAB, Docucon has discontinued its operation. The Company's on-going
activities are related to efforts to realize value, if any, from its remaining
assets (which may include the Company's publicly traded "shell"), payment of any
remaining liabilities, including income taxes and a potential distribution to
shareholders.

PROPOSED REVERSE MERGER OF DIGITAL VISION SYSTEMS, INC. INTO DOCUCON

<PAGE>

      On April 2, 2001, the Company announced that its Board of Directors has
agreed to the terms of a letter of intent calling for Docucon's acquisition of
all outstanding and issued shares of Digital Vision Systems, Inc., a Nevada
corporation ("DVS"). The proposed reverse merger of DVS into Docucon would
result in DVS shareholders owning 90.5% of the combined entity. Additionally,
Docucon's shareholders would receive warrants for an additional 2.0% of the
combined entity, depending upon future performance of the combined entity's
common stock market price. Docucon and DVS hope to conclude the proposed
combination in June 2001.

      The proposed combination is subject to various, significant conditions
including but not limited to negotiation and execution of definitive agreements,
DVS' pre-merger commitment to fund an additional $2.5 million in operating
capital, and approval by both Docucon and DVS shareholders.

      DVS, a privately held Nevada corporation chartered in May 2000,
manufactures and distributes video surveillance systems based upon digital
compression technology. DVS' software management system and related digital
video recording hardware are marketed worldwide for camera surveillance security
applications by retail, education, manufacturing, government and military users,
among others. DVS is based in San Antonio, Texas.

EMPLOYEES

      Currently, the Company has no full-time employees. The Company uses
temporary staffing to provide financial and administrative human resources to
support the Company's on-going, limited activities.

ITEM 2. DESCRIPTION OF PROPERTY.

      In December 1999 the Company moved into a new, 31,000 square foot leased
facility. This facility was utilized for the Company's San Antonio operations
center. In May 2000, the Company completed an agreement with the lessor for
early termination of the lease of the Company's corporate headquarters. Pursuant
to this agreement, the Company paid the lessor approximately $131,000 from the
TAB proceeds at closing of the TAB Sale and gave up its rights to security
deposits in the amount of approximately $51,000.

      On June 1, 2000, the Company leased a 250 square foot office space for
$1,675 per month in Wayne, Pennsylvania. This lease carries a 60-day termination
notice requirement. Currently, this office space is used by temporary support
staff and for record keeping.

      In Management's opinion, the Company's physical properties are adequate
for the Company's current needs, and are consistent with the Company's plans
described elsewhere in this Annual Report on Form 10-KSB.

ITEM 3. LEGAL PROCEEDINGS.

      On February 2, 1999 the Company contacted the Department of Defense's
Voluntary Disclosure Program Office to request admission into its Voluntary
Disclosure Program. The Voluntary Disclosure Program is intended to encourage
government contractors to voluntarily disclose potential violations of
government contracting policies and procedures. In general, companies who
volunteer information and cooperate with the government's investigation are not
subject to criminal and administrative sanctions such as suspension and
debarment from government contracting activities.

      Admission into the Voluntary Disclosure Program does not protect companies
from any potential civil liability the government may assert. The Company's
request for admission into the Voluntary Disclosure Program was the result of an
internal review by the Company that indicated a billing practice, with respect
to certain invoices submitted during the period from September 1996 through July
1997, that might be perceived by the government as a technical violation of DOD
billing procedures.

<PAGE>

      The DOD Inspector General formally admitted the Company into the Voluntary
Disclosure Program in June 1999 and commenced its investigation of the Company's
voluntary disclosure in the second half of that year. In February 2000, Company
counsel was orally advised that the Government's investigation of the Company's
voluntary disclosure is complete and that criminal prosecution has been
declined. Since February 2000, the Company has received no notice of any further
claims relating to this matter. While the Company remains potentially liable for
civil damages, it does not believe that material civil damages, if any, will
ultimately be assessed.

      Under the terms of the TAB Asset Purchase Agreement, TAB paid $250,000 of
the purchase price into an Escrow Fund (Escrow Fund) for the purposes of
indemnifying TAB from certain "Indemnifiable losses," as defined therein,
including any failure of the Company to discharge any liability not assumed by
TAB. The Escrow Fund was scheduled to be released in November 2000, net of any
indemnification claims that have been agreed to by TAB and the Company and any
unresolved claims. Unresolved claims will be satisfied or the related Escrow
Fund released after the claims resolution procedure detailed in the TAB Asset
Purchase Agreement has been completed. On November 9, 2000, TAB asserted claims
against the Escrow Fund pursuant to Article XII of the TAB Asset Purchase
Agreement and pursuant to Section 6 of the Escrow Agreement, based upon certain
claims asserted by the Department of Labor (DOL) relating to government wage and
benefit orders, and that certain employees may not have been paid in compliance
with these orders. DOL has not asserted these claims against the Company. On
December 7, 2000, the Company objected to the entirety of all claims made by TAB
against the Escrow Fund. Additionally, the Company notified TAB of its intention
to participate in defense of these claims. TAB consented to Docucon's
participation. Docucon and TAB agreed to a 90-day good-faith negotiation period
commencing December 7, 2000, and ending on March 7, 2001. This period was
subsequently extended to April 30, 2001. The Company and TAB are negotiating a
potential resolution of this matter, and continuing discussions with DOL. The
Company expects resolution of this matter in the second quarter 2001; however,
at the present time, the Company is unable to determine with any certainty the
outcome of the claims asserted. Under the TAB Asset Purchase Agreement, all
claims by TAB are limited to the amount of the Escrow Fund except as to claims
asserted on the basis of fraud, willful misconduct or the failure of the Company
to perform postclosing obligations. The Company does not believe the foregoing
exceptions apply. The Company is unable to determine the likelihood that TAB
will recover a portion, if any, of the Escrow Fund. The Company believes that
recovery by TAB in excess of the Escrow Fund is remote.

      Except as noted above, no actions are currently pending against the
Company. The Company maintains general liability insurance and other insurance
coverages which it believes to be adequate and typical in the industry.

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

      No matters were submitted to a vote of security holders of the Company
during the fourth quarter of 2000.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      The Company's Common Stock, par value $.01 per share, is traded on The OTC
Bulletin Board (Symbol: DOCU.OB).

      On March 10, 1999, the Company received notice that it was subject to
delisting on the NASDAQ SmallCap Market System because the Company's average
closing bid price per share had not exceeded $1.00 during the prior thirty-day
period. The Company's Common Stock was delisted from the NASDAQ SmallCap Market
on June 11, 1999. The Company's Common Stock now trades on The OTC Bulletin
Board.

      The following table sets forth for the fiscal periods indicated the high
and low bid prices per share for the Company's Common Stock in the NASDAQ Stock
Market's

<PAGE>

SmallCap Market (for periods up to and including June 11, 1999) and The OTC
Bulletin Board (for periods subsequent to June 11, 1999).

<TABLE>
<CAPTION>
                                                                 REPORTED
                                                                BID PRICE
                                                            -----------------
                                                             HIGH        LOW
- -----------------------------------------------------------------------------
<S>                                                         <C>        <C>
          2000
       ---------
       First Quarter....................................... $ 0.44     $ 0.08
       Second Quarter......................................   0.47       0.16
       Third Quarter.......................................   0.45       0.16
       Fourth Quarter......................................   0.69       0.28

          1999
       ---------
       First Quarter....................................... $ 0.97     $ 0.63
       Second Quarter......................................   0.69       0.44
       Third Quarter.......................................   0.97       0.50
       Fourth Quarter......................................   0.75       0.41
</TABLE>

      The last reported sale price for the Common Stock on The OTC Bulletin
Board on March 15, 2001, was $0.08 per share. Bid and asked prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.

      There were approximately 218 holders of record of the Common Stock as of
March 15, 2001, excluding those shares held by depository companies for certain
beneficial owners.

      The Company has never paid cash dividends on its Common Stock. Under the
terms of the Company's Series A Convertible Preferred Stock, the Company cannot
pay dividends on its Common Stock until all accumulated but unpaid dividends on
such Preferred Stock have been paid. At December 31, 2000, cumulative undeclared
dividends on the Series A Convertible Preferred Stock were approximately
$198,000.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

2000 COMPARED TO 1999

      In May 2000, the Company sold substantially all of its operating assets to
TAB Products Co. (TAB), for cash of approximately $2.8 million and the
assumption of approximately $2.3 million of operating liabilities, resulting in
a pretax gain of approximately $4.1 million. As a result, the operating activity
related to the operating assets and liabilities has been accounted for as a
discontinued operation. Consequently, the Company's ongoing activities are
related to efforts to realize value, if any, from the remaining assets (which
may include the Company's publicly traded "shell"), payment of remaining
liabilities, including income taxes and a potential distribution to
shareholders. The Company does not expect to have future operating revenues and
related operating costs and expenses.

      For the year ended December 31, 2000 and 1999, the Company had net income
(loss) applicable to common shareholders of approximately $2.1 million and
($3.6) million, respectively. The increase can be attributed to the Company's
May 2000 sale of substantially all of its operating assets and certain
liabilities to TAB that resulted in a gain of approximately $4.1 million.

      For the years ended December 31, 2000 and 1999, the Company's loss from
continuing operations was approximately $1 million and $1.7 million
respectively. In 2000, the approximate $1 million loss from continuing
operations consisted of salaries and benefits of approximately $490,000
(primarily settlements of employment agreements with former officers and key
employees), office rent of approximately

<PAGE>

$189,000 (primarily settlement on the Company's former corporate headquarters in
Malvern, PA), interest of approximately $107,000 (including noncash interest of
approximately $71,000 relating to the amortization of original issue discount on
the notes payable to directors) and approximately $214,000 of other items. In
1999, the approximate $1.7 million loss from continuing operations consisted of
salaries and benefits of approximately $789,000, office rent of approximately
$136,000, travel of approximately $146,000, professional fees of approximately
$160,000 and approximately $469,000 of other items.

      For the years ended December 31, 2000 and 1999, the Company's loss from
discontinued operations, excluding the approximate $4.1 million gain on
disposal, was approximately $1 million and $1.9 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

      In May 2000, the Company sold substantially all of its operating assets
to TAB for cash of approximately $2.8 million and the assumption of $2.3
million of operating liabilities. Consequently, the Company's primary
remaining assets at December 31, 2000, are cash of approximately $238,000, an
interest in an escrow account in the amount of approximately $259,000 and
office equipment with a net book value of approximately $74,000. Remaining
liabilities include accounts payable, accrued expenses and other current
liabilities of approximately $279,000, and the related-party notes balance of
approximately $108,000. The remaining assets will be used to pay the
remaining liabilities, fund efforts to realize value, if any, from the
remaining assets and if possible, pay a distribution to shareholders, if any.
The Company's only current source of liquidity is realization of value from
Company assets and there can be no assurance that the remaining assets will
yield material value. Because the value to be realized from the remaining
assets, the amount of the remaining liabilities and the net balance to be
released from the Escrow Fund are uncertain, the amount of cash that will
ultimately be available for distribution to stockholders, if any, is not
determinable at this time.

      On September 29, 1999, two directors of the Company loaned the Company an
aggregate of $325,000. The promissory notes (the Notes), issued in conjunction
with these loans, carried a 12 percent annual interest rate. Principal and
interest on the Notes were payable on the earlier of (i) September 28, 2000, or
(ii) within 10 days of an equity-based financing (the Financing), as defined. In
conjunction with the Notes, the two directors were issued an aggregate of
243,750 warrants to purchase common stock of the Company. Upon consummation of
the TAB Sale, the two directors agreed to waive the accrued interest due on the
notes and to the cancellation of the related warrants (as described in Note 4),
among other terms. In accordance with these revised agreements, the Company paid
two-thirds of the obligations promptly after closing and the remaining one third
will be satisfied upon release of the Escrow Fund.

      On June 18, 1999, the Company entered into an accounts receivable
purchase agreement (the Financing Agreement) with Silicon Valley Bank (SVB).
Under the terms of the agreement as amended, the Company was eligible to
receive funding from SVB for up to $1,500,000 of eligible accounts receivable
with full recourse by SVB to the Company. The Company received cash advances
from the eligible receivables equal to the face amount of the eligible
receivables financed, less a reserve established by SVB of not less than 20
percent of the aggregate face amount of the receivables. The Company was
obligated to repay on demand the unpaid portion of any receivable financed by
SVB under certain conditions including (i) an account receivable that remains
uncollected 90 calendar days after the invoice date, (ii) the bankruptcy or
insolvency of any account debtor or (iii) any breach of the Financing
Agreement by the Company. During the fourth quarter of 1999, and subsequent
to December 31, 1999, the Company was in technical default under certain
provisions of the Financing Agreement. While SVB did not make a declaration
of default or demand for payment, it had the right to do so under the
provisions of the Financing Agreement. Pursuant to the Asset Purchase
Agreement, TAB assumed the accounts receivable financing obligation in the
net amount of approximately $636,000 and the related accrued interest and
fees in the amount of approximately $56,000. The Company was released from
the terms of the Financing Agreement when TAB promptly paid the obligation,
interest and fees.

<PAGE>

      As discussed under Item 3 and Note 3, on November 9, 2000 TAB asserted
claims against the $250,000 Escrow Fund, as defined. The Company and TAB are
negotiating potential resolution of this matter. The Company is unable to
determine the likelihood that TAB will recover a portion, if any, of the Escrow
Fund. The Company believes that recovery by TAB above and beyond the Escrow Fund
amount is remote.

      Since its inception, the Company's operations have been supplemented
through bank borrowings, capital contributions, borrowings from affiliated and
unaffiliated lenders, an initial public offering of the Company's Common Stock
in 1989, the conversion of warrants into Common Stock and private preferred
stock placements.

      The accompanying financial statements of the Company have been prepared
on the basis of accounting principles applicable to a going concern. As
previously discussed throughout, the Company sold substantially all of its
operating assets and certain liabilities to TAB and effectively became a
"shell" company with no revenues and continuing general and administrative
expenses. Further at December 31, 2000, the Company has cumulative losses of
approximately $10.1 million and a working capital deficit of approximately
$141,000. For the years ended December 31, 2000 and 1999, the Company had
negative operating cash flows of approximately $2.0 million and $2.7 million,
respectively. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

      Net cash at December 31, 2000 was approximately $238,000. Accounts
payable, accrued expenses and other current liabilities and notes payable
were approximately $387,000 at December 31, 2000.

ITEM 7. FINANCIAL STATEMENTS.

      Financial statements of the Company meeting the requirements of Regulation
S-B are filed on the succeeding pages of this Item 7 of this Annual Report on
Form 10-KSB, as listed below:

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                        <C>
       Reports of Independent Public Accountants...........................F-1

       Balance Sheet as of December 31, 2000...............................F-3

       Statements of Operations for the Years Ended
       December 31, 2000 and 1999..........................................F-4

       Statements of Stockholders' Equity (Deficit) for the
       Years Ended December 31, 2000 and 1999..............................F-5

       Statements of Cash Flows for the Years Ended
       December 31, 2000 and 1999..........................................F-6

       Notes to Financial Statements.......................................F-8
</TABLE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES.

      Effective February 22, 2001, Docucon, Incorporated ("Registrant"), acting
on the direction of its Board of Directors, approved the dismissal of Arthur
Andersen LLP as the Company's independent accountants. The reports of Arthur
Andersen LLP on the Registrant's financial statements for the past fiscal year
ending December 31, 1999 were modified to discuss matters which raise
substantial doubt about the Registrant's ability to continue as a going concern.
Those reports did not contain an adverse opinion or disclaimer of opinion nor
were they qualified or modified as to audit scope or accounting principles. In
connection with the audits of the Registrant's financial statements for the
fiscal year ended December 31, 1999 and through February 22, 2001, there were no
disagreements with Arthur Andersen LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused Arthur Andersen LLP to make reference to the matter in their reports
on the financial statements for such years nor were there any reportable events.
Arthur Andersen LLP has furnished the

<PAGE>

Registrant with a letter addressed to the Securities and Exchange Commission
indicating Arthur Andersen LLP's agreement with the above statements.

      Effective on February 22, 2001, Registrant retained the accounting firm of
Rothstein, Kass & Company, P.C. to serve as its independent accountants to audit
its financial statements beginning with the year ended December 31, 2000. This
engagement was effective February 22, 2001. Prior to its engagement as
Registrant's independent auditors, Rothstein, Kass & Company, P.C. had not been
consulted by Registrant either with respect to the application of accounting
principles to a specific transaction or the type of audit opinion that might be
rendered on Registrant's financial statements or on any other matter that was
the subject of any prior disagreement between Registrant and Registrant's
previous certifying accountants.

      The Company has had no disagreements with its independent accountants
within the twenty-four months prior to December 31, 2000 or subsequent to that
date.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS, EXECUTIVE OFFICERS AND KEY TECHNICAL PERSONNEL

            The following table sets forth certain information with respect to
the Company's Directors, and executive officers and key technical personnel:

<TABLE>
<CAPTION>
         NAME                AGE                     POSITION
         ----                ---                     --------
<S>                          <C>      <C>
   Edward P. Gistaro         64       Chairman of the Board of Directors

   Robert W. Schwartz        55       President, Chief Executive Officer, Chief
                                      Financial Officer and Director

   Ralph Brown               66       Secretary and Director

   Al R. Ireton              65       Director

   Chauncey E. Schmidt       67       Director

   Douglas P. Gill           51       Director
</TABLE>

            Edward P. Gistaro has served as Chairman of the Board since 1990. He
served as Chief Executive Officer of the Company from June 4, 1988 until April
1, 1998, when the Board of Directors accepted his recommendation that he be
replaced by Douglas P. Gill as Chief Executive Officer. Pursuant to Mr.
Gistaro's retirement, the Board requested that he continue to serve as Chairman,
and he accepted. Mr. Gistaro also served as President of the Company from July
10, 1988 until March 18, 1991. Mr. Gistaro was employed by Datapoint
Corporation, a company involved in the manufacturing of computer systems, in
various managerial positions from 1973 to 1987. From 1982 to 1985 Mr. Gistaro
served as the President and Chief Operating Officer of Datapoint Corporation,
and he served from 1985 to 1987 as its President and Chief Executive Officer.

            Robert W. Schwartz was elected President, Chief Executive Officer
and Chief Financial Officer on May 19, 2000, in a part-time capacity. He was
elected to the Board of Directors of the Company in April 1998. Mr. Schwartz
founded the Schwartz Heslin Group, Inc. ("SHG"), an investment banking firm, in
1985. As Managing Director of SHG, Mr. Schwartz specializes in corporate
planning, finance and development. From 1980 to 1985, he was founder, President
and Chief Executive Officer of Winsource, Inc., a high tech firm which packaged
and marketed integrated telephone and computer systems. Mr. Schwartz served as
President, Chief Operating Officer and Director of Coradian Corporation and as
Vice President and Chief Financial Officer of Garden Way Manufacturing
Corporation from 1975 to 1980 and 1970 to 1975, respectively. SHG has been
retained by the Company in the past to provide investment and financial advice.

<PAGE>

            Douglas P. Gill was elected as a Director of the Company on May 19,
2000. From April 1998 to May 2000, he had served as President and Chief
Executive Officer of the Compapny. Mr. Gill was a general partner of Foster
Management Company, a venture capital firm, from 1994 until 1998. From 1984 to
1994 Mr. Gill served as First Vice President of Janney Montgomery Scott, Inc., a
regional investment banking and brokerage firm, and in various management
capacities at Scott Paper Company from 1975 to 1984. Mr. Gill also served as a
senior auditor at Arthur Andersen & Co. (now LLP) from 1972 to 1975.

            Ralph Brown, an attorney in private practice since 1968, has served
as Director and as Secretary of the Company since May 1, 1987. From 1987 to
1989, he served also as Treasurer of the Company. Mr. Brown has also served
since 1975 as President of Cherokee Ventures, Inc., a real estate leasing firm,
since 1978 as President of East Central Development Corporation and since 1982
as President of Southeast Suburban Properties, Inc. The latter two businesses
are real estate development firms.

            Al R. Ireton was elected as a Director of the Company in May 1993.
Mr. Ireton has been Chairman of Manchester Partners, an investment and growth
strategy advisory organization providing capital and strategic assistance to
growing companies, since October 1988. From 1985 through September 1988, he
served as President and Chief Executive Officer of Texet Corporation, a desktop
publishing company. Mr. Ireton has 25 years' experience serving as president and
chief executive officer of growth-oriented companies, and has served on several
corporate boards.

            Chauncey E. Schmidt was elected to the Board of Directors of the
Company in February 1993. He has been Chairman of C. E. Schmidt & Associates, an
investment firm, since April 1989. From 1987 to March 1989, he was Vice Chairman
of the Board of AMFAC, Inc., a New York Stock Exchange-listed company engaged in
diversified businesses. He has previously served as President of The First
National Bank of Chicago and Chairman of the Board and Chief Executive Officer
of The Bank of California, N.A. Mr. Schmidt is on the Board of Trustees of the
U. S. Naval War College Foundation and is active in several civic and charitable
organizations.

GENERAL

            Directors of the Company hold office until the next Annual Meeting
of Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company are elected annually by, and serve
at the discretion of the Board of Directors. There are no arrangements or
understandings known to the Company between any of the Directors, nominees for
Director or executive officers of the Company and any other person pursuant to
which any of such persons was elected as a Director or an executive officer,
except as set forth below under Item 10, "Executive Compensation Employment
Agreements" and Item 12, "Certain Relationships and Related Transactions." There
are no family relationships between any Directors, nominees for Director or
executive officers of the Company.

      COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

            Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Officers and Directors, and persons who beneficially own more than
10% of a registered class of the Company's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, Directors and beneficial owners of more
than 10% of the Company's Common Stock are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms that they file.
Based solely on review of the copies of such forms furnished to the Company,
or written representations that no reports on Form 5 were required, the
Company believes that for the period from January 1, 2000 through March 15,
2001, all officers, Directors and greater-than-10% beneficial owners complied
with all Section 16(a) filing requirements applicable to them.

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION -- GENERAL

<PAGE>

            The following table sets forth compensation earned by or awarded to
the Chief Executive Officer and the named executive officers for all services
rendered to the Company in 2000, 1999 and 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                 ANNUAL COMPENSATION                  LONG-TERM COMPENSATION
                                           --------------------------------       -----------------------------
                                                     BONUS/ANNUAL  OTHER                                      ALL
                                                      INCENTIVE    ANNUAL       RESTRICTED    SECURITIES     OTHER
NAME AND PRINCIPAL                                      AWARD      COMPEN-      STOCK         UNDERLYING     COMPEN-
POSITION                         YEAR      SALARY(1)    (2)        SATION       AWARDS(3)      OPTIONS       SATION
- ------------------             --------    --------    --------    --------    --------        ----------    --------
<S>                              <C>       <C>         <C>          <C>         <C>            <C>           <C>
Robert W. Schwartz               2000      $    --     $   --       $  --       150,000            --        $     --
President, Chief Executive
Officer and Chief Financial
Officer

Douglss P. Gill                  2000        94,779                                                            96,666
President and                    1999       200,000      10,407        --                       71,920             20
Chief Executive Officer          1998       149,020      50,000        --                      275,000             20

Warren D. Barratt                2000        56,287        --          --          --              --          42,430
Senior Vice President            1999       140,000       7,285        --                      116,825             20
Chief Financial Officer          1998         5,385        --          --                      100,000             20
and Treasurer

Paul M. Nunley                   2000        46,795        --          --          --              --          39,604
Vice President, Operations       1999       130,000       6,764        --        98,460            --              20
and Technology
</TABLE>

- ----------
(1)   Effective March 31, 2000, the Company terminated the employment agreements
      of Messrs. Gill, Barratt, Nunley and Hardin (Controller of Company) and
      entered into Employment Agreement Settlement Agreements as further
      described below.

(2)   Aggregate perquisites and other personal benefits did not exceed the
      lesser of either $50,000 or 10% of the total annual salary and bonus
      listed above.

(3)   In May 2000, as consideration for acceptance of services as the Company's
      President, the Company's board of directors authorized the issuance of
      150,000 shares of the Company's common stock to Mr. Schwartz.

STOCK OPTION GRANTS IN 2000

<TABLE>
<CAPTION>
                                                         INDIVIDUAL GRANTS
                                ----------------------------------------------------------------
                                  NUMBER OF        % OF TOTAL
                                 SECURITIES      OPTIONS GRANTED     EXERCISE
                                 UNDERLYING        TO EMPLOYEES        PRICE         EXPIRATION
   NAME                       OPTIONS GRANTED     IN FISCAL YEAR     PER SHARE          DATE
   ----                         ------------       ------------     ------------    ------------
<S>                                   <C>              <C>              <C>               <C>
Robert W. Schwartz                    --               --               --                --
Douglas P. Gill ............          --               --               --                --
Warren D. Barratt     ......          --               --               --                --
Paul M. Nunley .............          --               --               --                --
</TABLE>

<PAGE>

STOCK OPTION EXERCISES IN 2000 AND OPTION VALUES AT DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                                VALUE OF UNEXERCISED
                               SHARES                      NUMBER OF UNEXERCISED OPTIONS        IN-THE-MONEY OPTIONS
                              ACQUIRED                         AT DECEMBER 31, 2000(1)          AT DECEMBER 31, 2000
                                 ON             VALUE       ----------------------------    ----------------------------
           NAME               EXERCISE        REALIZED      EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
           ----             ------------    ------------    ------------    ------------    ------------    ------------

<S>                                 <C>     <C>                   <C>            <C>        <C>             <C>
Robert W. Schwartz .....            --      $       --              --             --       $       --      $       --
Douglas P. Gill ........            --      $       --           346,920           --       $       --      $       --
Warren D. Barratt ......            --      $       --           216,825           --       $       --      $       --
Michael C. Mooney ......            --      $       --            72,275           --       $       --      $       --
Paul M. Nunley .........            --      $       --           173,460           --       $       --      $       --
</TABLE>

(1)  The Company is reporting options outstanding, but unexercised, prior to
     the consummation of the TAB Sale. The Company is currently evaluating
     the extent to which any such options are now terminated, in light of
     discontinued operations and termination of employee status.

EMPLOYMENT AGREEMENTS

            On March 31, 2000, and in conjunction with the TAB Sale, the Company
entered into Employment Agreement Settlement Agreements with Messrs. Douglas P.
Gill, President, Chief Executive Officer Paul M. Nunley, Vice President,
Operations and Technology; Warren D. Barratt, Chief Financial Officer; and Mark
G. Hardin, Controller of Company. Under the terms of these settlement
agreements, the Company paid a total amount of $308,830.19. This amount included
$196,500 which represented thirty percent (30%) of the amounts these officers
would be entitled to receive as severance under their respective employment
contracts with the Company. In addition, these officers were paid an aggregate
of $85,846.14 for unpaid wages and accrued vacation through April 30,2000.
Two-thirds of the total payments, or $205,886.79, were paid at closing of the
TAB Sale, with the balance to be paid at the termination of the Escrow
Agreement, from available cash of the Company less any reasonable provision
for additional net costs to wind-down and/or dispose of the Company.

      In full and final payment of the Company's obligations to Mr. Alan
Hobgood, former President of the Company, under a buyout of his employment
contract in 1998 and consulting agreement with Company, Mr. Hobgood and the
Company entered into a Business Consultant Agreement Settlement Agreement for
the amount of $113,615. This amount represents $25,000 in past due amounts
payable, and thirty percent (30%) of the balance due to Mr. Hobgood under the
buyout agreement. Mr. Hobgood was paid two-thirds of this amount at closing of
the sale, or $75,743.33, with the balance being owed at termination of the
escrow period .

STOCK OPTIONS

1988 STOCK OPTION PLAN

            The Company had a 1988 Stock Option Plan, covering an aggregate of
415,000 shares of Common Stock. The 1988 Stock Option Plan provided for the
grant to officers, Directors and key employees of the Company of incentive stock
options ("ISOs") intended to qualify under Section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code") and non-qualified stock options
("NQSOs"). The 1988 Stock Option Plan was approved by the stockholders of the
Company on November 15, 1988. Amendments to the 1988 Stock Option Plan
increasing the number of shares covered thereby were approved by the
stockholders of the Company on April 21, 1989, May 14, 1991, May 7, 1992, and
August 12, 1997. As of March 15, 2001, under the 1988 Stock Option Plan there
were outstanding options to purchase 203,962 shares of the Company's Common
Stock at prices ranging from $1.00 to $5.52 per share.

            Under the 1988 Stock Option Plan, which is administered by the Stock
Option Committee of the Board of Directors, key employees may be granted options
to

<PAGE>

purchase shares of the Company's Common Stock at 100% of fair market value on
the date of grant (or 110% of fair market value in the case of an ISO granted to
a 10% stockholder/grantee). The 1988 Stock Option Plan expired on October 31,
1998. Options granted under the 1988 Stock Option Plan must be exercised within
ten years from the date of grant, vest at varying times, as determined by the
Stock Option Committee, are nontransferable except by will or pursuant to the
laws of descent and distribution, and are protected against dilution. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth in the option. Such payment
must be made in cash or through delivery of shares of Common Stock or a
combination of cash and Common Stock, all as determined by the Stock Option
Committee. The Stock Option Committee may determine other terms applicable to
particular options. No one person may receive ISO options for which the
aggregate fair market value (determined at the time each ISO is granted) of
options exercisable for the first time during any calendar year exceeds
$100,000.

1991 DIRECTOR NON-STATUTORY STOCK OPTION PLAN

            The Company also has a 1991 Director Non-Statutory Stock Option Plan
(the "1991 Director Plan"), currently covering an aggregate of 210,000 shares of
Common Stock. The 1991 Director Plan was approved by the stockholders of the
Company on May 7, 1992 and provides for the grant of NQSOs to non-employee
Directors of the Company. An amendment to increase the number of shares offered
and reserved for the 1991 Director Plan was approved by the stockholders of the
Company on June 9, 1998. As of March 15, 2001, there were outstanding under the
1991 Director Non-Statutory Stock Option Plan options to purchase 130,000 shares
of the Company's Common Stock at prices ranging from $0.875 to $5.52 per share.

            Under the 1991 Director Plan, which is administered by the Board of
Directors, non-employee Directors are granted options to purchase 10,000 shares
of the Company's Common Stock upon their initial election as Directors and 7,500
shares on the second anniversary date of such election at the then-current
market price of such shares. One-third of the initial grant shall vest on each
anniversary of the date of grant, and one-third of the second grant shall vest
every six months after the date of grant. The 1991 Director Plan expired on
February 10, 2001. Under an amendment to the 1991 Director Plan adopted by the
Board of Directors in June 1998, each eligible Director will receive an
additional annual grant of options covering 6,250 shares of Common Stock,
commencing with the fiscal year of the Company immediately following the fiscal
year in which all shares of Common Stock covered by the initial grant and the
second grant described above are fully vested, and such annual grant will
continue each fiscal year thereafter until options covering all shares reserved
for issuance under the 1991 Director Plan have been granted. Options granted
under the 1991 Director Plan must be exercised within ten years from the date of
grant, are nontransferable except by will or pursuant to the laws of descent and
distribution, are protected against dilution and expire within three months
after termination of service as a Director of the Company, unless such
termination is by reason of death or disability or for cause. All shares
purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth in the option. Such payment
must be made in cash or through delivery of shares of Common Stock or a
combination of cash and Common Stock. The 1991 Director Plan may be amended at
any time by vote of the Board of Directors.

            During 1999, Messrs. Ralph Brown, Al Ireton, and Chauncey Schmidt,
all Directors of the Company, were granted options covering 6,250 shares each of
Common Stock at an exercise price of $0.875 per share. Messrs. Edward Gistaro
and Robert Schwartz, both Directors of the Company, were each granted options
covering 7,500 shares of Common Stock at an exercise price of $0.875,
respectively. The exercise price per share of each such option was not less than
the closing price of the Common Stock reported on The OTC Bulletin Board on the
date of the grant.

1998 EMPLOYEE STOCK OPTION PLAN

            On April 1, 1998, the Company approved the 1998 Employee Stock
Option Plan (the 1998 Employee Plan) covering 187,500 shares of common stock.
The plan was amended effective July 30, 1999 to increase the number of shares
reserved to 687,500. Unless terminated earlier by the Board of Directors, the
1998 Plan will

<PAGE>

terminate on March 31, 2008. The purpose of the plan is to supplement and
replace the 1988 Stock Option Plan (the 1988 Plan). The 1998 Employee Plan
provides for the grant to key employees of the Company of incentive stock
options (ISOs) intended to qualify under Section 422(b) of the Internal Revenue
Code and nonqualified stock options (NQSOs). As of March 15, 2001, under the
1998 Stock Option Plan there were outstanding options to purchase 582,221 shares
of the Company's Common Stock at prices ranging from $0.750 to $2.063 per share.

            Under the 1998 Employee Plan, which is administered by the Stock
Option Committee of the board of directors, key employees may be granted options
to purchase shares of the Company's common stock at 100 percent of fair market
value on the date of grant (or 110 percent of fair market value in the case of
an ISO granted to a 10 percent stockholder/grantee). Options granted under the
1998 Employee Plan must be exercised within 10 years from the date of grant,
vest at varying times as determined by the Stock Option Committee, are
nontransferable except by will or pursuant to the laws of descent and
distribution and expire within three months after termination of employment,
unless such termination is by reason of death or disability or for cause. All
shares purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth on the option. Such payment
must be made in cash or through delivery of shares of common stock or a
combination of cash and common stock, all as determined by the Stock Option
Committee. The Stock Option Committee may determine other terms applicable to
particular options. The aggregate fair market value (determined at the time each
ISO is granted) of the shares of common stock with respect to which ISOs issued
to any one person under the 1998 Employee Plan are exercisable for the first
time during any calendar year may not exceed $100,000.

      The 1998 Employee Plan may be amended at any time by a vote of the board
of directors. However, no amendment made without approval of the stockholders of
the Company may increase the total number of shares which may be issued under
options granted pursuant to the 1998 Employee Plan, reduce the maximum exercise
price or extend the latest date upon which options may be granted or change the
class of employees eligible to receive the options.

1998 EXECUTIVE NON-STATUTORY PLAN

            In 1998, the Company approved the 1998 Executive Non-Statutory Plan
(the 1998 NQSO Plan), covering 375,000 shares of common stock. Unless terminated
earlier by the Board of Directors, the 1998 NQSO Plan will terminate on March
31, 2008. The 1998 NQSO Plan provides executives of the Company the added
incentive of performance-based compensation and stock ownership through the
grant of nonqualified stock options. The purpose of the plan is to stimulate the
efforts of executive management to increase shareholder wealth by the
performance of specific goals designed to increase shareholder wealth in the
form of an increased market price of the Company's stock. As of March 15, 2001,
under the 1998 Executive Non-Statutory Plan there were outstanding options to
purchase 375,000 shares of the Company's Common Stock at prices ranging from
$0.875 to $1.00 per share.

      Under the 1998 NQSO Plan, identified executives may be granted long-term
options to purchase shares of the Company's common stock at a price specified on
the date of the grant subject to certain acceleration rights upon attainment of
specific goals. The 1998 NQSO Plan is administered by the Stock Option
Committee. Options granted under the 1998 NQSO Plan will expire 10 years from
the date of grant, vest immediately or at varying times as determined by the
NQSO Committee, are nontransferable except by will or pursuant to the laws of
descent and distribution. All shares purchased upon exercise of any option must
be paid in full at the time of purchase, in accordance with the terms set forth
on the option. Such payment must be made in cash or through delivery of shares
of common stock or a combination of cash and common stock, all as determined by
the NQSO Committee. The NQSO Committee may determine other terms applicable to
particular options. The 1998 NQSO Plan may be amended at any time by a vote of
the Board of Directors.

EMPLOYEE STOCK PURCHASE PLAN

            The Company's 1993 Employee Stock Purchase Plan (the "Purchase
Plan") was approved by the stockholders at the 1994 Annual Meeting of
Stockholders and amended on August 12, 1997 and June 9, 1998. Under the Purchase
Plan, eligible

<PAGE>

employees may elect to have up to 10% of their Base Pay (as defined) deducted
and utilized for the purchase of Common Stock of the Company in annual or
semiannual offerings to be made by the Company to eligible employees. The
Company has reserved 350,000 shares of Common Stock for issuance pursuant to
the Stock Purchase Plan. The Company's stockholders approved an increase of
an additional 100,000 shares and an extension of the Purchase Plan until
December 31, 2001 in June 1998. The Company issued 51,907 (plus 424 shares of
treasury stock), 24,398 treasury shares and 26,809 new shares in December
1999, January 1999 and January 1998, respectively, pursuant to this Plan at
purchase prices of $0.37, $0.77 and $3.40 per share, respectively, which
represents 85% of the closing price on December 31, 1999, December 31, 1998,
and December 30, 1997, respectively. At March 15, 2001, 156,881 shares remain
available for issuance.

      Under the Purchase Plan, the Company will make available in each year from
January 1, 1994 through December 31, 2001 up to 50,000 shares of Common Stock.
Such shares will be offered to participating employees in annual or semiannual
offerings. Participating employees will be deemed to have been granted options
to purchase Common Stock in each offering in an amount equal to the amount of
their respective payroll deductions divided by 85% of the market value of the
Common Stock of the Company on the applicable Offering Commencement Date.

      The option price shall be the lesser of 85% of the closing price of the
Common Stock on the Offering Commencement Date (or the next preceding trading
day) or 85% of the closing price of Common Stock on the Offering Termination
Date (or the next preceding trading day). Unless a participating employee
terminates participation as provided in the Stock Purchase Plan, such employee
shall be deemed to have exercised such option on the Offering Termination Date
and shall be issued a corresponding number of shares of Common Stock.

      The Purchase Plan is administered by the Compensation Committee of the
Board of Directors and will expire on December 31, 2001, unless sooner
terminated or amended by the Board of Directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 15, 2001 (a) by
each of the Company's Directors, (b) by the Company's Chief Executive Officer
and the other named executive officers, and (c) by all Directors and executive
officers as a group.

<TABLE>
<CAPTION>
                       NAME AND                AMOUNT AND
                      ADDRESS OF               NATURE OF             PERCENT
TITLE OF CLASS    BENEFICIAL OWNER (1)   BENEFICIAL OWNERSHIP (2)   OF CLASS (3)
- --------------------------------------------------------------------------------
<S>               <C>                            <C>                     <C>
Common Stock,     Edward P. Gistaro              166,187 (4)              4.46
par value $.01    Douglas P. Gill                142,451 (5)              3.78
per share         Ralph Brown                     80,708 (6)              2.16
                  Al R. Ireton                    50,708 (7)              1.35
                  Chauncey E. Schmidt             50,708 (8)              1.35
                  Robert W. Schwartz             170,501 (9)              4.58
                  Warren D. Barratt                8,334 (10)             0.22
                  Paul M. Nunley                   8,334 (10)             0.22
                  All Directors and
                  executive officers
                  as a Group (8
                  persons including
                  the above)                     677,931 (11)            17.49%
</TABLE>

- ----------
(1)   The address for all persons named is 8 Airport Park Boulevard, Latham, New
      York, 12110.

(2)   The persons named in the table have sole voting and investment power with
      respect to all shares of Common Stock shown as beneficially owned by them,
      except as otherwise indicated.

<PAGE>

(3)   Unless otherwise indicated below, the percentage of ownership is based
      upon 3,717,098 shares of Common Stock outstanding, which includes 58,331
      shares of Common Stock into which outstanding shares of Preferred Stock
      are convertible and which the holders of the Preferred Stock are entitled
      to vote.

(4)   Includes 9,167 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,726,265 shares outstanding

(5)   Includes 50,000 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,767,098 shares outstanding.

(6)   Includes 26,875 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,743,973 shares outstanding.

(7)   Includes 29,375 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,746,473 shares outstanding.

(8)   Includes 29,375 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,746,473 shares outstanding.

(9)   Includes 5,834 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,722,932 shares outstanding.

(10)  Includes 8,334 shares subject to currently exercisable stock options. The
      percentage of ownership is based on 3,725,432 shares outstanding.

(11)  Includes 158,960 subject to currently exercisable stock options. The
      percentage of ownership is based on 3,876,058 shares outstanding.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      On September 29, 1999, two directors of the Company loaned the Company as
aggregate of $325,000. The promissory notes (the Notes), issued in conjunction
with these loans, carry a 12 percent annual interest rate. Principal and
interest on the Notes are payable on the earlier of (i) September 28, 2000, or
(ii) within 10 days of an equity-based financing (the Financing), as defined. In
conjunction with the Notes, the two directors were issued an aggregate of
243,750 warrants to purchase common stock of the Company. Pursuant to an
agreement with the two directors, the warrants were canceled and interest
payable on these related-party loans was waived upon consummation of the TAB
transaction described above.

      In May 2000, as consideration for acceptance of service as the Company's
president, the Company's Board of Directors authorized the issuance of 150,000
shares of the Company's common stock to a company in which the Company's
president has material ownership.

      Since May 2000, no officer, executive officer, or affiliate of the Company
has entered into any other direct or indirect material transactions, or series
of transactions, or had any direct or indirect material interest in any proposed
transaction, or series of transactions, to which the Company is to be a party
where the amount involved exceeds $60,000.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   Exhibits.

      The Exhibits required by Regulation S-B are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-KSB, as so indicated in such list.

<PAGE>

      2.1   Asset Purchase Agreement dated March 15, 1994, between Docucon,
            Incorporated and J. Feuerstein Systems, Inc., including the related
            Letter Agreement, dated January 28, 1994, between Jim Feuerstein and
            Docucon, Incorporated, as filed as Exhibit 2.1 to the Company's
            Annual Report on Form 10-KSB for the fiscal year ended December 31,
            1993, is hereby incorporated herein by reference.

      3.1   Certificate of Incorporation of Docucon, Incorporated, filed as
            Exhibit 3.1 to the Company's Registration Statement on Form S-1
            (Registration No. 33-25561), is hereby incorporated herein by
            reference.

      3.2   Certificate of Amendment to Certificate of Incorporation of Docucon,
            Incorporated, filed as Exhibit 3.2 to the Company's Annual Report on
            Form 10-KSB for the fiscal year ended December 31, 1992, is hereby
            incorporated herein by reference.

      3.3   Bylaws of Docucon, Incorporated, filed as Exhibit 3.2 to the
            Company's Registration Statement on Form S-1 (Registration No.
            33-25561), is hereby incorporated herein by reference.

      3.4   Certificate of Merger of Docucon, Incorporated, a Delaware
            corporation, and Docucon, Incorporated, a Texas corporation, October
            11, 1988, filed as Exhibit 3.4 to the Company's Annual Report on
            Form 10-KSB for the fiscal year ended December 31, 1995, is hereby
            incorporated herein by reference.

      3.5   Certificate of Designation Preferences of Series A Convertible
            Preferred Stock of Docucon, Incorporated, May 29, 1990, filed as
            Exhibit 3.5 to the Company's Annual Report on Form 10-KSB for the
            fiscal year ended December 31, 1995, is hereby incorporated herein
            by reference.

      3.6   Certificate of Designation Preferences of Series B Non-Convertible,
            Cumulative, Non-Voting, Redeemable Preferred Stock of Docucon,
            Incorporated, June 12, 1991, filed as Exhibit 3.6 to the Company's
            Annual Report on Form 10-KSB for the fiscal year ended December 31,
            1995, is hereby incorporated herein by reference.

      3.7   Certificate of Correction of Certificate of Designation Preferences
            of Series A Convertible Preferred Stock of Docucon, Incorporated,
            June 1, 1990, filed as Exhibit 3.7 to the Company's Annual Report on
            Form 10-KSB for the fiscal year ended December 31, 1995, is hereby
            incorporated herein by reference.

      4.1   Warrant to Purchase Common Stock of Docucon, Incorporated, entitling
            D. H. Blair Investment Banking Corp. to purchase 80,000 shares of
            Common Stock at an exercise price of $.75 per share, expiring on
            November 5, 1995, as filed as Exhibit 4.1 to Amendment No. 1 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-82018), is hereby incorporated herein by reference.

      4.2   Warrant to Purchase Common Stock of Docucon, Incorporated, entitling
            D. H. Blair Investment Banking Corp. to purchase 160,000 shares of
            Common Stock at an exercise price of $.70 per share, expiring on
            November 5, 1995, as filed as Exhibit 4.2 to Amendment No. 1 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-82018), is hereby incorporated herein by reference.

      4.3   Warrant to Purchase Common Stock of Docucon, Incorporated, entitling
            James Coleman to purchase 20,000 shares of Common Stock at an
            exercise price of $.75 per share, expiring on November 5, 1995, as
            filed as Exhibit 4.5 to Amendment No. 1 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-82018), is
            hereby incorporated herein by reference.

<PAGE>

      4.4   Warrant to Purchase Common Stock of Docucon, Incorporated, entitling
            James Coleman to purchase 40,000 shares of Common Stock at an
            exercise price of $.70 per share, expiring on November 5, 1995, as
            filed as Exhibit 4.6 to Amendment No. 1 to the Company's
            Registration Statement on Form SB-2 (Registration No. 33-82018), is
            hereby incorporated herein by reference.

      4.5   Stock Option Agreement, dated August 31, 1992, in which Docucon,
            Incorporated granted The Wall Street Group, Inc. a stock option to
            purchase up to 72,727 shares of Common Stock at a price of $1.375
            per share, as filed as Exhibit 4.14 to Amendment No. 1 to the
            Company's Registration Statement on Form SB-2 (Registration No.
            33-82018), is hereby incorporated herein by reference.

      10.1  Contract, dated as of May 8, 1991, between the Company and the U. S.
            Department of Defense, filed as Exhibit 10.2 to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1991, is
            hereby incorporated herein by reference.

      10.2  Employment Agreements between the Company and each of Edward P.
            Gistaro and Allan H. Hobgood, filed as Exhibit 10.5 to the Company's
            Registration Statement on Form S-1 (Registration No. 33-25561), are
            hereby incorporated herein by reference.

      10.3  Amendment to Employment Agreement between the Company and Alan H.
            Hobgood, filed as Exhibit 10.7 to the Company's Annual Report on
            Form 10-KSB for the fiscal year ended December 31, 1992, is hereby
            incorporated herein by reference.

      10.5  1988 Stock Option Plan, filed as Exhibit 10.9 to the Company's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1991, is hereby incorporated herein by reference.

      10.6  1991 Director Non-Statutory Stock Option Plan, filed as Exhibit
            10.10 to the Company's Annual Report on Form 10-KSB for the fiscal
            year ended December 31, 1992, is hereby incorporated herein by
            reference.

      10.8  Note and Warrant Purchase Agreement, dated as of December 15, 1992,
            between the Company and Demuth, Folger & Terhune, including all
            Exhibits thereto (which include the form of Promissory Note, the
            form of Common Stock Purchase Warrant and the form of Deed of Trust
            executed and delivered in connection with the transaction), filed as
            Exhibit 5.1 to the Company's Current Report on Form 8-K dated
            December 16, 1992, is hereby incorporated herein by reference.

      10.9  1993 Employee Stock Purchase Plan, filed as Exhibit 10.11 to the
            Company's Annual Report on Form 10-KSB for the fiscal year ended
            December 31, 1993, is hereby incorporated herein by reference.

      10.10 Form of Promissory Note, Revolving, dated as of September 30, 1996,
            between Docucon, Incorporated and Bank One, Texas, N.A., filed as
            Exhibit 10.12 to the Company's Quarterly Report on Form 10-QSB for
            the quarter ended September 30, 1996, is hereby incorporated herein
            by reference.

      10.11 Form of Promissory Note, dated as of September 30, 1996, between
            Docucon, Incorporated and Bank One, Texas, N.A., filed as Exhibit
            10.13 to the Company's Quarterly Report on Form 10-QSB for the
            quarter ended September 30, 1996, is hereby incorporated herein by
            reference.

      10.12 Deed of Trust, Security Agreement and Financing Statement, dated as
            of September 30, 1996, executed in connection with the issuance of
            Promissory Notes in Exhibits 10.12 and 10.13, filed as Exhibit 10.14
            to the Company's Quarterly Report on Form

<PAGE>

            10-QSB for the quarter ended September 30, 1996 is hereby
            incorporated herein by reference.

      10.13 Asset Sale and Purchase agreement, November 26, 1997, between
            Docucon, Incorporated and Bowne of Dallas, Inc., and Bowne
            Litigation Solutions, L.P., filed as Exhibit 10.13 to the Company's
            Annual Report on Form 10-KSB for the year ended December 31, 1997 is
            herein incorporated by reference.

      10.14 Employment Agreement, January 5, 1998, between Docucon, Incorporated
            and Lori Turner, filed as Exhibit 10.14 to the Company's Annual
            Report on Form 10-KSB for the year ended December 31, 1997 is
            hereby incorporated herein by reference.

      10.15 Employment Agreement, April 1, 1998, between Docucon, Incorporated
            and Douglas P. Gill, filed as Exhibit 10.15 to the Company's Annual
            Report on Form 10-KSB for the year ended December 31, 1997 is hereby
            incorporated herein by reference.

      10.16 Employment Agreement, December 20, 1998, between Docucon,
            Incorporated and Warren D. Barratt, filed as Exhibit 10.16 to the
            Company's Annual Report on Form 10-KSB for the year ended December
            31, 1999 is hereby incorporated herein by reference.

      10.17 Employment Agreement, January 4, 1999, between Docucon, Incorporated
            and Michael Nunley, filed as Exhibit 10.17 to the Company's Annual
            Report on Form 10-KSB for the year ended December 31, 1999 is hereby
            incorporated herein by reference.

      10.18 Amendment of Bylaws filed as Exhibit 10.18 to the Company's
            Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999
            is hereby incorporated herein by reference.

      10.19 Accounts Receivable Purchase Agreement dated June 18, 1999, between
            Silicon Valley Bank and Docucon, Incorporated filed as Exhibit 10.19
            to the Company's Quarterly Report on Form 10-QSB for the quarter
            ended June 30, 1999 is hereby incorporated herein by reference.

      10.20 Asset Purchase Agreement by and among TAB Products Co., Bunt
            Acquisition Corp. and Docucon, Incorporated dated March 7, 1999,
            files as Exhibit 10.20 to the Company's Annual Report on Form 10-KSB
            for the year ended December 31, 1999, is hereby incorporated herein
            by reference.

      10.21 Employment Agreement Settlement Agreement, March 31, 2000 between
            Docucon, Incorporated and Douglas P. Gill.

      10.22 Employment Agreement Settlement Agreement, March 31, 2000 between
            Docucon, Incorporated and Paul M. Nunley.

      10.23 Employment Agreement Settlement Agreement, March 31, 2000 between
            Docucon, Incorporated and Mark G. Hardin.

      10.24 Employment Agreement Settlement Agreement, March 31, 2000 between
            Docucon, Incorporated and Warren D. Barratt.

      10.25 Business Consultant Agreement Settlement Agreement, March 31, 2000,
            between Docucon, Incorporated and Alan H. Hobgood.

(b)   Reports on Form 8-K.

      1. The Company filed a Current Report on Form 8-K on June 9, 2000 for the
purpose of reporting the consummation of the sale of substantially all of its

<PAGE>

operating assets and certain liabilities and obligations to Bunt Acquisition
Corporation, a Delaware corporation and wholly owned subsidiary of Tab Products
Co.

      2. The Company filed a Current Report on Form 8-K on February 28, 2001 for
the purpose of reporting the change in Company's certifying accountant from
Arthur Andersen LLP to Rothstein, Kass & Company, P.C.

      3. The Company filed a Current Report on Form 8-K on April 4, 2001 to
announce the approval of the Letter of Intent proposing the reverse merger of
Digital Vision Systems, Inc. into Docucon.

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                    DOCUCON, INCORPORATED

                                    By: ROBERT W.SCHWARTZ
                                        /s/ Robert W. Schwartz
                                        President, Chief Executive Officer, and
                                        Director

                                    Date: April 17, 2001

      In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

         SIGNATURE                       CAPACITY                    DATE
       ------------                    ------------               ----------

     ROBERT W. SCHWARTZ          President, Chief Executive     April 17, 2001
- ----------------------------        Officer and Director
   /S/ Robert W. Schwartz

      EDWARD P. GISTARO     Chairman of the Board of Directors  April 17, 2001
- ----------------------------
    /S/ Edward P. Gistaro

         RALPH BROWN                     Director               April 17, 2000
- ----------------------------
       /S/ Ralph Brown

       DOUGLAS P. GILL                   Director               April 17, 2001
- ----------------------------
     /S/ Douglas P. Gill

        AL R. IRETON                     Director               April 17, 2001
- ----------------------------
      /S/ Al R. Ireton

     CHAUNCEY E. SCHMIDT                 Director               April 17, 2001
- ----------------------------
   /S/ Chauncey E. Schmidt


<PAGE>


                              DOCUCON, INCORPORATED

                              FINANCIAL STATEMENTS
                                       AND
                          INDEPENDENT AUDITORS' REPORT

                                DECEMBER 31, 2000

<PAGE>

                              DOCUCON, INCORPORATED

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                       <C>
Reports of Independent Public Accountants                                  F-1-2

Financial Statements

     Balance Sheet                                                           F-3

     Statements of Operations                                                F-4

     Statements of Stockholders' Equity (Deficit)                            F-5

     Statements of Cash Flows                                              F-6-7

     Notes to Financial Statements                                        F-8-16
</TABLE>

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Docucon, Incorporated

We have audited the accompanying balance sheet of Docucon, Incorporated as of
December 31, 2000, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the year then ended. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Docucon, Incorporated as of
December 31, 2000, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company sold substantially all of its operating assets
and certain liabilities and obligations and effectively became a "shell" company
with no revenues and continuing general and administrative expenses. Further, at
December 31, 2000, the Company had significant cumulative losses and a working
capital deficit. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                        /s/ Rothstein, Kass & Company, P.C.

Roseland, New Jersey
April 12, 2001


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Docucon, Incorporated

We have audited the accompanying statements of operations, stockholders' equity
(deficit) and cash flows of Docucon, Incorporated (a Delaware corporation) for
the year ended December 31, 1999. 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 audit.

We conducted our audit in accordance with auditing standards generally accepted
in the 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 includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of Docucon, Incorporated's operations and its
cash flows for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced significant cumulative losses,
recurring negative operating cash flows and has a working capital deficit. At
December 31, 1999, the Company had a stockholders' deficit. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.


                                        /s/ ARTHUR ANDERSEN LLP

San Antonio, Texas
March 2, 2000


                                      F-2
<PAGE>

                              DOCUCON, INCORPORATED

                                  BALANCE SHEET
                                December 31, 2000

<TABLE>
<CAPTION>
                                     ASSETS
<S>                                                                <C>
Current assets

  Cash                                                             $    238,370
  Other current assets                                                    7,351
                                                                   ------------
    Total current assets                                                245,721

Property and equipment, net                                              74,000

Restricted cash and other assets                                        264,257
                                                                   ------------

                                                                   $    583,978
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

  Accounts payable                                                 $     18,012
  Accrued expenses and other current liabilities                        260,575
  Notes payable                                                         108,334
                                                                   ------------

Total current liabilities                                               386,921
                                                                   ------------

Other liability                                                           5,280
                                                                   ------------

Commitments and contingencies

Stockholders' equity
  Preferred stock, $1.00 par value, 10,000,000
   shares authorized-Series A, 60 shares authorized,
   7 shares issued and outstanding                                            7
  Common stock $.01 par value, 25,000,000 shares
   authorized, 3,658,767 shares issued                                   36,588
  Additional paid-in capital                                         10,231,240
  Accumulated deficit                                               (10,071,822)
  Treasury stock, at cost, 4,495 shares                                  (4,236)
                                                                   ------------

Total stockholders' equity                                              191,777
                                                                   ------------

                                                                   $    583,978
                                                                   ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-3
<PAGE>

                              DOCUCON, INCORPORATED

                            STATEMENTS OF OPERATIONS
                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                         2000          1999
                                                     -----------    -----------
<S>                                                  <C>            <C>
Revenues                                             $        --    $        --
                                                     -----------    -----------
Costs and expenses
  General and administrative                             865,457      1,658,267
  Depreciation and amortization                           15,381         22,015
                                                     -----------    -----------

Total costs and expenses                                 880,838      1,680,282

Interest expense, net                                    107,477            714
                                                     -----------    -----------

Loss from continuing operations                         (988,315)    (1,680,996)
                                                     -----------    -----------

Discontinued operations
  Loss from discontinued operations                   (1,007,170)    (1,885,832)
  Gain on disposal                                     4,072,064
                                                     -----------    -----------
Income (loss) from discontinued operations             3,064,894     (1,885,832)
                                                     -----------    -----------

Net income (loss)                                      2,076,579     (3,566,828)

Preferred stock dividend requirement                     (19,250)       (19,250)
                                                     -----------    -----------

Net income (loss) applicable to common stockholders  $ 2,057,329    $(3,586,078)
                                                     ===========    ===========


EARNINGS (LOSS) PER COMMON SHARE:

Basic and diluted
  From continuing operations                         $     (0.28)   $     (0.50)
  From discontinued operations                              0.85          (0.56)
                                                     -----------    -----------
    Net income (loss)                                $      0.57    $     (1.06)
                                                     ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-4
<PAGE>

                              DOCUCON, INCORPORATED

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                 Preferred Stock                 Common Stock             Additional
                                           ---------------------------   ----------------------------       paid-in
                                              Shares         Amount         Shares          Amount          capital
                                           ------------   ------------   ------------    ------------    ------------
<S>                                        <C>            <C>               <C>          <C>             <C>
Balances, January 1, 1999                             7   $          7      3,306,216    $     33,062    $ 10,027,337

Warrants issued                                                                                                85,312

Purchase of treasury stock                                                    (26,400)           (264)

Treasury shares issued pursuant to
 employee stock plans                                                          24,822             249            (249

Shares issued in satisfaction of
 accrued liabilities                                                          152,222           1,522          78,561

Shares issued pursuant to employee
 stock plans                                                                   51,907             519          18,942

Net loss
                                           ------------   ------------   ------------    ------------    ------------


Balances, December 31, 1999                           7              7      3,508,767          35,088      10,209,903

Shares issued to officer as compensation                                      150,000           1,500          21,337

Net income
                                           ------------   ------------   ------------    ------------    ------------

Balances, December 31, 2000                           7   $          7      3,658,767    $     36,588    $ 10,231,240
                                           ============   ============   ============    ============    ============

<CAPTION>
                                                                             Total
                                            Accumulated     Treasury      stockholders'
                                              Deficit         stock      equity (deficit)
                                           ------------    ------------  ----------------
<S>                                        <C>             <C>             <C>
Balances, January 1, 1999                  $ (8,581,573)   $     (3,094)   $  1,475,739

Warrants issued                                                                  85,312

Purchase of treasury stock                                      (25,550)        (25,814)

Treasury shares issued pursuant to
 employee stock plans                                            24,408          24,408

Shares issued in satisfaction of
 accrued liabilities                                                             80,083

Shares issued pursuant to employee
 stock plans                                                                     19,461

Net loss                                     (3,566,828)                     (3,566,828)
                                           ------------    ------------    ------------


Balances, December 31, 1999                 (12,148,401)         (4,236)     (1,907,639)

Shares issued to officer as compensation                                         22,837

Net income                                    2,076,579                       2,076,579
                                           ------------    ------------    ------------

Balances, December 31, 2000                $(10,071,822)   $     (4,236)   $    191,777
                                           ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-5
<PAGE>

                              DOCUCON, INCORPORATED

                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                          2000           1999
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Cash flows from operating activities
  Net income (loss)                                                   $ 2,076,579    $(3,566,828)
  Less income (add loss) from discontinued operations                   3,064,894     (1,885,832)
                                                                      -----------    -----------
  Loss from continuing operations                                        (988,315)    (1,680,996)
  Adjustments to reconcile loss from continuing operations
    to net cash used in continuing operations:
      Depreciation and amortization                                        15,381         22,015
      Noncash interest                                                     70,666         14,647
      Common stock issued to officer                                       22,837
      Write-off of deposits                                                60,825
      Gain on forgiveness of certain accrued liabilities                 (178,379)
       Increase (decrease) in cash attributable to changes
        in operating assets and liabilities:
        Other current assets                                                5,972        (49,607)
        Other assets                                                       16,509
        Accounts payable                                                 (138,207)      (228,199)
        Accrued expenses and other current liabilities                   (166,654)        98,209

                                                                      -----------    -----------
  Net cash used in continuing operations                               (1,279,365)    (1,823,931)
  Net cash used in discontinued operations                               (744,677)      (866,610)
                                                                      -----------    -----------

Net cash used in operating activities                                  (2,024,042)    (2,690,541)
                                                                      -----------    -----------

Cash flows from investing activities
  Proceeds from TAB transaction, net of amount paid to escrow fund
    of 250,000 and cash acquired by TAB of $92,433                      2,464,254
  Purchases of property and equipment                                                    (72,184)
  Purchases of property and equipment of discontinued operations                        (188,035)
  Proceeds from the sale of property of discontinued operations                        1,782,609
                                                                      -----------    -----------

Net cash provided by investing activities                               2,464,254      1,522,390
                                                                      -----------    -----------

Cash flows from financing activities
  Proceeds from (payments of) notes payable and warrants, directors      (216,667)       325,000
  Increase in secured indebtedness, net                                                  899,004
  Principal payments on long-term debt and other obligations                            (968,869)
  Principal payments under capital lease obligations                      (14,010)       (45,301)
  Proceeds from employer stock purchase plan                                              19,461
  Payment of preferred stock dividends                                                   (88,816)
  Purchase of treasury stock                                                             (25,814)
  Proceeds from short-term notes                                        1,075,000
  Principal payments on short-term notes                               (1,075,000)
                                                                      -----------    -----------

Net cash provided by (used in) financing activities                      (230,677)       114,665
                                                                      -----------    -----------

Net increase (decrease) in cash                                           209,535     (1,053,486)

Cash
  Beginning of year                                                        28,835      1,082,321
                                                                      -----------    -----------

  End of year                                                         $   238,370    $    28,835
                                                                      ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-6
<PAGE>

                              DOCUCON, INCORPORATED

                      STATEMENTS OF CASH FLOWS (CONTINUED)
                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                          2000           1999
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
Supplemental disclosures of cash flow information,
 approximate cash paid during the year for interest                   $    32,000    $   146,000
                                                                      ===========    ===========

Supplemental disclosures of noncash investing and
 financing activities:
   Assumption of liabilities by TAB (see Note 3)                      $ 2,311,000    $        --
                                                                      ===========    ===========

   Capital lease obligation incurred                                  $        --    $    71,000
                                                                      ===========    ===========

   Stock issued in satisfaction of accrued liabilities                $        --    $    80,000
                                                                      ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-7
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

1. Description, background and going concern consideration

Docucon, Incorporated (the "Company"), a Delaware corporation, was incorporated
in June 1986. Through May 2000, the Company's primary business was the
conversion of paper and microform documents to optical and other types of
storage media for use in document management systems and internet applications
for customers in the federal and commercial markets. In May 2000, the Company
completed the sale of substantially all of its operating assets and certain
liabilities to Tab Products Co. ("TAB").

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed above and in Note 3, the Company
sold substantially all of its operating assets and certain liabilities to TAB
and effectively became a "shell" company with no revenues and continuing general
and administrative expenses. Further, at December 31, 2000, the Company has
cumulative losses of approximately $10.1 million and a working capital deficit
of approximately $141,000. For the years ended December 31, 2000 and 1999, the
Company had negative operating cash flows of approximately $2.0 million and $2.7
million, respectively. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. In March 2001, the Company agreed to the terms of a letter of
intent to acquire all outstanding and issued shares of an unrelated manufacturer
and distributor of video surveillance systems. The proposed transaction is
subject to various significant conditions including, but not limited to, the
unrelated manufacturer's commitment to fund an additional $2.5 million in
operating capital, and approval of both companies' shareholders. If the Company
is unsuccessful in completing this transaction, management's alternative plan
includes a further search for a similar business combination or strategic
alliance. There can be no assurances that the transaction described above or
management's alternative plan will be realized.

2. Summary of significant accounting policies

Cash

The Company maintains its cash with financial institutions in accounts that at
times may exceed insured limits. The Company has not experienced any losses in
such accounts and believes it is not subject to any significant credit risk on
cash.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the straight-line
method over 3 to 5 years.

Revenue Recognition

Revenues from conversion service contacts were recognized at the time services
were provided and were based upon the number of documents converted and the
conversion rates established in the contracts.

Earnings (loss) per Common Share ("EPS")

The Company complies with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" which requires dual presentation of basic and
diluted earnings per share. Basic EPS excludes dilution and is computed by
dividing income (loss) available to common stockholders by the weighted-average
common shares outstanding for the year. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.


                                      F-8
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued)

Earnings (loss) per Common Share ("EPS") (continued)

As the Company had a net loss from continuing operations for the years ended
December 31, 2000 and 1999, diluted EPS equals basic EPS as potentially dilutive
common stock equivalents are antidilutive. The average market price per share of
the Company's common stock for the years ended December 31, 2000 and 1999, was
approximately $.28 and $.72, respectively. If the Company would have had income
from continuing operations for the years ended December 31, 2000 and 1999, the
denominator (weighted average number of common shares and common share
equivalents outstanding) in the diluted EPS calculation would have been
increased, through application of the treasury stock method, for each class of
option or warrant for which the average market price per share of the Company's
common stock exceeded the common stock equivalents' exercise price.

Income Taxes

The Company complies with SFAS No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts, based on
enacted tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred income tax assets to the amounts expected to
be realized.

Use of Estimates

The preparation of financial statements in conformity 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 at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. Discontinued operations and related contingency

In May 2000, the Company's shareholders approved the sale of substantially all
of the Company's operating assets to TAB for cash of approximately $2.8 million
and the assumption of approximately $2.3 million of operating liabilities,
resulting in a pre-tax gain of approximately $4.1 million. As a result, the
operating activity related to the operating assets and liabilities has been
accounted for as a discontinued operation and, accordingly, the Company has
restated its financial statements for 1999 in accordance with Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations".
The following table provides certain information related to the discontinued
operations for the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                               2000               1999

<S>                                        <C>                <C>
      Revenues                             $ 1,231,204        $ 5,716,520
                                           -----------        -----------

      Costs and expenses
        Production                           1,229,394          4,969,905
        All other                            1,008,980          2,632,447
                                           -----------        -----------

                                             2,238,374          7,602,352
                                           -----------        -----------

                                           $(1,007,170)       $(1,885,832)
                                           ===========        ===========
</TABLE>


                                      F-9
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

3. Discontinued operations and related contingency (continued)

In conjunction with entering into a nonbinding letter of intent in January 2000,
and definitive asset purchase agreement dated March 7, 2000, by and among TAB
and TAB's wholly-owned subsidiary, Bunt Acquisition Corp., on one hand, and the
Company on the other hand ("TAB Asset Purchase Agreement"), TAB loaned the
Company cash, evidenced by secured promissory notes in the amount of $1,075,000,
to fund working capital deficits. This amount, plus accrued interest of
approximately $23,000, was deducted from cash proceeds at closing. In addition,
in accordance with the TAB Asset Purchase Agreement, promptly after closing, the
Company paid from the cash proceeds substantially all liabilities not assumed by
TAB, except for certain amounts due under employment agreements with certain
Company officers, a retirement obligation due to a former officer of the Company
and the notes payable discussed in Note 4. Prior to the closing of the TAB
transaction, certain Company officers and a former Company officer agreed to
reductions in the amounts due under employment agreements and a retirement
agreement, respectively, among other terms. The two directors of the Company who
had loaned the Company an aggregate of $325,000 agreed to waive the accrued
interest due on the notes and to the cancellation of the related warrants (as
described in Note 4), among other terms. In accordance with these revised
agreements, the Company paid two-thirds of the obligations after closing and the
remaining one-third will be satisfied upon release of the escrow fund, described
below, from available cash less a reasonable provision for any net costs
necessary to wind-down and/or dispose of the Company.

Under the terms of the TAB Asset Purchase Agreement, TAB paid $250,000 of the
purchase price into an Escrow Fund ("Escrow Fund") for the purposes of
indemnifying TAB from certain "Indemnifiable losses," as defined therein,
including any failure of the Company to discharge any liability not assumed by
TAB. The Escrow Fund, which is classified as restricted cash in the accompanying
December 31, 2000 balance sheet, was scheduled to be released in November 2000,
net of any indemnification claims that have been agreed to by TAB and the
Company and any unresolved claims. Unresolved claims will be satisfied or the
related Escrow Fund released after the claims resolution procedure detailed in
the TAB Asset Purchase Agreement has been completed. On November 9, 2000, TAB
asserted claims against the Escrow Fund pursuant to Article XII of the TAB Asset
Purchase Agreement and pursuant to Section 6 of the Escrow Agreement, based upon
certain claims asserted by the Department of Labor ("DOL") against TAB relating
to government wage and benefit orders, and that certain employees may not have
been paid in compliance with these orders. DOL has not asserted these claims
against the Company. On December 7, 2000, the Company objected to the entirety
of all claims made by TAB against the Escrow Fund. Additionally, the Company
notified TAB of its intention to participate in defense of the DOL's claims. TAB
consented to the Company's participation. The Company and TAB agreed to a 90-day
good-faith negotiation period through March 7, 2001 (extended to April 30,
2001). The Company and TAB are negotiating a potential resolution of this matter
and continuing discussions with DOL. The Company expects resolution of this
matter in the second quarter 2001; however, at the present time, the Company is
unable to determine with any certainty the outcome of the claims asserted. Under
the TAB Asset Purchase Agreement, all claims by TAB are limited to the amount of
the Escrow Fund except as to claims asserted on the basis of fraud, willful
misconduct or the failure of the Company to perform postclosing obligations. The
Company does not believe the foregoing exceptions apply. The Company is unable
to determine the likelihood that TAB will recover a portion, if any, of the
Escrow Fund. The Company believes that recovery by TAB in excess of the Escrow
Fund is remote.


                                      F-10
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

4. Notes payable

In September 1999, two directors of the Company loaned the Company an aggregate
of $325,000. The promissory notes (the "Notes"), issued in conjunction with
these loans, carry a 12 percent annual interest rate. Principal and interest on
the Notes was payable on the earlier of (i) September 28, 2000, or (ii) within
10 days of an equity-based financing (the "Financing"), as defined. In
conjunction with the Notes, the two directors were issued an aggregate of
243,750 warrants to purchase common stock of the Company. The warrants were
exercisable for a period of five years, however, upon consummation of the TAB
transaction, the two directors agreed to cancel the warrants and waive accrued
interest, among other terms. The warrants were valued at an estimated fair
market value of $85,312 and were recorded as an original issue discount on the
Notes. The original issue discount on the Notes was charged to interest expense.

5. Other balance sheet items

At December 31, 2000, property and equipment consists of the following:

<TABLE>
<S>                                                               <C>
      Computer software                                           $ 56,090
      Furniture and equipment                                       74,712
                                                                  --------
                                                                   130,802
      Less accumulated depreciation and amortization                56,802
                                                                  --------

                                                                  $ 74,000
                                                                  ========
</TABLE>

At December 31, 2000, accrued expenses and other current liabilities consist of
the following:

<TABLE>
<S>                                                               <C>
      Accrued salaries                                            $102,943
      Accrued professional fees                                     46,383
      Payable to TAB                                                40,008
      Retirement benefit payable                                    37,834
      Other                                                         33,407
                                                                  --------

                                                                  $260,575
                                                                  ========
</TABLE>


                                      F-11
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

6. Preferred stock and common stock

Each share of the Company's preferred stock ($25,000 stated value) is
convertible into 8,333 shares of common stock and earns cash dividends of 11
percent per year. Each share of preferred stock is entitled to vote the
equivalent of 8,333 common shares. Under the terms of the Company's preferred
stock, the Company cannot pay dividends on its common stock until all
accumulated but unpaid dividends on such preferred stock have been paid. The
Company cannot make distributions to common stockholders until cumulative
undeclared dividends on the preferred stock are paid. As of December 31, 2000,
cumulative undeclared dividends on the preferred stock approximated $198,000. In
1999, the Company paid $88,816 related to cumulative dividends on preferred
stock that were converted during the fourth quarter of 1998. As the remainder of
the cumulative dividends are undeclared, they have not been recorded as a
reduction of the Company's equity.

Common stock is subordinate to preferred stock in the event of liquidation. The
Company has never paid cash dividends on its common stock.

During 1999, the Company acquired 26,400 treasury shares for $25,814, of which
24,822 shares were reissued pursuant to employee stock plans.

In May 2000, as consideration for acceptance of service as the Company's
president, the Company's Board of Directors authorized the issuance of 150,000
shares of the Company's common stock to a company in which the Company's
president has material ownership. The stock was fully vested on June 1, 2000,
and the fair value on date of grant, approximately $23,000, has been recorded as
a component of general and administrative expenses for the year ended December
31, 2000.

7. Stock options

The 1991 Director Non-Statutory Stock Option Plan (the "Director Plan") provides
for the granting of options at the common stock's current market value to
members of the Board of Directors of the Company who are not employees of the
Company. In June 1998, the Company's stockholders authorized an 85,000 share
increase in the number of shares of common stock reserved for issuance under the
Director Plan. As a result, the Director Plan authorizes the granting of options
to purchase up to 210,000 shares of the Company's common stock. The stock
options granted under the Director Plan are exercisable pursuant to the
individual agreements between the Company and the grantee and range from a
six-month to a three-year vesting period. All options granted under these plans
must be exercised within 10 years from the date of grant and expire within three
months after termination of employment or service as a director.

On April 1, 1998, the Company approved the 1998 Employee Stock Option Plan (the
"1998 Employee Plan"), covering 187,500 shares of common stock. Unless
terminated earlier by the Board of Directors, the 1998 Plan will terminate on
March 31, 2008. The purpose of the plan is to supplement and replace the
Company's previous stock option plan. The 1998 Employee Plan provides for the
grant to key employees incentive stock options ("ISOs") intended to qualify
under Section 422(b) of the Internal Revenue Code and nonqualified stock options
("NQSOs").


                                      F-12
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

7. Stock options (continued)

Under the 1998 Employee Plan, which is administered by the Stock Option
Committee of the Board of Directors, key employees may be granted options to
purchase shares of the Company's common stock at 100 percent of fair market
value on the date of grant (or 110 percent of fair market value in the case of
an ISO granted to a 10 percent stockholder/grantee). Options granted under the
1998 Employee Plan must be exercised within 10 years from the date of grant,
vest at varying times, as determined by the Stock Option Committee, are
nontransferable except by will or pursuant to the laws of descent and
distribution, and expire within three months after termination of employment,
unless such termination is by reason of death or disability or for cause. All
shares purchased upon exercise of any option must be paid in full at the time of
purchase, in accordance with the terms set forth on the option. Such payment
must be made in cash or through delivery of shares of common stock or a
combination of cash and common stock, all as determined by the Stock Option
Committee. The 1998 Employee Plan may be amended at any time by a vote of the
Board of Directors. However, no amendment made without approval of the
stockholders of the Company may increase the total number of shares which may be
issued under options granted pursuant to the 1998 Employee Plan, reduce the
maximum exercise price or extend the latest date upon which options may be
granted or change the class of employees eligible to receive the options.

In June 1999, the Compensation Committee of the Board of Directors recommended
and the Board approved, subject to stockholder approval, an increase in
shares issuable under the 1998 Employee Plan, a grant to management and key
employees of an aggregate of 460,000 options to purchase shares of common stock
at an exercise price per share equal to the greater of fair market value or
$1.00 on the effective date of the grant. The proposal to increase the number of
shares issuable under the 1998 Employee Stock Option Plan to 687,500 shares was
approved by vote of the Company's stockholders on July 30, 1999. The closing
price per share of the Company's common stock on that date was $.875.

In 1998, the Company approved the 1998 Executive Non-Statutory Plan (the "1998
NQSO Plan"), covering 375,000 shares of common stock. Under the 1998 NQSO Plan,
identified executives may be granted long-term options to purchase shares of the
Company's common stock at a price specified on the date of the grant subject to
certain acceleration rights upon attainment of specific goals. The 1998 NQSO
Plan is administered by the Stock Option Committee. The 1998 NQSO Plan expires
on March 31, 2008. Options granted under the 1998 NQSO Plan will expire 10 years
from the date of grant, vest at varying times, as determined by the NQSO
committee, and are nontransferable except by will or pursuant to the laws of
descent and distribution.

In April 1998, the Company's Board of Directors granted options to certain
members of the Company's senior management to purchase 125,000 shares of the
Company's common stock at an exercise price of $4 per share under the 1998 NQSO
Plan. Additionally, in April 1998, the Company appointed a new president and
chief executive officer. The Company's Board of Directors granted this officer
options to purchase 225,000 shares of the Company's common stock at an exercise
price of $4 per share under a time accelerated restricted stock award. In
December 1998, the exercise price on these options was reset to $1 per share.
The time accelerated restricted stock award options become exercisable in March
2005. Exercisability of the time accelerated restricted stock award options is
accelerated, in 12,500 share increments, for each $2 per share incremental
increase in the quoted market price per share of the Company's common stock
above $4 per share.


                                      F-13
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

7. Stock options (continued)

A summary of activity in the Company's stock option plans is set forth below:

<TABLE>
<CAPTION>
                                          Weighted
                                           Average
                                          Exercise          Exercise Price
                                            Price    --------------------------
                                Shares    Per Share    Per Share       Total
                               ---------  ---------  -------------  -----------
<S>                            <C>        <C>        <C>            <C>
Outstanding, January 1, 1999     817,141  $    1.95  $ .88 - $5.52  $ 1,591,455

1999 Granted                     636,551       0.98     .75 - 1.00      625,256

1999 Terminated                 (155,344)      2.91     .75 - 4.12     (451,957)
                               ---------                            -----------

Outstanding, December 31,
 1999 and 2000 (a) (b)         1,298,348       1.36     .75 - 5.52  $ 1,764,754
                               =========                            ===========
</TABLE>

(a)   There was no option activity during the year ended December 31, 2000.

(b)   Upon consummation of the TAB transaction, substantially all of the
      Company's outstanding stock options became immediately exercisable.
      However, the exercise prices of the outstanding stock options were in
      excess of the market value of the Company's common stock. Further, the TAB
      transaction may have triggered termination of certain, if not all,
      outstanding options under the Company's stock options plans. The Company
      is currently evaluating the impact of the TAB transaction on the Company's
      outstanding stock options.

The Company complies with SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 defines a fair value based method of accounting for
employee stock options or similar equity instruments and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period of the award, which is usually the vesting period. However, SFAS No. 123
also allows entities to continue to measure compensation costs for employee
stock compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Entities electing to remain with the accounting prescribed by APB 25,
as the Company has, must make pro forma disclosures of net income (loss) and
earnings (loss) per share as if the fair value based method recommended by SFAS
No. 123 had been applied. The following provides pro forma disclosures of net
loss and loss per share as if the fair value based method of accounting under
SFAS No. 123 had been applied.


                                      F-14
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

7. Stock options (continued)

Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income (loss) applicable to common stockholders and basic
and diluted earnings (loss) per share would have been changed to the following
pro forma amounts:

<TABLE>
<CAPTION>
                                                                 2000            1999
                                                            -------------   -------------
<S>                                                         <C>             <C>
      Net income (loss) applicable to common stockholders
        As reported                                         $   2,057,329   $  (3,586,078)
        Pro forma                                           $   1,197,609   $  (3,835,717)

      Basic and diluted earnings (loss) per common share
        As reported                                         $        0.57   $       (1.06)
        Pro forma                                           $        0.33   $       (1.13)
</TABLE>

The weighted average fair value per share of options granted during 1999 was
$.72. The fair value of each 1999 option grant is estimated on the date of grant
using an option pricing model with the following weighted average assumptions:
risk-free interest rates of 6.0 percent, expected dividend yields of 0 percent,
expected lives of 5 years and expected volatility of 108 percent.

In addition to the above stock option agreements, the Company has warrants
outstanding to purchase 15,000 shares of common stock at $5.00 per share which
expire in June 2001.

8. Income taxes

For the years ended December 31, 2000 and 1999, income tax expense (benefit)
differs from the amount computed by applying the statutory federal income tax
rate to pretax income (loss) for the following reasons:

<TABLE>
<CAPTION>
                                                       2000           1999
                                                   -----------    -----------
<S>                                                <C>            <C>
      Expected federal income tax (benefit)        $   699,000    $(1,213,000)
      Tax loss carryforwards generated                              1,213,000
      Effect of temporary differences (primarily
       accruals and reserves in light of TAB
       transaction) and other                         (699,000)
                                                   -----------    -----------

                                                   $        --    $        --
                                                   ===========    ===========
</TABLE>


                                      F-15
<PAGE>

                              DOCUCON, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

8. Income taxes (continued)

As of December 31, 2000, the Company had net operating loss carryforwards of
approximately $9.7 million for federal income tax purposes which are available
to reduce future taxable income and will expire 2005 through 2020 if not
utilized. These net operating loss carryforwards resulted in an estimated $3.3
million deferred tax asset at December 31, 2000. A full valuation allowance has
been established for this deferred tax asset since its realization is considered
unlikely. Further, a change in the ownership of a majority of the fair market
value of the Company's common stock could delay or limit the utilization of net
operating loss carryforwards.

9. Other Contingency

On February 2, 1999, the Company contacted the Department of Defense's ("DOD")
Voluntary Disclosure Program Office to request admission into its Voluntary
Disclosure Program. The Voluntary Disclosure Program is intended to encourage
government contractors to voluntarily disclose potential violations of
government contracting policies and procedures. In general, companies who
volunteer information and cooperate with the government's investigation are not
subject to criminal and administrative sanctions such as suspension and
debarment from government contracting activities. Admission into the Voluntary
Disclosure Program does not protect companies from any potential civil liability
the government may assert. The Company's request for admission into the
Voluntary Disclosure Program was the result of an internal review by the Company
that indicated a billing practice, with respect to certain invoices submitted
during the period from September 1996 through July 1997, that might be perceived
by the government as a technical violation of DOD billing procedures. The DOD
Inspector General formally admitted the Company into the Voluntary Disclosure
Program in June 1999 and commenced its investigation of the Company's voluntary
disclosure in the second half of that year. In February 2000, Company counsel
was orally advised that the Government's investigation of the Company's
voluntary disclosure is complete and that criminal prosecution has been
declined. Since February 2000, the Company has received no further inquiry nor
claim from DOD relating to this or any other matter. While the Company remains
potentially liable for civil damages, it does not believe that it is probable
that material civil damages, if any, will ultimately be assessed.

10. Weighted average common shares outstanding

For the years ended December 31, 2000 and 1999, weighted average common shares
outstanding applicable to earnings (loss) per common share is 3,598,767 and
3,386,768, respectively.

Unexercised stock options to purchase approximately 1.3 million shares of the
Company's common stock as of December 31, 2000 and 1999 were not included in the
computation of diluted earnings (loss) per common share because the exercise
prices were greater than the average market prices of the Company's common stock
during 2000 and 1999.

Convertible preferred stock as of December 31, 2000 and 1999 was not included in
the computation of diluted earnings (loss) per common share because they are
anti-dilutive.


                                      F-16
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>2
<FILENAME>a2045728zex-10_21.txt
<DESCRIPTION>EXHIBIT 10.21
<TEXT>

<PAGE>

                   EMPLOYMENT AGREEMENT SETTLEMENT AGREEMENT

      This Employment Agreement Settlement Agreement (this "Agreement") is by
and Docucon, Incorporated, a corporation organized and existing under the laws
of the State of Delaware ("Company"), and Douglas P. Gill, an individual
residing in Wayne, Pennsylvania ("Gill").

      WHEREAS, Gill has served as the President/Chief Executive Officer of
Company under an employment agreement made and entered into on April 1, 1998
(the "Employment Agreement"); and

      WHEREAS, this certain Employment Agreement shall be terminated effective
March 31, 2000 (the "Effective Date"); and

      WHEREAS, Company and Gill intend to enter into an at-will employment
arrangement; and

      NOW, THEREFORE, for good and valuable consideration of the mutual
covenants herein contained and the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1. Gill and Company acknowledge and agree that the Employment Agreement is
terminated effective on the Effective Date. As of March 31, 2000, Gill and the
Company agree that any further employment relationship between them shall be on
an at-will basis, with base salary, perquisites and benefits not less than the
corresponding terms in effect under the Employment Agreement immediately prior
to the Effective Date, or on such other terms as may be mutually acceptable to
each party.

      2. Gill and Company further acknowledge and agree that upon execution of
this Agreement, the Company shall be obligated to pay Gill or his successor in
the event of Gill's death the aggregate sum of One Hundred Forty Four Thousand
Nine Hundred Ninety Eight and 86/100 Dollars ($144,998.86), which represents all
sums due to him for accrued, but unpaid back pay ($43,153.86), accrued vacation
earned or to be earned through April 30, 2000 ($11,845.00) and severance on
account of the Employment Agreement or otherwise ($90,000.00).

      3. Gill and the Company agree that the sums payable under paragraph 2
above shall be paid as follows: Two-thirds of such sums shall be paid promptly
upon closing and funding of that certain Asset Purchase Agreement, dated March
8, 2000, by and between the Company and Tab Products, Co., and the balance shall
be paid promptly at the time the Escrow Agreement (as described in the Asset
Purchase Agreement) is terminated, from available cash of the Company less any
reasonable provision for additional net costs to wind-down and/or dispose of the
Company.

<PAGE>

      4. By this Agreement, Company and Gill intend to resolve among themselves
any and all claims, demands, actions or causes of action (including any in
equity), whether known or unknown, contingent or otherwise, of whatsoever kind
or nature for or because of any matter or thing done, omitted or suffered to be
done by or on behalf of any party hereto (the "Claims").

      5. Except as set forth herein, Gill and Company and their respective
successors, assigns, partners, shareholders, officers, directors, employees,
representatives and affiliates further hereby release, indemnify and hold each
other harmless from any and all Claims arising prior to and including the date
hereof and any other claims, liens causes of action or damages in any way
directly or indirectly arising out of their respective obligations under the
Employment Agreement or otherwise.

      6. The parties further agree that they shall maintain the confidentiality
of the terms of this Agreement, except as required by applicable law.

      7. Gill and Company further agree to enter into any agreements or execute
any further documentation reasonably required by the other to evidence and
consummate the agreements set forth herein. In this regard, the parties further
agree fully to reasonably cooperate with each other concerning the disposition
or resolution of any claims or liabilities asserted by any third party against
any of them, concerning the operation of Company (i.e., if any third party
asserts false or fraudulent claims against any party hereto, the parties will
cooperate with each other for the purpose of refuting and disposing of such
claims; all out-of-pocket incurred by Gill related to the disposition or
resolution of such claims or liabilities will be paid by the Company, to the
extent of and in accordance with the indemnity obligations of the Company in
favor of its employees, officers and directors).

      8. This Agreement shall be construed under and is enforceable pursuant to
the laws of the State of Texas. Any dispute under this Agreement shall be
resolved in the courts of the state of the Gill's residence.

      9. Each party hereto acknowledges that it has read and understands the
effect of this Agreement and that it is executing this Agreement of its own free
will, has availed itself of the opportunity to consult with counsel of its own
choice. Each party covenants to pay its own legal fees incurred in the
negotiation of this Agreement and any matters related to this Agreement.

      10. Notwithstanding any of the above, if Company defaults on its payment
obligations set forth herein, this Agreement shall be of no force and effect.

      EXECUTED to be effective the 31st day of March, 2000.

                           [Signature Page to Follow]

<PAGE>

                             DOCUCON, INCORPORATED
                             a Delaware Corporation


                             By: /s/ Edward P. Gistaro
                                 ---------------------------------
                             Name: Edward P. Gistaro
                             Title: Chairman


                             /s/ Douglas P. Gill
                             -------------------------------------
                             Douglas P. Gill, Individually
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.22
<SEQUENCE>3
<FILENAME>a2045728zex-10_22.txt
<DESCRIPTION>EXHIBIT 10.22
<TEXT>

<PAGE>

                   EMPLOYMENT AGREEMENT SETTLEMENT AGREEMENT

      This Employment Agreement Settlement Agreement (this "Agreement") is by
and Docucon, Incorporated, a corporation organized and existing under the laws
of the State of Delaware ("Company"), and Paul M. Nunley, an individual residing
in Glenmore, Pennsylvania ("Nunley").

      WHEREAS, Nunley has served as the Vice President, Operations and
Technology of Company under an employment agreement made and entered into on
June 4, 1999 (the "Employment Agreement"); and

      WHEREAS, this certain Employment Agreement shall be terminated effective
March 31, 2000 (the "Effective Date"); and

      WHEREAS, Company and Nunley intend to enter into an at-will employment
arrangement; and

      NOW, THEREFORE, for good and valuable consideration of the mutual
covenants herein contained and the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1. Nunley and Company acknowledge and agree that the Employment Agreement
is terminated effective on the Effective Date. As of March 31, 2000, Nunley and
the Company agree that any further employment relationship between them shall be
on an at-will basis, with base salary, perquisites and benefits not less than
the corresponding terms in effect under the Employment Agreement immediately
prior to the Effective Date, or on such other terms as may be mutually
acceptable to each party.

      2. Nunley and Company further acknowledge and agree that upon execution of
this Agreement, the Company shall be obligated to pay Nunley or his successor in
the event of Nunley's death the aggregate sum of Fifty-NineThousand Four Hundred
Sixty and 70/100 Dollars ($59,406.70), which represents all sums due to him for
accrued, but unpaid back pay ($15,000.00), accrued vacation earned or to be
earned through April 30, 2000 ($5,406.70) and severance on account of the
Employment Agreement or otherwise ($39,000.00).

      3. Nunley and the Company agree that the sums payable under paragraph 2
above shall be paid as follows: Two-thirds of such sums shall be paid promptly
upon closing and funding of that certain Asset Purchase Agreement, dated March
8, 2000, by and between the Company and Tab Products, Co., and the balance shall
be paid promptly at the time the Escrow Agreement (as described in the Asset
Purchase Agreement) is terminated, from available cash of the Company less any
reasonable provision for additional net costs to wind-down and/or dispose of the
Company.

<PAGE>

      4. By this Agreement, Company and Nunley intend to resolve among
themselves any and all claims, demands, actions or causes of action (including
any in equity), whether known or unknown, contingent or otherwise, of whatsoever
kind or nature for or because of any matter or thing done, omitted or suffered
to be done by or on behalf of any party hereto (the "Claims").

      5. Except as set forth herein, Nunley and Company and their respective
successors, assigns, partners, shareholders, officers, directors, employees,
representatives and affiliates further hereby release, indemnify and hold each
other harmless from any and all Claims arising prior to and including the date
hereof and any other claims, liens causes of action or damages in any way
directly or indirectly arising out of their respective obligations under the
Employment Agreement or otherwise.

      6. The parties further agree that they shall maintain the confidentiality
of the terms of this Agreement, except as required by applicable law.

      7. Nunley and Company further agree to enter into any agreements or
execute any further documentation reasonably required by the other to evidence
and consummate the agreements set forth herein. In this regard, the parties
further agree fully to reasonably cooperate with each other concerning the
disposition or resolution of any claims or liabilities asserted by any third
party against any of them, concerning the operation of Company (i.e., if any
third party asserts false or fraudulent claims against any party hereto, the
parties will cooperate with each other for the purpose of refuting and disposing
of such claims; all out-of-pocket incurred by Nunley related to the disposition
or resolution of such claims or liabilities will be paid by the Company, to the
extent of and in accordance with the indemnity obligations of the Company in
favor of its employees, officers and directors).

      8. This Agreement shall be construed under and is enforceable pursuant to
the laws of the State of Texas. Any dispute under this Agreement shall be
resolved in the courts of the state of Nunley's residence.

      9. Each party hereto acknowledges that it has read and understands the
effect of this Agreement and that it is executing this Agreement of its own free
will, has availed itself of the opportunity to consult with counsel of its own
choice. Each party covenants to pay its own legal fees incurred in the
negotiation of this Agreement and any matters related to this Agreement.

      10. Notwithstanding any of the above, if Company defaults on its payment
obligations set forth herein, this Agreement shall be of no force and effect.

      EXECUTED to be effective the 31st day of March, 2000.

                           [Signature Page to Follow]

<PAGE>

                             DOCUCON, INCORPORATED
                             a Delaware Corporation


                             By: /s/ Douglas P. Gill
                                 --------------------------------
                             Name: Douglas P. Gill
                             Title: President & CEO


                             /s/ Paul M. Nunley
                             ------------------------------------
                             Paul M. Nunley, Individually
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>4
<FILENAME>a2045728zex-10_23.txt
<DESCRIPTION>EXHIBIT 10.23
<TEXT>

<PAGE>

                   EMPLOYMENT AGREEMENT SETTLEMENT AGREEMENT

      This Employment Agreement Settlement Agreement (this "Agreement") is by
and Docucon, Incorporated, a corporation organized and existing under the laws
of the State of Delaware ("Company"), and Mark G. Hardin, an individual residing
in West Grove, Pennsylvania ("Hardin").

      WHEREAS, Gill has served as Controller of Company under a Confidentiality,
Non-Competition and Termination Agreement made and entered into on October 12,
1999 (the "Employment Agreement"); and

      WHEREAS, this certain Employment Agreement shall be terminated effective
March 31, 2000 (the "Effective Date"); and

      WHEREAS, Company and Hardin intend to enter into an at-will employment
arrangement; and

      NOW, THEREFORE, for good and valuable consideration of the mutual
covenants herein contained and the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1. Hardin and Company acknowledge and agree that the Employment Agreement
is terminated effective on the Effective Date. As of March 31, 2000, Hardin and
the Company agree that any further employment relationship between them shall be
on an at-will basis, with base salary, perquisites and benefits not less than
the corresponding terms in effect under the Employment Agreement immediately
prior to the Effective Date, or on such other terms as may be mutually
acceptable to each party.

      2. Hardin and Company further acknowledge and agree that upon execution of
this Agreement, the Company shall be obligated to pay Hardin or his successor in
the event of Hardin's death the aggregate sum of Forty Thousand Seven Hundred
Seventy Nine and 27/100 Dollars ($40,779.27), which represents all sums due to
him for accrued, but unpaid back pay ($11,538.42), accrued vacation earned or to
be earned through April 30, 2000 ($3,740.85) and severance on account of the
Employment Agreement or otherwise ($25,500.00).

      3. Hardin and the Company agree that the sums payable under paragraph 2
above shall be paid as follows: Two-thirds of such sums shall be paid promptly
upon closing and funding of that certain Asset Purchase Agreement, dated March
8, 2000, by and between the Company and Tab Products, Co., and the balance shall
be paid promptly at the time the Escrow Agreement (as described in the Asset
Purchase Agreement) is terminated, from available cash of the Company less any
reasonable provision for additional net costs to wind-down and/or dispose of the
Company.

<PAGE>

      4. By this Agreement, Company and Hardin intend to resolve among
themselves any and all claims, demands, actions or causes of action (including
any in equity), whether known or unknown, contingent or otherwise, of whatsoever
kind or nature for or because of any matter or thing done, omitted or suffered
to be done by or on behalf of any party hereto (the "Claims").

      5. Except as set forth herein, Hardin and Company and their respective
successors, assigns, partners, shareholders, officers, directors, employees,
representatives and affiliates further hereby release, indemnify and hold each
other harmless from any and all Claims arising prior to and including the date
hereof and any other claims, liens causes of action or damages in any way
directly or indirectly arising out of their respective obligations under the
Employment Agreement or otherwise.

      6. The parties further agree that they shall maintain the confidentiality
of the terms of this Agreement, except as required by applicable law.

      7. Hardin and Company further agree to enter into any agreements or
execute any further documentation reasonably required by the other to evidence
and consummate the agreements set forth herein. In this regard, the parties
further agree fully to reasonably cooperate with each other concerning the
disposition or resolution of any claims or liabilities asserted by any third
party against any of them, concerning the operation of Company (i.e., if any
third party asserts false or fraudulent claims against any party hereto, the
parties will cooperate with each other for the purpose of refuting and disposing
of such claims; all out-of-pocket incurred by Hardin related to the disposition
or resolution of such claims or liabilities will be paid by the Company, to the
extent of and in accordance with the indemnity obligations of the Company in
favor of its employees, officers and directors).

      8. This Agreement shall be construed under and is enforceable pursuant to
the laws of the State of Texas. Any dispute under this Agreement shall be
resolved in the courts of the state of the Hardin's residence.

      9. Each party hereto acknowledges that it has read and understands the
effect of this Agreement and that it is executing this Agreement of its own free
will, has availed itself of the opportunity to consult with counsel of its own
choice. Each party covenants to pay its own legal fees incurred in the
negotiation of this Agreement and any matters related to this Agreement.

      10. Notwithstanding any of the above, if Company defaults on its payment
obligations set forth herein, this Agreement shall be of no force and effect.

      EXECUTED to be effective the 31st day of March, 2000.

                           [Signature Page to Follow]

<PAGE>

                              DOCUCON, INCORPORATED
                              a Delaware Corporation


                              By: /s/ Douglas P. Gill
                                 --------------------------------
                              Name: Douglas P. Gill
                              Title: President & CEO


                              /s/ Mark G. Hardin
                              -----------------------------------
                              Mark G. Hardin, Individually
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>5
<FILENAME>a2045728zex-10_24.txt
<DESCRIPTION>EXHIBIT 10.24
<TEXT>

<PAGE>

                   EMPLOYMENT AGREEMENT SETTLEMENT AGREEMENT

      This Employment Agreement Settlement Agreement (this "Agreement") is by
and Docucon, Incorporated, a corporation organized and existing under the laws
of the State of Delaware ("Company"), and Warren D. Barratt, an individual
residing in Westtown, Chester County, Pennsylvania ("Barratt").

      WHEREAS, Barratt has served as the Chief Financial Officer of Company
under an employment agreement made and entered into on December 20, 1999 (the
"Employment Agreement"); and

      WHEREAS, this certain Employment Agreement shall be terminated effective
March 31, 2000 (the "Effective Date"); and

      WHEREAS, Company and Barratt intend to enter into an at-will employment
arrangement; and

      NOW, THEREFORE, for good and valuable consideration of the mutual
covenants herein contained and the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1. Barratt and Company acknowledge and agree that the Employment Agreement
is terminated effective on the Effective Date. As of March 31, 2000, Barratt and
the Company agree that any further employment relationship between them shall be
on an at-will basis, with base salary, perquisites and benefits not less than
the corresponding terms in effect under the Employment Agreement immediately
prior to the Effective Date, or on such other terms as may be mutually
acceptable to each party.

      2. Barratt and Company further acknowledge and agree that upon execution
of this Agreement, the Company shall be obligated to pay Barratt or his
successor in the event of Barratt's death the aggregate sum of Sixty-Three
Thousand Six Hundred Forty-Five and 36/100 Dollars ($63,645.36), which
represents all sums due to him for accrued, but unpaid back pay ($16,153.86),
accrued vacation earned or to be earned through April 30, 2000 ($5,491.50) and
severance on account of the Employment Agreement or otherwise ($42,000.00).

      3. Barratt and the Company agree that the sums payable under paragraph 2
above shall be paid as follows: Two-thirds of such sums shall be paid promptly
upon closing and funding of that certain Asset Purchase Agreement, dated March
8, 2000, by and between the Company and Tab Products, Co., and the balance shall
be paid promptly at the time the Escrow Agreement (as described in the Asset
Purchase Agreement) is terminated, from available cash of the Company less any
reasonable provision for additional net costs to wind-down and/or dispose of the
Company.

      4. By this Agreement, Company and Barratt intend to resolve among
themselves any and all claims, demands, actions or causes of action (including
any in equity), whether known or

<PAGE>

unknown, contingent or otherwise, of whatsoever kind or nature for or because of
any matter or thing done, omitted or suffered to be done by or on behalf of any
party hereto (the "Claims").

      5. Except as set forth herein, Barratt and Company and their respective
successors, assigns, partners, shareholders, officers, directors, employees,
representatives and affiliates further hereby release, indemnify and hold each
other harmless from any and all Claims arising prior to and including the date
hereof and any other claims, liens causes of action or damages in any way
directly or indirectly arising out of their respective obligations under the
Employment Agreement or otherwise.

      6. The parties further agree that they shall maintain the confidentiality
of the terms of this Agreement, except as required by applicable law.

      7. Barratt and Company further agree to enter into any agreements or
execute any further documentation reasonably required by the other to evidence
and consummate the agreements set forth herein. In this regard, the parties
further agree fully to reasonably cooperate with each other concerning the
disposition or resolution of any claims or liabilities asserted by any third
party against any of them, concerning the operation of Company (i.e., if any
third party asserts false or fraudulent claims against any party hereto, the
parties will cooperate with each other for the purpose of refuting and disposing
of such claims; all out-of-pocket incurred by Barratt related to the disposition
or resolution of such claims or liabilities will be paid by the Company, to the
extent of and in accordance with the indemnity obligations of the Company in
favor of its employees, officers and directors).

      8. This Agreement shall be construed under and is enforceable pursuant to
the laws of the State of Texas. Any dispute under this Agreement shall be
resolved in the courts of the state of the Barratt's residence.

      9. Each party hereto acknowledges that it has read and understands the
effect of this Agreement and that it is executing this Agreement of its own free
will, has availed itself of the opportunity to consult with counsel of its own
choice. Each party covenants to pay its own legal fees incurred in the
negotiation of this Agreement and any matters related to this Agreement.

      10. Notwithstanding any of the above, if Company defaults on its payment
obligations set forth herein, this Agreement shall be of no force and effect.

      EXECUTED to be effective the 31st day of March, 2000.

                           [Signature Page to Follow]

<PAGE>

                              DOCUCON, INCORPORATED
                              a Delaware Corporation


                              By: /s/ Douglas P. Gill
                                  --------------------------------------
                              Name: Douglas P. Gill
                              Title: President & CEO


                              /s/ Warren D. Barratt
                              ------------------------------------------
                              Warren D. Barratt, Individually
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>6
<FILENAME>a2045728zex-10_25.txt
<DESCRIPTION>EXHIBIT 10.25
<TEXT>

<PAGE>

               BUSINESS CONSULTANT AGREEMENT SETTLEMENT AGREEMENT

      This Business Consultant Agreement Settlement Agreement (this "Agreement")
is by and Docucon, Incorporated, a corporation organized and existing under the
laws of the State of Delaware ("Company"), and Allan H. Hobgood, an individual
residing in San Antonio, Texas ("Hobgood").

      WHEREAS, Hobgood has previously served as an employee, officer, and
director of Company; and

      WHEREAS, Hobgood and Company entered into two agreements with Docucon on
September 15, 1998: (1) Mutual Employment Termination Agreement and (2) Business
Consultant Agreement (the "Consulting Agreements"); and

      WHEREAS, the Consulting Agreements shall be terminated effective June 1,
2000 (the "Effective Date"); and

      NOW, THEREFORE, for good and valuable consideration of the mutual
covenants herein contained and the mutual benefits to be gained by the
performance thereof and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

      1. Hobgood and Company acknowledge and agree that the Consulting
Agreements are terminated effective on the Effective Date.

      2. Hobgood and Company further acknowledge and agree that upon execution
of this Agreement, the Company shall be obligated to pay Hobgood or his
successor in the event of Hobgood's death the aggregate sum of One Hundred
Thirteen Thousand Six Hundred Fifteen and 00/100 Dollars ($113,615.00), which
represents all sums due to him for accrued, but unpaid back pay ($25,000.00),
and approximately thirty percent (30%) of severance and consulting amounts on
account of the Mutual Employment Termination Agreement ($88,615.00). In
addition, Hobgood will continue to be paid $5,500.00 per month, on a bi-weekly,
through the termination date (June 1, 2000) pursuant to the terms of the Mutual
Employment Termination Agreement.

      3. Hobgood and the Company agree that the sums payable under paragraph 2
above shall be paid as follows: Two-thirds of such sums shall be paid promptly
upon closing and funding of that certain Asset Purchase Agreement, dated March
8, 2000, by and between the Company and Tab Products, Co., and the balance shall
be paid promptly at the time the Escrow Agreement (as described in the Asset
Purchase Agreement) is terminated.

      4. Company acknowledges and agrees that Hobgood has not and is not in
breach of any of the contractual agreements at any time entered into by and
between the Company and Hobgood, and that Hobgood has fully complied with and
met all representations, warranties, and/or obligations at any time previously
made or undertaken by him.

<PAGE>

      5. By this Agreement, Company and Hobgood intend to resolve among
themselves any and all claims, demands, actions or cause of action (including
any in equity), whether known or unknown, contingent or otherwise, of whatsoever
kind of nature for or because of any matter or thing done, omitted or suffered
to be done by or on behalf of any party hereto (the "Claim"). Except as set
forth herein, Hobgood and Company and their respective successors, assigns,
partners, shareholders, officers, directors, employees, representatives and
affiliates further hereby release, indemnify and hold each other harmless from
any and all Claims arising prior to and including the date hereof and any other
claims, liens causes of action or damages in any way directly or indirectly
arising out of their respective obligations under the Consulting Agreements or
otherwise.

      6. The parties further agree that they shall maintain the confidentiality
of the terms of this Agreement, except as required by applicable law.

      7. Hobgood and Company further agree to enter into any agreements or
execute any further documentation reasonably required by the other to evidence
and consummate the agreements set forth herein. In this regard, the parties
further agree fully to reasonably cooperate with each other concerning the
disposition or resolution of any claims or liabilities asserted by any third
party against any of them, concerning the operation of the Company (i.e., if any
third party asserts claims against any party hereto, the parties will cooperate
with each other for the purpose of refuting and disposing of such claims; all
expenses incurred by Hobgood related to the disposition or resolution of such
claims or liabilities will be paid by the Company, to the extent of and in
accordance with the indemnity obligations of the Company in favor of its
employees, officers and directors).

      8. This Agreement shall be construed under and is enforceable pursuant to
the laws of the State of Texas. Any dispute under this Agreement shall be
resolved in the courts of the state of the Hobgood's residence.

      9. Each party hereto acknowledges that it has read and understands the
effect of this Agreement and that it is executing this Agreement of its own free
will, has availed itself of the opportunity to consult with counsel of its own
choice. Each party covenants to pay its own legal fees incurred in the
negotiation of this Agreement and any matters related to this Agreement.

      10. Notwithstanding any of the above, if Company defaults on its payment
obligations set forth herein, this Agreement shall be of no force and effect.

      EXECUTED to be effective the 31st day of March, 2000.

                           [Signature Page to Follow]

<PAGE>

                              DOCUCON, INCORPORATED
                              a Delaware Corporation


                              By: /s/ Douglas P. Gill
                                 -------------------------------
                              Name: Douglas P. Gill
                              Title: President & CEO


                              /s/ Allan H. Hobgood
                              ----------------------------------
                              Allan H. Hobgood, Individually
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
