-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 QR+SmOBuA6P7NfdqrhJfV8dosMmqjwhMWb5YC6eBewZO8JoCxr2w2YAndjHqek9G
 5GHcCQmGXRUBMepiy1cbzQ==

<SEC-DOCUMENT>0000912057-01-539825.txt : 20020410
<SEC-HEADER>0000912057-01-539825.hdr.sgml : 20020410
ACCESSION NUMBER:		0000912057-01-539825
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011114

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:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10185
		FILM NUMBER:		1790789

	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>10QSB
<SEQUENCE>1
<FILENAME>a2063492z10qsb.txt
<DESCRIPTION>FORM 10QSB
<TEXT>
<Page>

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


                                   FORM 10-QSB


                                   (Mark One)
                 /X/ Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                For the Quarterly Period Ended September 30, 2001

                                       OR
                   Transition Report Under Section 13 or 15(d)
                               of the Exchange Act

                        For the Transition Period From to

                         Commission File Number 1-10185

                              DOCUCON, INCORPORATED
        (Exact name of small business issuer as specified in its charter)

                                    Delaware
         (State or other jurisdiction of incorporation or organization)
                                   74-2418590
                        (IRS Employer Identification No.)

                            8 Airport Park Boulevard
                             Latham, New York 12110
                              (Address of principal
                               executive offices)


                                 (518) 786 7733
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or

<Page>

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 /  /

State the number of shares outstanding of each of the issuer's classes
of common equity as of November 14, 2001  3,658,767


                              DOCUCON, INCORPORATED

                                      INDEX
                                      PAGE

  PART I.  FINANCIAL INFORMATION (UNAUDITED)
  Item 1:  Condensed Balance Sheets -  September 30, 2001 and
           December 31, 2000

           Condensed Statements of Operations - For the
           Nine and Three Months Ended September 30, 2001 and 2000

           Condensed Statements of Cash Flows -
           For the Nine Months Ended
           September 30, 2001 and 2000

           Notes to Condensed Financial
           Statements
   Item 2: Management's Discussion and Analysis
           of Financial Condition and Results of
           Operations
  PART II. OTHER INFORMATION
  SIGNATURE

<Page>

                              DOCUCON, INCORPORATED

                            CONDENSED BALANCE SHEETS

                                   (UNAUDITED)

<Table>
<Caption>
                                                                           SEPTEMBER 30,            DECEMBER 31,
                                                                               2001                    2000
                                                                           -------------           --------------
                                     ASSETS
<S>                                                                        <C>                     <C>
CURRENT ASSETS
 Cash                                                                      $     83,484            $     238,370
 Other current assets                                                            16,009                    7,351
                                                                           -------------           --------------
                    TOTAL CURRENT ASSETS                                         99,493                  245,721

PROPERTY AND EQUIPMENT, NET                                                      66,597                   74,000

RESTRICTED CASH AND OTHER ASSETS                                                266,495                  264,257
                                                                           -------------           --------------

                                                                           $    432,585             $    583,978
                                                                           =============           ==============

                 LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

CURRENT LIABILITIES
 Accounts payable                                                          $     93,988            $      18,012
 Accrued expenses and other current liabilities                                 274,596                  260,575
 Related party notes payable                                                    108,334                  108,334
                                                                           -------------           --------------
                    TOTAL CURRENT LIABILITIES                                   476,918                  386,921
                                                                           -------------           --------------
OTHER LIABILITY                                                                                            5,280
                                                                           -------------           --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
 Preferred stock, $1.00 par value, 10,000,000 shares authorized-
  Series A, 60 shares authorized, 7 shares issued and outstanding                     7                        7
 Common stock $.01 par value, 25,000,000 shares authorized, 3,658,767
  shares issued                                                                  36,588                   36,588
 Additional paid-in capital                                                  10,231,240               10,231,240
 Accumulated deficit                                                        (10,307,932)             (10,071,822)
 Treasury stock, at cost, 4,495 shares                                           (4,236)                  (4,236)
                                                                           -------------           --------------
                    TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                        (44,333)                 191,777
                                                                           -------------           --------------

                                                                           $    432,585             $    583,978
                                                                           =============           ==============
</Table>

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

                                       F-1
<Page>

                              DOCUCON, INCORPORATED

                       CONDENSED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

<Table>
<Caption>
                                                              THREE MONTHS ENDED                       NINE MONTHS ENDED
                                                                 SEPTEMBER 30                             SEPTEMBER 30
                                                      ----------------------------------     -----------------------------------
                                                           2001                2000                2001               2000
                                                      ---------------    ---------------     ---------------     ---------------
<S>                                                    <C>                <C>                 <C>                 <C>
REVENUES                                               $           -      $           -       $           -       $           -
                                                      ---------------    ---------------     ---------------     ---------------

COSTS AND EXPENSES
  General and administrative                                  58,353             93,863             235,268             843,897
  Depreciation and amortization                                2,250              2,250               6,750              13,131
                                                      ---------------    ---------------     ---------------     ---------------

TOTAL COSTS AND EXPENSES                                      60,603             96,113             242,018             857,028
                                                      ---------------    ---------------     ---------------     ---------------

OPERATING LOSS FROM CONTINUING OPERATIONS                    (60,603)           (96,113)           (242,018)           (857,028)

OTHER INCOME (LOSS), NET                                       2,075              3,770               5,908             (19,347)
                                                      ---------------    ---------------     ---------------     ---------------

LOSS FROM CONTINUING OPERATIONS                              (58,528)           (92,343)           (236,110)           (876,375)

DISCONTINUED OPERATIONS

  Loss from discontinued operations                                                                                    (913,510)

  Gain on disposal of discontinued operations                                                                         3,973,778

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


NET INCOME (LOSS)                                            (58,528)           (92,343)           (236,110)          2,183,893
                                                      ---------------    ---------------     ---------------     ---------------


PREFERRED STOCK DIVIDEND REQUIREMENT                          (4,813)            (4,813)            (14,438)            (14,438)
                                                      ---------------    ---------------     ---------------     ---------------


NET INCOME (LOSS) APPLICABLE TO COMMON
 STOCKHOLDERS                                          $     (63,341)     $     (97,156)      $    (250,548)      $   2,169,455
                                                      ===============    ===============     ===============     ===============


EARNINGS (LOSS) PER COMMON SHARE:

BASIC AND DILUTED

  From continuing operations                           $       (0.02)     $       (0.03)      $       (0.07)      $       (0.25)
  From discontinued operations                                                                                             0.86

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

BASIC AND DILUTED LOSS PER COMMON SHARE                $       (0.02)     $       (0.03)      $       (0.07)      $        0.61
                                                      ===============    ===============     ===============     ===============



WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING       3,658,767          3,654,272           3,658,767           3,571,060
                                                      ===============    ===============     ===============     ===============
</Table>

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

                                       F-2

<Page>

                              DOCUCON, INCORPORATED

                       CONDENSED STATEMENTS OF CASH FLOWS
                 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                   (UNAUDITED)

<Table>
<Caption>
                                                                      2001                 2000
                                                                 --------------        --------------
<S>                                                               <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income (Loss)                                               $   (236,110)        $   2,183,893
  Adjusted for net income from discontinued operations                                     3,060,268
                                                                 --------------        --------------

  Loss from continuing operations                                     (236,110)             (876,375)
  Adjustments to reconcile loss from continuing
   operations to net cash used in continuing operations
        Depreciation and amortization                                    6,750                13,131
        Common stock issued to officer                                                        22,838
        Loss on sale or abandonment of assets                                                 25,222
        Gain on forgiveness of certain accrued liabilities                                  (156,444)
        Noncash interest                                                                      70,666
           Increase (decrease) in cash attributable to
            changes in operating assets and liabilities
               Other current assets                                     (8,658)               60,444
               Other assets                                             (2,135)
               Accounts payable                                         75,976              (126,424)
               Accrued expenses and other current liabilities           14,021              (106,469)
                                                                 --------------        --------------


   Net cash used in continuing operations                             (150,156)           (1,073,411)
   Net cash used in discontinued operations                                                 (926,938)
                                                                 --------------        --------------

Net cash used in operating activities                                 (150,156)           (2,000,349)
                                                                 --------------        --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from TAB transaction, net of amount paid to
    escrow fund $250,000 and cash acquired by TAB of $92,433                               2,464,254
   Proceeds from sales of assets                                           550
                                                                 --------------        --------------

   Net cash provided by investing activities                               550             2,464,254
                                                                 --------------        --------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from secured short-term notes                                                  1,075,000
   Principal payments on short-term notes                                                 (1,075,000)
   Principal payments under capital lease obligations                   (5,280)               (5,608)
   Principal payments on long-term debt and other obligations                               (215,867)
                                                                 --------------        --------------

   Net cash used in financing activities                                (5,280)             (221,475)
                                                                 --------------        --------------


NET INCREASE (DECREASE) IN CASH                                       (154,886)              242,430

CASH, BEGINNING OF PERIOD                                              238,370                28,835
                                                                 --------------        --------------

CASH, END OF PERIOD                                               $     83,484         $     271,265
                                                                 ==============        ==============
</Table>

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

                                       F-3
<Page>

                              DOCUCON, INCORPORATED

                       CONDENSED STATEMENTS OF CASH FLOWS
                 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
                                   (UNAUDITED)

<Table>
<Caption>
                                                                      2001                 2000
                                                                 --------------        --------------
<S>                                                               <C>                  <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
   Noncash investing and financing activities-
     Cancellation of warrants issued in connection with
      related party debt                                          $          -         $      85,313
                                                                 --------------        --------------

   Cash paid during the period for interest                       $      1,938         $      30,174
                                                                 ==============        ==============
</Table>

                                      F-3A
<Page>

                             DOCUCON, INCORPORATED

                     NOTES TO CONDENSED 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 condensed financial statements have been prepared assuming the
Company will continue as a going concern. As discussed above and in Note 4, 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 September 30, 2001, the Company
has cumulative Losses of approximately $ 10.3 million and a working capital
deficit of approximately $377,000. For the nine months ended September 30, 2001,
and the year ended December 31, 2000, the Company had negative operating cash
flows of approximately $0.15 million and $2.0 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 June 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. On September 25, 2001 the Company approved changes to the terms of the
letter of intent. 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.


                                      F-4
<Page>

2. UNAUDITED STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited statements

The accompanying condensed financial statements of the Company as of
September 30, 2001 and for the nine and three months ended September 30, 2001
and 2000 are unaudited and reflect all adjustments of a normal and recurring
nature to present fairly the financial position, results of operations and
cash flows for the interim periods. These unaudited condensed financial
statements have been prepared by the Company pursuant to instructions to Form
10-QSB. Pursuant to such instructions, certain financial information and
footnote disclosures normally included in such financial statements have been
omitted.

These unaudited condensed financial statements should be read in conjunction
with the audited financial statements and notes thereto, together with
management's discussion and analysis or plan of operations, contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. The
results of operations for the nine and three months ended September 30, 2001 are
not necessarily indicative of the results that may occur for the year ending
December 31, 2001.

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.

                                      F-5
<Page>

                              DOCUCON, INCORPORATED

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


Revenue Recognition

Revenues from conversion service contracts 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.

As the Company had a net loss from continuing operations for the nine and three
months ended September 30, 2001, diluted EPS equals basic EPS as potentially
dilutive common stock equivalents are antidilutive.

Income Taxes

The Company complies with SFAS No. 109, "Accounting for 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 basis 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.

                                      F-6
<Page>

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. NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No.`s 141 and 142, "Business
Combinations" and "Goodwill and Other Intangibles." SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS 142, effective the first quarter of the year
ending December 31, 2002, goodwill is no longer subject to amortization over
its estimated useful life. Rather, goodwill is subject to at least an annual
assessment for impairment applying a fair value based test. Additionally, an
acquired intangible asset should be separately recognized if the benefit of
the intangible asset is obtained through contractual or other legal rights,
or if the intangible asset can be sold, transferred, licensed, rented, or
exchanged, regardless of the acquirer's intent to do so. The adoption of SFAS
No. 142 is not expected to have a material impact on the Company's financial
position or results of operations.

4. 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 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 reflected its
condensed financial statements for 2000 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 nine and three months ended September 30, 2000:

                                      F-7
<Page>

<Table>
<Caption>
                                             Nine           Three
                                            Months          Months
                                            Ended           Ended
                                           9/30/00         9/30/00
                                         -----------       -------
<S>                                       <C>                <C>
Revenues                                  1,231,204          -0-
Costs and expenses
    Production                            1,242,170          -0-
    All other                               902,544          -0-
                                         -----------       -------
Total costs and expenses                  2,144,714          -0-
                                         -----------       -------
Loss from discontinued operations          (913,510)         -0-
                                         ===========       =======
</Table>

                              DOCUCON, INCORPORATED

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

4. 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 the 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 related party notes payable. Prior to the closing of the TAB
transaction, certain Company officers and a former Company officer agreed to

                                      F-8
<Page>

reductions in the amounts due under the 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, 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, if any, 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 September 30, 2001 and December 31, 2000 condensed balance
sheets, 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 entered into an extended period of good-faith negotiation
resulting in TAB making a settlement offer on October 19, 2001, which was
accepted tenatively by the Company on November 1, 2001. The terms of the
settlement include a release of approximately $194,000 plus all accrued
interest on the initial $250,000 escrow sum to Docucon, less the sum of
approximately $150,000 payable to TAB on certain accounts receivable
transferred to TAB under the TAB Asset Purchase Agreement, and a release of
approximately $46,000 to TAB for related expenses, labor costs and legal
fees. The remaining $10,000 of the escrow funds shall remain in escrow for an
additional 6-month period for remaining open issues with DOL as claimed by
TAB. The foregoing settlement is subject to final review and approval by TAB
and Company management.

                                      F-9
<Page>

                              DOCUCON, INCORPORATED

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

5. CONDENSED BALANCE SHEET ITEMS

At September 30, 2001 and December 31, 2000, property and equipment consists of
the following:

<Table>
<Caption>
                                             2001           2000
                                          ----------     ----------
  <S>                                      <C>            <C>
  Computer Software                        $ 56,090       $ 56,090
  Furniture and equipment                    72,755         74,712
                                          ----------     ----------
                                            128,845        130,802
  Less: Accumulated depreciation
     and amortization                        62,248         56,802
                                          ----------     ----------
                                           $ 66,597       $ 74,000
                                          ==========     ==========
</Table>

At September 30, 2001 and December 31, 2000, accrued expenses and other current
liabilities consist of the following:

                                      F-10
<Page>

<Table>
<Caption>
                                             2001           2000
                                          ----------     ----------
  <S>                                      <C>            <C>
  Accrued salaries                         $102,943       $102,943
  Accrued professional fees                  10,000         46,383
  Payable to TAB                             98,496         40,008
  Retirement benefits payable                37,834         37,834
  Other                                      25,323         33,407
                                          ----------     ----------
                                           $274,596       $260,575
                                          ==========     ==========
</Table>

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 September 30, 2001
and December 31, 2000, cumulative undeclared dividends on the preferred stock
approximated $212,000 and $198,000 respectively.

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

7. 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

                                      F-11
<Page>

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 onto 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 or 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.

                                      F-12
<Page>

                             DOCUCON, INCORPORATED

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

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 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 and a
potential distribution to shareholders. Based upon the current financial
condition of the Company, it is unlikely that any assets will be available for
distribution to shareholders.

                                       1
<Page>

The Company reported a net loss applicable to common stockholders of
approximately $ 251,000 in the nine months ended September 30, 2001. The Company
reported net income applicable to common stockholders of approximately
$2,169,000 in the nine months ended September 30, 2000. The decreased net loss
applicable to common stockholders can be attributed to the Company's May 2000
sale to TAB, discussed in the preceding paragraph. Since the sale, the Company
has operated as a shell company and during the nine and three months ended
September 30, 2001, has incurred nominal ongoing general and administrative
expenses as shown below:

<Table>
<Caption>
                              9 Months                3 Months
                                Ended                   Ended
                          September 30, 2001     September 30, 2001
                          ------------------     ------------------
  <S>                          <C>                   <C>
  Professional Fees            $125,000              $ 43,000
  Temporary Labor                58,000                18,000
  Office rent                    31,000                11,000
  D & OInsurance                 22,000                 7,000
  Other items                    -0-                  (20,000)
                              ----------             ----------
   Totals                      $236,000              $ 59,000
                              ==========             ==========
</Table>

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary remaining assets at September 30, 2001 are cash of
approximately $ 83,000, other current assets of approximately $16,000, an escrow
account, including interest, in the amount of approximately $266,000, and office
equipment with a net book value of approximately $67,000.

Remaining liabilities include accounts payable, accrued expenses and other
current liabilities of approximately $369,000, 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 pay a distribution to shareholders, if any. Because the value to be
realized

                                       2
<Page>

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.

As discussed under Part II-Item 1 and Note 4 to the condensed financial
statements, on November 9, 2000, TAB asserted claims against the $250,000
Escrow Fund, as defined. The Company and TAB have reached a tenative
settlement which is subject to final review and approval by TAB and Company
management.

The accompanying condensed 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.
Since its inception, the Company has incurred cumulative net losses of
approximately $10.3 million, including losses of approximately $0.2 million for
the nine month period ended September 30, 2001. For the year ended December 31,
2000 and the nine months ended September 30, 2001, the Company had negative cash
flows from operating activities of approximately $2.0 million and $0.15 million
respectively. These matters raise substantial doubt about the Company's ability
to continue as a going concern. The condensed financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

                                     OUTLOOK

On April 2, 2001, the Company announced that its Board of Directors had 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"). On September 6, 2001, the Company approved changed terms of
the letter of intent, and reported on September 25, 2001, on Form 8-K, that the
proposed reverse merger of DVS into Docucon would result in DVS shareholders
owning 92.5% and Docucon Shareholders will own the remaining 7.5% of the
Company's common stock. Docucon and DVS had hoped to conclude the proposed
combination in June 2001, but Docucon and DVS now expect a definitive agreement
to be completed by the end of the year. DVS, a

                                       3
<Page>

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. 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, if required by applicable
law, approval by both Docucon and DVS 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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

DOD. 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
Department of Defense (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,

                                       4
<Page>

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.

DOL. 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 DOL's
claims. TAB consented to Docucon's participation. Docucon and TAB entered
into an extended period of good-faith negotiation resulting in TAB making a
settlement offer on October 19, 2001, which was accepted tenatively by
Docucon on November 1, 2001. The terms of the settlement include a release of
approximately $194,000 plus all accrued interest on the initial $250,000
escrow sum to Docucon, less the sum of approximately $150,000 payable to TAB
on certain accounts receivable transferral to TAB under the TAB Asset
Purchase Agreement, and a release of approximately $46,000 to TAB for related
expenses, labor costs and legal fees. The remaining $10,000 of the escrow
funds shall remain in escrow for an additional 6-month period for remaining
open issues with DOL as claimed by TAB. The foregoing settlement is subject
to final review and approval by TAB and Company management.

Except as noted above, no actions are currently pending against the Company.

Item 2. Changes in Securities - None

Item 3. Defaults Upon Senior Securities - None

                                       5
<Page>

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Matters - None

Item 6. Exhibits and Reports on Form 8-K -

1. The Company filed a Current Report on Form 8-K on September 25, 2001 to
announce (a) the dismissal of Rothstein, Kass & Company, P.C. as the Company's
independent accountant and the retainer of Ernst & Young LLP to serve as the
Company's independent accountant, effective September 21, 2001 and (b) the
approval of the Letter of Intent, which amends and updates the terms of the
proposed reverse merger of Digital Vision Systems, Inc. into Company.

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


DOCUCON, INCORPORATED
(Registrant)



By /s/ ROBERT W. SCHWARTZ

Robert W. Schwartz, President and Chief Executive Officer


Dated: November 14, 2001

                                       6

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
