---

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|/x/ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------

For the quarter ended September 30, 2000

|/ / | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | -----------------------------------------------------------------------------------

For the transition period from  to

Commission File Number: 0-21477

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ASPEON, INC.(Exact Name of registrant as specified in Its charter)

DELAWARE(State or Other Jurisdiction of
Incorporation or Organization)

52-1945748(I.R.S. Employer
Identification No.)


17891 CARTWRIGHT ROAD
IRVINE, CALIFORNIA 92614(Address of Principal Executive Offices) (Zip Code)

(949) 440-8000(Issuer's Telephone Number, Including Area code)

N/A(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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Check
whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 / /  No /x/

As
of June 7, 2001, 9,436,215 shares of the Registrant's common stock, par value $.01 per share, were outstanding.

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PART IFINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

ASPEON, INC.    CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                                     |                                                                                                                                                                    | September 30, 2000                                                             |            | June 30, 2000 |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ---------- | ------------- | ----------
|
|ASSETS                                                                                                                                                                                                               |                                                                                                                                                                   
|Current assets:                                                                                                                                                                                                      |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     | Cash and cash equivalents                                                                                                                                          |                                                                                | $          | 3,055,700     |           
|                                                                                                                                                                                                                     | Investments                                                                                                                                                        |                                                                                |            | 749,900       |           
|                                                                                                                                                                                                                     | Accounts receivable, net                                                                                                                                           |                                                                                |            | 13,034,300    |           
|                                                                                                                                                                                                                     | Inventories, net                                                                                                                                                   |                                                                                |            | 16,709,900    |           
|                                                                                                                                                                                                                     | Income taxes receivable                                                                                                                                            |                                                                                |            | 2,588,700     |           
|                                                                                                                                                                                                                     | Prepaid expenses and other current assets                                                                                                                          |                                                                                |            | 1,048,300     |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total current assets                                                           |            |               | 37,186,800
|Property and equipment, net                                                                                                                                                                                          |                                                                                                                                                                    |                                                                                | 5,560,800  |               |           
|Goodwill, net                                                                                                                                                                                                        |                                                                                                                                                                    |                                                                                | 18,554,500 |               |           
|Other intangible assets                                                                                                                                                                                              |                                                                                                                                                                    |                                                                                |           |               |           
|Other assets, net                                                                                                                                                                                                    |                                                                                                                                                                    |                                                                                | 1,041,400  |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total assets                                                                   |            | $             | 62,343,500
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|LIABILITIES, MANDATORILY REDEEMABLE SECURITIES, AND STOCKHOLDERS' EQUITY                                                                                                                                             |                                                                                                                                                                   
|Current liabilities:                                                                                                                                                                                                 |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     | Lines of credit                                                                                                                                                    |                                                                                | $          | 3,347,400     |           
|                                                                                                                                                                                                                     | Accounts payable                                                                                                                                                   |                                                                                |            | 8,948,700     |           
|                                                                                                                                                                                                                     | Accrued expenses                                                                                                                                                   |                                                                                |            | 4,513,500     |           
|                                                                                                                                                                                                                     | Current maturities of long-term debt                                                                                                                               |                                                                                |            | 1,015,100     |           
|                                                                                                                                                                                                                     | Purchase price payable for acquisitions                                                                                                                            |                                                                                |            | 2,551,200     |           
|                                                                                                                                                                                                                     | Customer deposits                                                                                                                                                  |                                                                                |            | 438,000       |           
|                                                                                                                                                                                                                     | Deferred revenues-current                                                                                                                                          |                                                                                |            | 2,098,000     |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total current liabilities                                                      |            |               | 22,911,900
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|Long-term debt, net of current portion                                                                                                                                                                               |                                                                                                                                                                    |                                                                                | 521,100    |               |           
|Purchase price payable for acquisitions                                                                                                                                                                              |                                                                                                                                                                    |                                                                                |           |               |           
|Other                                                                                                                                                                                                                |                                                                                                                                                                    |                                                                                | 361,300    |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total liabilities                                                              |            |               | 23,794,300
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|Mandatorily redeemable Series A preferred stock, $0.01 par value, 10,000 authorized, 9,850 and 10,000 issued and outstanding at September 30, 2000 and June 30, 2000, respectively (liquidation value of $9,999,800) |                                                                                                                                                                    |                                                                                | 6,397,000  |               |           
|Mandatorily redeemable warrants                                                                                                                                                                                      |                                                                                                                                                                    |                                                                                | 3,426,600  |               |           
|Mandatorily redeemable minority interest warrants                                                                                                                                                                    |                                                                                                                                                                    |                                                                                |           |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                | 9,823,600  |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|Stockholders' equity:                                                                                                                                                                                                |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     | Preferred stock, $0.01 par value, 990,000 authorized (1,000,000 authorized, net of 10,000 designated as mandatorily redeemable stock); none issued and outstanding |                                                                                |            |              |           
|                                                                                                                                                                                                                     | Common stock, $0.01 par value: 20,000,000 authorized; 9,436,215 and 9,383,161 issued and outstanding                                                               |                                                                                |            | 94,400        |           
|                                                                                                                                                                                                                     | Additional paid in capital                                                                                                                                         |                                                                                |            | 65,143,600    |           
|                                                                                                                                                                                                                     | Accumulated deficit                                                                                                                                                |                                                                                |            | (35,465,200   | )         
|                                                                                                                                                                                                                     | Accumulated other comprehensive loss                                                                                                                               |                                                                                |            | (1,047,200    | )         
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total stockholders' equity                                                     |            |               | 28,725,600
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           
|                                                                                                                                                                                                                     |                                                                                                                                                                    | Total liabilities, mandatorily redeemable securities, and stockholders' equity |            | $             | 62,343,500
|                                                                                                                                                                                                                     |                                                                                                                                                                    |                                                                                |            |               |           

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

2

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ASPEON, INC        CONSOLIDATED STATEMENTS OF OPERATIONS        (UNAUDITED)

|                                                                                    |                                                     | Three Months Ended
September 30, |            
|----------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------- | -----------
|
|Revenues:                                                                           |                                                     |                                  |            
|                                                                                    | Products                                            |                                  | $          
|                                                                                    | Services                                            |                                  |            
|                                                                                    |                                                     |                                  |            
|Total revenues                                                                      |                                                     |                                  | 19,625,100 
|                                                                                    |                                                     |                                  |            
|Cost of revenues:                                                                   |                                                     |                                  |            
|                                                                                    | Products                                            |                                  |            
|                                                                                    | Services                                            |                                  |            
|                                                                                    |                                                     |                                  |            
|Total cost of revenues                                                              |                                                     |                                  | 17,039,500 
|                                                                                    |                                                     |                                  |            
|Gross profit                                                                        |                                                     |                                  | 2,585,600  
|                                                                                    |                                                     |                                  |            
|Operating expenses:                                                                 |                                                     |                                  |            
|                                                                                    | Research and development                            |                                  |            
|                                                                                    | Selling and marketing                               |                                  |            
|                                                                                    | General and administrative                          |                                  |            
|                                                                                    | Impairment charge                                   |                                  |            
|                                                                                    |                                                     |                                  |            
|Total operating expenses                                                            |                                                     |                                  | 27,983,100 
|                                                                                    |                                                     |                                  |            
|Income (loss) from operations                                                       |                                                     |                                  | (25,397,500
|Interest expense                                                                    |                                                     |                                  | (253,900   
|Interest income                                                                     |                                                     |                                  | 137,500    
|                                                                                    |                                                     |                                  |            
|Income (loss) before income taxes and cumulative effect of accounting change        |                                                     |                                  | (25,513,900
|Income tax expense                                                                  |                                                     |                                  | (57,500    
|                                                                                    |                                                     |                                  |            
|Income (loss) before cumulative effect of accounting change                         |                                                     |                                  | (25,571,400
|Cumulative effect of accounting change (net of income taxes of $0)                  |                                                     |                                  | 817,600    
|                                                                                    |                                                     |                                  |            
|Net income (loss)                                                                   |                                                     |                                  | (24,753,800
|Accretion of mandatorily redeemable Series A preferred stock discount and dividends |                                                     |                                  | (685,500   
|                                                                                    |                                                     |                                  |            
|Net income (loss) available to common stockholders                                  |                                                     | $                                | (25,439,300
|                                                                                    |                                                     |                                  |            
|Basic income (loss) per share:                                                      |                                                     |                                  |            
|                                                                                    | Before cumulative effect of accounting change       |                                  | $          
|                                                                                    | Cumulative effect of accounting change              |                                  |            
|                                                                                    |                                                     |                                  |            
|                                                                                    |                                                     | Net income (loss)                |            
|                                                                                    |                                                     |                                  |            
|Diluted income (loss) per share:                                                    |                                                     |                                  |            
|                                                                                    | Before cumulative effect of accounting change       |                                  | $          
|                                                                                    | Cumulative effect of accounting change              |                                  |            
|                                                                                    |                                                     |                                  |            
|                                                                                    |                                                     | Net income (loss)                |            
|                                                                                    |                                                     |                                  |            
|Shares used in computing income (loss) per common share:                            |                                                     |                                  |            
|                                                                                    | Basic                                               |                                  |            
|                                                                                    |                                                     |                                  |            
|                                                                                    | Diluted                                             |                                  |            
|                                                                                    |                                                     |                                  |            
|Other comprehensive income (loss) and its components consist of the following:      |                                                     |                                  |            
|                                                                                    | Net income (loss)                                   |                                  | $          
|                                                                                    | Foreign currency translation adjustment, net of tax |                                  |            
|                                                                                    |                                                     |                                  |            
|Comprehensive income (loss)                                                         |                                                     | $                                | (24,833,100
|                                                                                    |                                                     |                                  |            

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

3

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ASPEON, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        (UNAUDITED)

|                                                                                     |                                                                   | Three Months Ended
September 30,                    |                                       
|------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------
|
|OPERATING ACTIVITIES                                                                 |                                                                   |                                                     |                                       
|Net income (loss)                                                                    |                                                                   | $                                                   | (24,753,800                           
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                                                   |                                                     |                                       
|                                                                                     | Cumulative effect of accounting change                            |                                                     |                                       
|                                                                                     | Depreciation and amortization                                     |                                                     |                                       
|                                                                                     | Warrant valuation adjustment                                      |                                                     |                                       
|                                                                                     | Amortization of deferred stock-based compensation                 |                                                     |                                       
|                                                                                     | Impairment charge                                                 |                                                     |                                       
|                                                                                     | Write-off of assets                                               |                                                     |                                       
|                                                                                     | Net change in allowance accounts                                  |                                                     |                                       
|                                                                                     | Changes in operating assets and liabilities, net of acquisitions: |                                                     |                                       
|                                                                                     |                                                                   |                                                     | Accounts receivable                   
|                                                                                     |                                                                   |                                                     | Inventories                           
|                                                                                     |                                                                   |                                                     | Income taxes receivable               
|                                                                                     |                                                                   |                                                     | Prepaid and other current assets      
|                                                                                     |                                                                   |                                                     | Other assets                          
|                                                                                     |                                                                   |                                                     | Accounts payable                      
|                                                                                     |                                                                   |                                                     | Accrued expenses and other liabilities
|                                                                                     |                                                                   |                                                     | Income taxes payable                  
|                                                                                     |                                                                   |                                                     | Customer deposits                     
|                                                                                     |                                                                   |                                                     | Deferred revenues                     
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     |                                                                   | Net cash used in operating activities               |                                       
|                                                                                     |                                                                   |                                                     |                                       
|INVESTING ACTIVITIES                                                                 |                                                                   |                                                     |                                       
|                                                                                     | Purchase of equipment                                             |                                                     |                                       
|                                                                                     | Cash paid for purchased businesses                                |                                                     |                                       
|                                                                                     | Proceeds from the sales of securities                             |                                                     |                                       
|                                                                                     | Notes advanced to related parties                                 |                                                     |                                       
|                                                                                     | Repayment of notes due from related parties                       |                                                     |                                       
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     |                                                                   | Net cash provided by (used in) investing activities |                                       
|                                                                                     |                                                                   |                                                     |                                       
|FINANCING ACTIVITIES                                                                 |                                                                   |                                                     |                                       
|                                                                                     | Net borrowings under lines of credit                              |                                                     |                                       
|                                                                                     | Repayment of notes payable                                        |                                                     |                                       
|                                                                                     | Principal payments on capital leases                              |                                                     |                                       
|                                                                                     | Preferred stock dividend paid                                     |                                                     |                                       
|                                                                                     | Exercise of stock options                                         |                                                     |                                       
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     |                                                                   | Net cash (used in) provided by financing activities |                                       
|                                                                                     | Effect of exchange rate changes on cash                           |                                                     |                                       
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     | Net decrease in cash and cash equivalents                         |                                                     |                                       
|                                                                                     | Cash and cash equivalents at beginning of period                  |                                                     |                                       
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     | Cash and cash equivalents at end of period                        |                                                     | $                                     
|                                                                                     |                                                                   |                                                     |                                       
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                     |                                                                   |                                                     |                                       
|                                                                                     | Income taxes paid                                                 |                                                     | $                                     
|                                                                                     |                                                                   |                                                     |                                       
|                                                                                     | Interest paid                                                     |                                                     | $                                     
|                                                                                     |                                                                   |                                                     |                                       

4

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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:

Issuance of the Company's common stock for shares of mandatorily redeemable Series A preferred stock converted during the
periodNote 5.

Accrued
but unpaid dividends on mandatorily redeemable Series A preferred stockNote 4.

Accretion
of mandatorily redeemable Series A Preferred Stocknote 4.

Capital
leases obligations of $329,800 were executed during the three months ended September 30, 2000, for certain office and computer equipment.

5

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ASPEON, INC.        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY        (UNAUDITED)

|                                                                           |  | Common Stock |  |   |        |  |   | Accumulated
Other
Comprehensive
Loss |  |   |            
|-------------------------------------------------------------------------- |  | ------------ |  | - | ------ |  | - | ------------------------------------ |  | - | -----------
|
|
|BALANCE, JUNE 30, 2000                                                     |  | 9,383,161    |  | $ | 93,800 |  | $ | 65,049,500                           |  | $ | (10,025,900
|Conversion of mandatorily redeemable preferred stock                       |  | 53,054       |  |   | 600    |  |   | 94,100                               |  |   |           
|Accretion of mandatorily redeemable preferred stock discount and dividends |  |             |  |   |       |  |   |                                      |  |   | (685,500   
|Comprehensive loss                                                         |  |             |  |   |       |  |   |                                     |  |   | (24,753,800
|                                                                           |  |              |  |   |        |  |   |                                      |  |   |            
|BALANCE, SEPTEMBER 30, 2000                                                |  | 9,436,215    |  | $ | 94,400 |  | $ | 65,143,600                           |  | $ | (35,465,200
|                                                                           |  |              |  |   |        |  |   |                                      |  |   |            

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

6

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ASPEON, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999        (UNAUDITED)

1.  GENERAL

Aspeon, Inc.
("Aspeon" or the "Company"), formerly known as Javelin Systems, Inc., was incorporated in the State of Delaware on September 19, 1995 under the name
of Sunwood Research, Inc. Javelin Systems, a division of Aspeon, is a provider of integrated touchscreen computers and system integration
services to the foodservice and retail industries. Through subsidiary corporations, Aspeon operates as an application service provider ("ASP") providing services which enable software applications to
be deployed, managed, supported and upgraded from centrally located servers, rather than individual computers.

The
Company has the following subsidiaries, all wholly owned:

|Posnet Computers, Inc. ("Posnet")                                                    |  | Acquired December 1997                                      
|------------------------------------------------------------------------------------ |  | ------------------------------------------------------------
|CCI Group, Inc. ("CCI")                                                              |  | Acquired December 1997                                      
|Javelin Systems (Europe) Limited
    ("Javelin Europe") (UK)                         |  | Established March 1998                                      
|Javelin Systems International Pte Ltd.
    ("Javelin Asia") (Singapore)              |  | Established March 1998                                      
|Javelin Systems Australia Pty Limited
    ("Javelin Australia")                      |  | Established April 1998                                      
|Aspact IT Services (Singapore) Pte Ltd.
    ("Aspact")                               |  | Acquired by Javelin Asia May 1998, sold August 2000 (Note 7)
|Javelin Holdings International Limited(UK)
    (formerly RGB Trinet Limited ("RGB")) |  | Acquired November 1998                                      
|Jade Communications Limited ("Jade") (UK)                                            |  | Acquired November 1998 by RGB                               
|Dynamic Technologies, Inc. ("DTI")                                                   |  | Acquired April 1999, assets sold March 2001                 
|Restaurant Consulting Services, Inc. ("RCS")                                         |  | Acquired August 1999                                        
|Aspeon Solutions, Inc. ("Solutions")                                                 |  | Established February 2000                                   
|Teneo Limited ("Teneo") (UK)                                                         |  | Established March 2000 by RGB, sold March 2001              
|Monument Software Corporation ("Monument")                                           |  | Acquired March 2000                                         

Posnet
and CCI provide full turnkey systems integration services, including system consulting, staging, training, deployment, product support and maintenance.

The
three international subsidiaries Javelin Europe, Javelin Asia, and Javelin Australia were formed to expand the Company's sales and distribution channels in the international
marketplace.

Aspact
is headquartered in Singapore and provides consulting and system integration services.

RGB
and Jade are headquartered in England and provide complementary Wide Area Networking products and services primarily to large retail, hospitality, and telecommunications
companies.

DTI
provided custom Internet/intranet software and services. At the time of DTI's acquisition, SB Holdings, Inc., a shareholder of DTI, was also acquired.

RCS
implements, operates and supports packaged software applications for the restaurant industry.

7

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Teneo was formed by Jade to develop the wide area networks market.

Monument
specializes in the rapid implementation of enterprise-class financial systems with an emphasis on Oracle Financials.

Hereinafter,
Aspeon and its subsidiaries are referred to as the Company.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The unaudited consolidated financial statements include the accounts of Aspeon and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations of the SEC. In the opinion of the Company's management, all adjustments necessary for a fair presentation of the
accompanying unaudited consolidated financial statements are reflected herein. All such adjustments are normal and recurring in nature with the exception of the impairment of goodwill. Interim results
are not necessarily indicative of the results for the full year or for any future interim periods. For more complete financial information, these unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended June 30, 2000 filed with the
SEC.

LIQUIDITY AND CAPITAL RESOURCES

The Company sustained significant losses during the year ended June 30, 2000 and the three months ended September 30, 2000, and has experienced
negative cash flows from operations since its inception. At September 30, 2000, the Company's balance of cash and cash equivalents and of short-term investments was $3,055,700 and
$749,900, respectively, compared to $8,853,200 and $1,025,200 at June 30, 2000. At June 30, 2000, the Company was in default of certain covenants related to its credit facility
(Note 4). In October 2000, the Company obtained a waiver on all defaults through June 30, 2000 pursuant to certain terms and conditions including accelerating term loan
repayments, accruing interest on the term loan at the default rate of 15.65% and limiting outstanding borrowings to approximately $3,538,000. The credit facility expired in June 2001. In
October 2000, the Company received a notice of default from its Preferred Stockholder, which triggered certain payment requirements as well as a Repricing and Redemption Event, as defined in
the Preferred Stock Agreement (see Note 4). The Company is also delinquent in the payments of various of its trade payables. These matters, among others, raise substantial doubt as to the
Company's ability to continue as a going concern.

The
Company's continued existence is dependent upon, among other factors, the Company's ability to return to profitability, the continued forbearance of the Company's lenders and
creditors, the successful renegotiation of the terms of its Preferred Stock, the outcome of litigation filed against the Company, which alleges violations of the federal securities laws
(Note 9), and the Company's ability to raise funds from additional debt and/or capital. Management has reduced its workforce and plans to

8

---

further reduce expenditures. Management believes that such reductions, the securing of a new working capital borrowing facility, and funds expected to be generated from operations, will be sufficient
to meet its expected short-term needs for working capital, exclusive of any obligation to redeem the
Company's preferred stock as discussed in note 5. However, there can be no assurance that sufficient cash flows will be generated by the Company to avoid the further depletion of its working
capital, that the Company will successfully renegotiate the terms of its Preferred Stock, or that the outcome of the litigation will not have a material adverse impact on the Company's operations.
Accordingly, management intends to obtain additional debt or private equity financing. There can be no assurance that additional debt or equity financing will be available, if and when needed, or
that, if available, such financing could be completed on commercially favorable terms.

These
unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern. The unaudited consolidated financial statements do not
include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result from the outcome of these uncertainties.

RESERVES

The Company retained reserves for doubtful accounts receivable totaling $2,027,100 (September 30, 2000) and $433,600 (June 30, 2000). In
addition, the Company retained reserves for obsolete inventory totaling $2,333,000 (September 30, 2000) and $1,063,900 (June 30, 2000).

INVENTORIES

Inventories at September 30, 2000 and June 30, 2000 consist primarily of point of sale computer hardware and components and are stated at the
lower of cost (first-in, first-out) or market as follows:

September 30,
2000

June 30,
2000Raw materials

$
7,408,900

$
7,506,400Work-in-process


331,800


110,400Finished goods


8,969,200


13,049,500$
16,709,900

$
20,666,300


INTANGIBLE ASSETS

Excess of cost over net assets of purchased businesses ("goodwill") represents the excess of purchase price over the fair value of the net assets of acquired
businesses. For the acquisitions of Posnet, CCI, Aspact, RGB, Jade, RCS and Monument, the excess was allocated entirely to goodwill. Management determined that for these acquired companies, there were
no other identifiable intangible assets that would require an allocation of the purchase price. Goodwill is stated at cost and is amortized on a straight-line basis over periods ranging
from three to 25 years. Other intangible assets include the estimated value associated with a non-compete agreement, workforce and software acquired in the acquisition of DTI. These
items are being amortized on a straight-line basis over periods ranging from two to ten years.

9

---

The Company assesses the recoverability of these intangible assets by determining whether the amortization of the goodwill and other intangible asset balances over the remaining lives
can be recovered through projected undiscounted cash flows of the related operations. The amount of goodwill impairment, if any, is measured based on projected discounted cash flows and is charged to
operations in the period in which goodwill impairment is determined by management. At September 30, 2000, the Company recorded an impairment charge of $17,366,000. The provision includes
charges for the write-off of $16,624,600 of goodwill associated with the DTI and Monument acquisitions and the write-off of the remaining $741,400 balance of other intangible
assets.

ACCRUED SEVERANCE COSTS

Included in accrued expenses as of June 30, 2000 is $3,900,000 of severance costs for nine senior management personnel terminated in June 2000.
Such costs include payroll and related expenses, health benefits and $2,500,000 associated with the settlement of future contingent payments with the selling shareholder of RCS. The termination
agreements provided for the extension of the exercise period to twenty-four months for previously granted stock options. The fair market value of the underlying common stock on the date
the stock options were modified was less than the exercise price; accordingly, there was no impact to the consolidated statements of operations. In addition, the Company entered into consulting
agreements with five of the terminated employees, in which a total of 200,000 Aspeon, Inc. stock options were granted with vesting periods of twenty-four months. The impact of these
stock options to the consolidated financial statements was not material.

As
of the quarter ended September 30, 2000, the remaining balance of severance costs included in accrued expenses is $711,000 which reflects the remaining costs associated with
agreements entered into
prior to June 30, 2000 of about $571,000 and the additional accrual related to one agreement entered into with one senior manager during the three months ended September 30, 2000 of
$140,000. The severance costs for the agreement entered into during the three months ended September 30, 2000 include payroll, related expenses and health benefits. The termination agreement
provided for the extension of the exercise period to 90 days for previously granted stock options. The fair market value of the underlying common stock on the date the stock options were
modified was less than the exercise price; accordingly, there was no impact to the consolidated statements of operations.

BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders for the period by the weighted average
number of common shares outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding adjusted for the effects of potential issuances of common
shares, if dilutive. Potential common shares include incremental shares of common stock issuable on the exercise of stock options, warrants and convertible preferred stock.

10

---

A reconciliation of basic and diluted net income (loss) per common share for the three months ended September 30, 2000 and 1999 is as follows:

|                                                                            |  | Three Months Ended
September 30, 2000 |             | Three Months Ended
September 30, 1999
|--------------------------------------------------------------------------- |  | ------------------------------------- | ----------- | -------------------------------------
|
|Net income (loss) available to common stockholders                          |  | $                                     | (25,439,300 | )                                    
|                                                                            |  |                                       |             |                                      
|Weighted average common shares outstanding available to common stockholders |  |                                       | 9,401,435   |                                      
|Potential common shares for the exercise of stock options                   |  |                                       |            |                                      
|                                                                            |  |                                       |             |                                      
|Diluted weighted average common shares outstanding                          |  |                                       | 9,401,435   |                                      
|                                                                            |  |                                       |             |                                      
|Net income (loss) per common share                                          |  | $                                     | (2.70       | )                                    
|                                                                            |  |                                       |             |                                      

For
the three months ended September 30, 2000 there was no difference between basic and diluted net loss per common share, as the Company incurred a net loss for the period.
Net loss per common share for the three months ended September 30, 2000 was computed by dividing net loss available to common stockholders by weighted average number of shares outstanding. Due
to the net loss incurred by the Company for the three months ended September 30, 2000, there were approximately 4.5 million Aspeon, Inc. stock options, 0.6 million
Aspeon, Inc. warrants, and 1.9 million shares of Aspeon, Inc. stock issuable upon the potential conversion of mandatorily redeemable preferred stock, which are not included in the
computation of diluted net loss per share, as their impact would be anti-dilutive.

SEGMENT INFORMATION

The Company uses the management approach for segment disclosure, which designates the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable segments.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. Comprehensive income (loss) consists of net income (loss), the change in the cumulative foreign currency translation adjustment and the change in unrealized gains
or losses on available-for-sale securities. Accumulated other comprehensive loss consists of the cumulative translation adjustment and net unrealized gains or losses on
available-for-sale securities.

ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Effective July 1, 2000, the Company adopted SFAS No. 133, which establishes new accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships

11

---

or not, are required to be recorded on the consolidated balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the
hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings.

At
July 1, 2000 and September 30, 2000, the Company had derivative instruments consisting of mandatorily redeemable minority interest warrants and an embedded "mandatory
redemption" option associated with its mandatorily redeemable Series A preferred stock. The Company issued these derivatives as an incentive to the preferred stockholder to execute the
transaction on March 8, 2000 discussed in Note 5. The mandatorily redeemable minority interest warrants were valued at $867,300, $50,600 and $2,600 at March 8, 2000,
June 30, 2000 and September 30, 2000, respectively. The mandatory redemption option was valued at $93,000, $43,000 and $0 at March 8, 2000, June 30, 2000 and
September 30, 2000, respectively. The Company does not use derivative instruments to manage exposures to foreign currency, securities price, and interest rate risks. Accordingly, the Company
has no derivatives designated as hedging instruments.

The
Company recorded a pre- and after-tax reduction to loss of $817,600 for the cumulative effect at July 1, 2000 for the adoption of SFAS
No. 133. For the three months ended September 30, 2000, derivative gains of $133,000 are included in other income.

The
mandatorily redeemable minority interest warrants were valued using the Black-Scholes option pricing model with the following assumptions:

March 8,
2000

June 30,
2000

September 30,
2000Risk free interest rate


6.6
%

6.2
%

5.9
%Dividend yield


None


None


NoneVolatility


84.0
%

107.0
%

130.0
%Term


6 years


5.7 years


5.4 yearsExercise price

$
5.00

$
5.00

$
5.00


The
mandatory redemption option was valued using the Black-Scholes option pricing model with the following assumptions:

March 8,
2000

June 30,
2000

September 30,
2000Risk free interest rate


6.5
%

6.4
%

Dividend yield


None


None


NoneVolatility


82.0
%

92.0
%

Term


2 years


2 years


Exercise price

$
20.00

$
20.00

$
20.00


At
September 30, 2000 the mandatory redemption option was valued at zero because a mandatory redemption event was virtually certain.

12

---

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 1999, Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" was issued by the Securities and
Exchange Commission staff (the "staff"), which summarizes the staff's views on selected revenue recognition issues based upon existing generally accepted accounting principles. The statements in the
staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices
followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws. The staff has deferred the
implementation date of SAB 101 until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company's adoption of SAB 101 did not have a material impact on the
consolidated results of operations or financial position of the Company.

In
March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving Stock
Compensation." The adoption of this Interpretation did not have a material impact on the consolidated results of operations or financial position of the Company.

In
November 2000, the Emerging Task Force ("EITF") issued EITF 00-27, "Application of Issue No. 98-5, "Accounting for Convertible Conversion
Features or Contingently Adjustable Conversion Ratios to
Certain Convertible Instruments". The adoption of the EITF did not have a material impact to the consolidated results of operations or financial position of the Company.

3.  LINES OF CREDIT AND LONG TERM DEBT

At September 30, 2000, the Company had borrowings outstanding under a domestic line of credit facility and term loan amounting to $2,714,900 and
$825,000 respectively. Furthermore, the Company has borrowings under capital equipment leases with principal balances outstanding at September 30, 2000 totaling $711,200.

These
credit facilities contain certain restrictive monthly financial and non-financial covenants (e.g., limitation on capital expenditures and indebtedness, etc.). Among
other covenants, the Company is required to maintain a stated current ratio, net worth, senior debt service coverage ratio and total debt service coverage ratio. At June 30, 2000, the Company
was in default of certain covenants. In October 2000, the Company obtained a waiver on all defaults through June 30, 2000 pursuant to certain terms and conditions including accelerating
term loan repayments, and accruing interest on the term loan at the default rate of 15.65%. The term loan was repaid in full in December 2000. At that time, the revolving line of credit
facility was limited to aggregate borrowings, which at no time was to exceed $3,538,000.

Since
November 2000, additional events of default have occurred under the loan agreement. In March 2001, the Company obtained from the lender a forbearance from
exercising its rights and remedies in terms of the credit facility to allow the Company to obtain financing sufficient to fully repay its obligations. Terms of the forbearance agreement provide
aggregate outstanding principal be limited to the lesser of $1,375,000 less any loan reserves or the sum of:



13

---





Interest
on the outstanding obligations accrued at the default interest rate of 13.25% per annum as of September 30, 2000.

In
accordance with the March 2001 forbearance agreement, the revolving line of credit facility principal balance reduced on a weekly scheduled basis until expiration of the
loan agreement on June 8, 2001. On May 14, 2001, the line of credit facility was repaid in full.

In
May 2001, the Company signed a letter of intent for a proposed secured discretionary credit facility not to exceed $2,300,000. The availability of such a facility is subject
to the successful completion of due diligence procedures by the proposed lender and the negotiation and execution of related loan documents.

Jade
has a line of credit facility of approximately $1,800,000 from an unrelated financial institution. Borrowings under the line of credit are collateralized by all of the assets of
Jade and bear interest at the U.K. Base rate plus 2% (7.7% at September 30, 2000). The credit facility was renewed in October 2000 and expires in August 2001. At
September 30, 2000, borrowings under the line amounted to approximately $600,000. Availability under the line at September 30, 2000 totaled $1.2 million. Borrowings under the line
are restricted to the operations of Jade and may not be used to support other operations of the Company.

In
December 2000, Javelin Europe obtained a line of credit facility of approximately $1,000,000 collateralized by substantially all of its assets and bears interest at 1.75%
over the lenders Base Rate. This facility expires in August 2001. Borrowings under the line are restricted to the operations of Javelin Europe and may not be used to support other operations of
the Company.

In
July, 2001, Javelin Australia expects to conclude a factoring facility amounting to approximately $500,000 or a lesser amount based on eligible receivables. The facility is
cancelable on 30 days notice by either party. The agreement provides for a discount rate of 1.75% + the bank's published overdraft index rate, and a factoring service fee of
0.50%. Borrowings under the line are restricted to the operations of Javelin Australia and may not be used to support other operations of the Company.

4.  MANDATORILY REDEEMABLE SERIES A PREFERRED STOCK

In March 2000, the Company completed a private placement in which the Company sold an aggregate of 10,000 shares of Series A Convertible
Exchangeable Preferred Stock (the "Preferred Stock"), a warrant to acquire 583,334 shares of common stock of the Company at an initial exercise price of $17.00 per share and a warrant to acquire
1,250,000 shares of common stock of Aspeon Solutions, Inc., a wholly-owned subsidiary of the Company, at an exercise price of $5.00 per share. Proceeds to the Company amounted to $9,568,400,
net of $431,600 in issuance costs.

14

---

The net proceeds from the issuance of the Preferred Stock were allocated based on the relative fair values of each equity instrument using an independent valuation as follows:

Preferred Stock

$
5,274,500Warrants, Aspeon, Inc.


3,426,600Warrants, Aspeon Solutions


867,300Total net proceeds

$
9,568,400


The
Preferred Stock conversion price was less than the market value of the Company's common stock on the date of issuance; accordingly, the Company recorded a
beneficial conversion feature equal to the difference between the conversion price and the fair value of the common stock, multiplied by the number of shares into which the Preferred Stock is
convertible (intrinsic value). The resultant value was limited to the amount allocated to the Preferred Stock of $5,274,500 and was charged to retained earnings, to the extent available, and paid in
capital on the issuance date, and increased the net loss available to common stockholders. The Preferred Stock discount that resulted from the allocation of the net proceeds to the other equity
instruments issued is being accreted over the minimum period from the date of issuance to the date on which the Preferred Stock can first be redeemed at the Company's initiative (March 2002),
and has increased the net loss available to common stockholders by $537,600 for the three months ended September 30, 2000.

The
holders of the Preferred Stock ("Preferred Stockholders") have the following rights: i) the right of first offer for the subsequent sale of equity securities by the Company
through March 2001, ii) the right to exchange Preferred Stock for equity securities subsequently issued by the Company, through September 2001, iii) the option to exchange
the Preferred Stock for shares of the preferred stock of Aspeon Solutions following an initial public offering of that company and based on the trading volume of the company's common stock, as
defined, and iv) registration rights for the shares of common stock issuable upon the conversion of the Preferred Stock.

The
Preferred Stock also contains the following preferences: i) cumulative dividends at an annual rate of 6%, payable quarterly in cash or common stock at the option of the
Company commencing in April 2000, ii) liquidation preference equal to the original issuance price plus unpaid dividends, iii) conversion into common stock at any time after
March 2000 at a conversion price equal to the lower of (a) $16.00 or (b) the average of the three lowest closing bid prices of the Company's common stock during the 10 day
period prior to the conversion, in either case subject to a maximum number of shares of common stock which may be issued upon conversion of the Preferred Stock, which maximum initially was set at
1,250,000 shares and which is subject to adjustments, iv) redemption of the Preferred Stock by the Company in March 2002 at the original issuance price ($1,000 per share) plus unpaid
dividends, or at the option of the Company if certain conditions remain satisfied, as defined, in shares of common stock, and v) mandatory redemption if certain events occur, as defined, at a
redemption price equal to
the greater of (a) the aggregate value of the Preferred Stock being redeemed multiplied by one hundred and twenty-five percent (125%) and (b) an amount determined by dividing
the aggregate value of the Preferred Shares being redeemed by the conversion price in effect on the mandatory redemption date and multiplying the resulting quotient by the average closing trade price
for the Common Stock on the five (5) trading days immediately preceding (but not including) the mandatory redemption date.

15

---

During the quarter ended September 30, 2000, the Company paid $150,000 in dividends to the Preferred Stockholders. As of September 30, 2000, the Company has accrued
dividends of $147,900 that have been recorded as an increase to the Preferred Stock carrying value.

The
components of the accretion of manditorily redeemable preferred stock discount and dividends included in the statement of stockholders' equity for the three months ended
September 30, 2000 are as follows:

Discount accretion

$
537,600Dividend recordation


147,900$
685,500


16

---



NOTICE OF DEFAULT

In October 2000, a notice of default was received from the Preferred Stockholders due to the Company's failure to timely file its
Form 10-K and the suspension of trading of the Company's common stock by Nasdaq. In accordance with the provisions of certain agreements related to the Preferred Stock the Company
is required to pay the lesser of 1.5% or the highest rate allowed by applicable law, of the stated value of the Preferred Stock ($9,850,000) for each thirty calendar day period during which defaults
remain in connection with the Preferred Stock (approximately $147,800 per month). As a result of the defaults not being cured within ten days of the default notice, the conversion price of the
Preferred Stock was reduced and the Preferred Stockholder had the right to require the Company to redeem the Preferred Stock.

In
January 2001, the Preferred Stockholders served the Company with a mandatory redemption notice in accordance with the terms of the Preferred Stock since the Company's Common
Stock was no longer listed on the Nasdaq National Market or the New York Stock Exchange. As of the filing of this Form 10-Q, the Company has not complied with the redemption demand
and continues to hold discussions with the holder of the Preferred Stock.

The
terms of the Preferred Stock provide that until the redemption price is paid, the redemption price shall earn interest at a rate equal to the lower of 24% per annum or the highest
rate permitted by applicable law. At March 31, 2001, the approximate redemption value for the Preferred Stock was $13,267,400, including interest at the rate of 24% per annum. The holder of the
Preferred Stock may elect by delivering written notice to the Company ("Election Notice") to regain its rights as a holder of the Preferred Stock. If the holder of the Preferred Stock delivers to the
Company an Election Notice, then the conversion price for the Preferred Stock will be reduced by 1% for each day after February 9, 2001 that the Company failed to pay the redemption price,
until the day that the Election Notice is delivered to the Company; provided that the conversion price may not be reduced by more than 50%. As of June 21, 2001, the Preferred Stockholder has
not delivered to the Company an Election Notice, and therefore, the conversion price in effect on the date of conversion of the Preferred Stock, if converted, will be reduced by 50%. The terms of the
Preferred Stock provided that the maximum number of shares of common stock which may be issued upon the conversion of the Preferred Stock initially was set at 1,250,000 shares (subject to certain
adjustments); provided that such amount would be increased in proportion to any decrease in the conversion price resulting from a redemption default. Accordingly, as a result of the redemption
default, the 1,250,000 share limitation has been increased to 1,875,000 shares. Shares of Preferred Stock not converted into shares of common stock prior to the March 2002 maturity date of the
Preferred Stock would be required to be redeemed on such maturity date.

In
January 2001, the Preferred Stockholder served the Company with a Mandatory Redemption Notice in accordance with the terms of the Series A Convertible Preferred Stock since the
Company's Common stock was no longer listed on the Nasdaq National Market or the New York Stock Exchange.

The
Company does not have sufficient funds to pay the redemption price for the Preferred Stock. Management is optimistic that a satisfactory settlement agreement will be reached with
the holder of the Preferred Stock, but there can be no assurances to that effect.

Consequently,
in October 2000, the Company accreted the mandatory redeemable preferred stock by $3,600,800 (discount accretion to stated face value) and $2,462,400 (premium on
mandatory redemption accretion) to reflect the mandatory redemption value of $12,312,500. The mandatory redeemable preferred stock was classified as a current liability as a result of the default.

17

---

5.  STOCKHOLDERS' EQUITY

COMMON STOCK

In August 2000, 150 shares of Preferred Stock plus accrued and unpaid dividends were converted into 53,054 shares of the Company's common stock valued
at $94,700 (Note 4).

STOCK OPTIONS

Aspeon, Inc.

The following stock option activity occurred during the quarter ended September 30, 2000:

Options

Weighted Average
Exercise PriceOptions outstanding, beginning of period

2,336,967

$
8.11Granted

2,861,800


4.08Exercised




Canceled

(671,393
)

4.03Options outstanding, end of period

4,527,374

$
6.17


The
above stock options were granted to employees of the Company at or above the fair market value of the Company's common stock at grant date. Consequently, according to APB 25 no
compensation expense was booked for the three months ended September 30, 2000 in connection with the grant of options.

ASPEON SOLUTIONS, INC. (a wholly-owned subsidiary)

The following option activity occurred during the quarter ended September 30, 2000:

Options

Weighted Average
Exercise PriceOptions outstanding, beginning of period

2,593,389

$
1.52Granted

455,500


5.00Exercised




Canceled

(250
)

4.00Options outstanding, end of period

3,048,639

$
2.04


The
above stock options were granted to employees of the Company at or above the fair market value of the Company's common stock at grant date. Consequently, according to APB 25 no
compensation expense was booked for the three months ended September 30, 2000 in connection with the grant of options.

6.  RELATED PARTY TRANSACTIONS

NOTE RECEIVABLE FROM RELATED PARTIES

In August and September 1999, the Company executed two notes receivable with directors of the Company in the amounts of $116,000 and $80,000. These
notes bear interest at 6.0% per annum. The $116,000 note receivable principal balance and accrued interest is due in August 2002 and is secured by a pledge of 39,000 shares of common stock in
an entity other than the Company. The $80,000 note receivable is payable upon the sooner of: (a) the director's exercise of options to purchase 30,000 shares of the Company's common stock used
as collateral for the loan or (b) September 2002. At

18

---

September 30, 2000, $196,000 was outstanding on the notes receivable to the Company. The principal and the interest of the $80,000 note was paid in full in November 2000.

In
April and August 2000, the Company executed a $300,000 unsecured and $400,000 secured note receivable (collectively the "Notes") with its CEO. The $400,000 note was
collateralized by certain assets of the CEO and both notes bore interest at the rate of 6.6% annum. The principal and interest of the notes were paid in full in September 2000.

SALE OF CERTAIN ASSETS OF DTI

On March 1, 2001, the Company completed the sale of the consulting contracts and certain of the fixed assets of its Dynamic Technologies, Inc.
(DTI) subsidiary to a company controlled by DTI's former owners and certain shareholders of the Company, for a purchase price of $900,000 and the return for cancellation of 200,000 of the Company's
Common Shares valued at $60,000. With the completion of the transfer of its help desk business to a third party on April 27, 2001, the business activities of DTI ceased. A gain on the sale of
the net assets of DTI totaling $820,900 was recognized during the quarter ended March 31, 2001.

SALE OF ASPACT

In August 2000, the Company executed a sale agreement with the then current director of Aspact (the "Purchaser"). The initial purchase price of
$350,000, which is reflected in other assets in the consolidated balance sheet, is payable to the Company in monthly installments of $14,600 commencing in July 2001. Consequently, a loss on
sale of approximately $229,000 was recognized for the three months ended September 30, 2000. In the event the Purchaser consummates an initial public offering or disposes of all or
substantially all of Aspact's common stock, the Purchaser will be required to pay: a) the unpaid balance of the initial consideration and b) 50% of the net proceeds received from the
initial public offering less the amount paid under a), in an amount not to exceed $200,000. Concurrent with the sale agreement, the Purchaser was terminated as an employee of the Company.

SALE OF TENEO

In February 2001, the Company's subsidiary, RGB, sold its interest in Teneo Limited to employees of Teneo for the consideration of a $350,000 note which
is reflected in other assets in the consolidated balance sheet. Consequently a gain on sale of $432,000 was recognized during the quarter ended March 31, 2001.

7.  SEGMENT REPORTING

The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business
requires different technology and marketing strategies. The segments and a description of their businesses follows:

The
POS Products segment designs, manufactures and markets open system touchscreen point-of-sale (POS) network-ready hardware systems. These systems are sold
on a stand-alone basis or integrated as part of an end-to-end solution.

The
Solutions Services segment provides retail foodservice technology solutions and services that enable restaurants and retailers to capture, analyze, disseminate and use information
throughout the enterprise, from the point-of-sale (POS) cash register terminal to the back office to an organization's headquarters.

The
ASP Services segment provides pre-integrated business application services customized to meet industry specific needs of the foodservice and retail industry.

19

---

The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies." Segment data includes inter-segment revenues. The Company
does not allocate corporate-headquarters costs or research and development costs to the operating segments. Resources for research and development are allocated based on budgets. The Company evaluates
the performance of its segments and allocates resources to them based on net income (loss).

The
table below presents information about reportable segments as of and for the quarters ended September 30, 2000 and 1999:

|             |  | POS
Products |            | Solution
Services |   | ASP
Services |   | Total |            
|------------ |  | ------------ | ---------- | ----------------- | - | ------------ | - | ----- | -----------
|2000         |  |              |            |                   |   |              |   |       |            
|Revenues     |  | $            | 12,465,100 |                   | $ | 7,243,700    |   | $     | 2,942,900  
|Net loss     |  | $            | (3,884,100 | )                 | $ | (1,062,800   | ) | $     | (19,469,000
|Total assets |  | $            | 44,937,900 |                   | $ | 12,626,200   |   | $     | 4,779,400  

|                  |  | POS
Products |            | Solution
Services |   | ASP
Services |   | Total
|----------------- |  | ------------ | ---------- | ----------------- | - | ------------ | - | -----
|1999              |  |              |            |                   |   |              |   |      
|Revenues          |  | $            | 13,264,100 |                   | $ | 5,326,200    |   | $    
|Net income (loss) |  | $            | 531,400    |                   | $ | (228,400     | ) | $    
|Total assets      |  | $            | 72,185,600 |                   | $ | 14,899,000   |   | $    

A
reconciliation of total segment revenues to total consolidated revenues and of total segment net income (loss) to total consolidated net income (loss) for the quarters ended
September 30, 2000 and 1999 are as follows:

|                                                               |  | 2000 |             | 1999 |  
|-------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|Revenues:                                                      |  |      |             |      |  
|Total segment revenues                                         |  | $    | 22,651,700  |      | $
|Elimination of inter-segment revenues                          |  |      | (3,026,600  | )    |  
|                                                               |  |      |             |      |  
|Consolidated revenues                                          |  | $    | 19,625,100  |      | $
|                                                               |  |      |             |      |  
|Net income (loss):                                             |  |      |             |      |  
|Total segment net income (loss)                                |  | $    | (24,415,900 | )    | $
|Elimination of inter-segment gross profit, net of income taxes |  |      | (138,600    | )    |  
|Elimination of non-segment expenses, net of income taxes       |  |      | (199,300    | )    |  
|                                                               |  |      |             |      |  
|Consolidated net income (loss)                                 |  | $    | (24,753,800 | )    | $
|                                                               |  |      |             |      |  

20

---

Specified
items included in segment profit/loss for the quarters ended September 30, 2000 and 1999:

|                                                |  | POS
Products |          | Solution
Services |   | ASP
Services |   | Total |            
|----------------------------------------------- |  | ------------ | -------- | ----------------- | - | ------------ | - | ----- | -----------
|2000                                            |  |              |          |                   |   |              |   |       |            
|Interest expense                                |  | $            | (219,100 | )                 | $ | (28,300      | ) | $     | (6,500     
|Interest income                                 |  | $            | 117,700  |                   | $ | 13,300       |   | $     | 6,500      
|Depreciation and amortization expense           |  | $            | (262,200 | )                 | $ | (264,000     | ) | $     | (1,039,300 
|Impairment charges                              |  | $            |         |                   | $ |             |   | $     | (17,366,000
|Income tax expense                              |  | $            | 76,000   |                   | $ | (133,500     | ) | $     |           
|Expenditures for additions to long-lived assets |  | $            | (57,800  | )                 | $ | (42,800      | ) | $     | (236,300   
|1999                                            |  |              |          |                   |   |              |   |       |            
|Interest expense                                |  | $            | (229,000 | )                 | $ |             |   | $     | (700       
|Interest income                                 |  | $            | 86,000   |                   | $ | (6,400       | ) | $     |           
|Depreciation and amortization expense           |  | $            | (200,300 | )                 | $ | (238,900     | ) | $     | (500,600   
|Income tax expense                              |  | $            | (53,900  | )                 | $ | (52,100      | ) | $     | (178,500   
|Expenditures for additions to long-lived assets |  | $            | (428,100 | )                 | $ | (46,100      | ) | $     | (3,911,300 

Revenues
and long-lived asset information by geographic area as of and for the quarters ended September 30, 2000 and 1999:

|                  |  | United States |            | Europe |   | Asia      |  | Australia |         | Total
|----------------- |  | ------------- | ---------- | ------ | - | --------- |  | --------- | ------- | -----
|2000              |  |               |            |        |   |           |  |           |         |      
|Revenues          |  | $             | 13,466,600 |        | $ | 5,146,400 |  | $         | 224,100 |      
|Long-lived assets |  | $             | 5,381,300  |        | $ | 270,500   |  | $         | 912,000 |      

|                  |  | United States |            | Europe |   | Asia      |  | Australia |         | Total
|----------------- |  | ------------- | ---------- | ------ | - | --------- |  | --------- | ------- | -----
|1999              |  |               |            |        |   |           |  |           |         |      
|Revenues          |  | $             | 13,069,200 |        | $ | 5,920,500 |  | $         | 423,000 |      
|Long-lived assets |  | $             | 3,722,300  |        | $ | 341,900   |  | $         | 942,000 |      

8.  SUSPENSION OF TRADING AND DELISTING

In October 2000, the Nasdaq Stock Market ("Nasdaq") suspended trading in the Company's Common Stock while it sought additional information from the
Company. On November 9, 2000, the Company participated in a hearing before the Nasdaq Listing Qualifications Panel which was held for the purpose of evaluating whether the Company's Common
Stock may continue to be listed on Nasdaq or if it will be delisted. Effective as of January 4, 2001, the Company's Common Stock was delisted from the Nasdaq and has traded since that time on
the Pink Sheets under the symbol ASPE.

9.  COMMITMENTS AND CONTINGENCIES

LITIGATION

In October 1999, the Company and two former officers of a subsidiary of the Company were named as defendants in a breach of contract and intentional
tort action brought by an individual, filed in the Court of Common Pleas of Delaware County, Civil Action No. 99-13191, who claims rights to computer software products once offered
for sale by subsidiaries of the Company. The plaintiff is seeking payment of one half of all the sales proceeds of the commercial software product line of "Special
Delivery" sold since February 1997 and makes claim to one half of the asset purchase price (as apportioned to the "Special Delivery" asset) paid by the Company to the shareholders of the

21

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subsidiary in April 1999. The Company and its subsidiaries have indemnification rights against one of the selling shareholders in connection with his representations and warranties made about
"Special Delivery" in various documents. Although the Company and its subsidiaries support the selling shareholder's position as it relates to the plaintiff in this action, cross-claims have been
filed against the selling shareholder, for indemnification and contribution, for further protection. In May 2001 this cross-claim was dropped. At this time, management is unable to determine
whether the outcome of this complaint will have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In
October and November 2000, eight purported class action lawsuits were filed against the Company, the Company's Chief Executive Officer, and its former Chief Financial
Officer in the United States District Court for the Central District of California for alleged violations of the Securities Exchange Act of 1934. After defendants moved to dismiss each of the actions,
the lawsuits were consolidated under a single action, entitled "In re Aspeon Securities Litigation," Case No. SACV 00-995 AHS (ANx), and the appointed lead plaintiff voluntarily filed an
amended and consolidated complaint. Defendants moved to dismiss that complaint, and on April 23, 2001, the Court entered an order dismissing the complaint without prejudice. On May 21,
2001, the appointed lead plaintiff filed a third complaint, styled as a "First Amended Consolidated Complaint." On June 4, 2001, the defendants moved to dismiss this complaint. A hearing on the
defendants' motion to dismiss is presently scheduled for July 30, 2001. At this time, management is unable to determine whether the outcome of the litigation or associated legal costs will have
a material impact on the Company's consolidated financial position, results of operations, or cash flows.

In
May 2000, the Company and a distributor were named as defendants in an action in the United States District Court of Middle North Carolina brought by a former customer of
the distributor. In the case, entitled Performance Oriented Solutions, Inc. vs. Scansource, Inc., and Javelin Systems, Inc., Case No.: 1:00 CV 621 (M.D.N.C.), the plaintiff
alleges certain misrepresentations made by the defendants, consequently resulting in lost profits and incidental losses. In addition, the plaintiff is seeking punitive damages. At an initial
pre-trial conference in April 2001, the parties agreed to a court ordered mediation in September 2001. A trial date was set for July 2002.

At
this time, management is unable to determine whether the outcome of the litigation or associated legal costs will have a material impact on the consolidated financial position,
results of operations, or cashflows. The Company is not able to assess the probability of an unfavorable outcome or the amount if any, or range of possible loss.

PURCHASE PRICE PAYABLE FOR ACQUISITIONS

Pursuant to the purchase of all the outstanding capital stock of DTI and SB in April 1999, the Company agreed to make certain additional payments to the
selling shareholders amounting to $1,000,000 in value (as defined in the Stock Purchase Agreement, the "DTI Agreement") of common stock of the Company. The stock was issuable in two tranches amounting
to $250,000 by January 31, 2000 and $750,000 by April 31, 2000 upon the satisfaction of certain milestones which had been achieved. The Company is delinquent on the required issuance of
100,679 shares of common stock calculated as defined in the DTI Agreement. The agreement provided for no specific remedies for non-performance by the parties.

Pursuant
to the terms of purchase of all the outstanding share capital of RGB Trinet Limited and Jade Communications Limited, the Company entered into an "Earn-Out
Agreement" amounting to $1,908,500 payable in cash and $867,400 payable in shares of the Company's common stock payable in three tranches in April, June and October 2000. At
September 30, 2000, an amount of approximately $1,551,200 was outstanding, including the issuance of 276,200 shares of common stock, calculated as defined by the agreement. By
October 2000, the Company was delinquent on all outstanding required

22

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cash payments and stock issuances. The Company is attempting to negotiate a settlement of the amounts owed. The agreement provided for no specific remedies for non-performance by the parties.

Because
certain of the payments and the delivery of some of the common shares under these agreements have not been made at September 30, 2000, the amounts outstanding pursuant
to the purchase agreements of $2,551,200 were classified as a current liability.

23

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

GENERAL

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and the Company intends that such forward-looking statements be subject to the
safe harbors created thereby. The following discussion should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and the other financial
information included in the Company's Form 10-K. This discussion contains forward-looking statements that include risk and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a result of any number of factors, including those set forth under the heading "Risk Factors" in Item I of the Company's
Form 10-K filed on November 30, 2000, the Company's ability to return to profitability, the continued forbearance of the Company's lenders and creditors, the successful
renegotiation of the terms of the Company's Preferred Stock, the outcome of litigation filed against the Company and the Company's ability to raise funds from additional debt and/or capital. Such
forward-looking statements represent management's current expectations and are inherently uncertain. Investors are warned that actual results may differ from management's expectations. The Company
assumes no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

BUSINESS

Aspeon, Inc. ("Aspeon" or the "Company"), formerly known as Javelin Systems, Inc., was incorporated in the State of Delaware on
September 19, 1995 under the name of Sunwood Research, Inc. Javelin Systems, a division of Aspeon, is a provider of integrated touchscreen computers and system integration services to
the foodservice and retail industries. Through subsidiary corporations, Aspeon operates as an application service provider ("ASP") providing services which enable software applications to be deployed,
managed, supported and upgraded from centrally located servers, rather than individual computers.

In
December 1997, Aspeon acquired CCI Group, Inc. and Posnet Computers, Inc.; both companies focused on providing point of sale ("POS") solutions to large
restaurant chains including White Castle, AFC, Red Robin and Jamba Juice. These acquisitions formed the basis of Aspeon's POS Products and Solution Services businesses.

Aspeon
began its globalization initiative in 1998, first opening Aspeon sales and support offices in the United Kingdom, Singapore, and Australia.

In
November 1998, Aspeon acquired RGB Trinet Limited ("RGB") and Jade Communications Limited ("Jade"), networking solutions providers with customers such as Marks and Spencer,
WH Smith, Body Shop and Bass Pubs. Although primarily retail focused, Jade has relationships with major non-retail customers including Reuters and British Telecom. In March 2000,
RGB launched another UK
subsidiary, Teneo Limited ("Teneo"), in an effort to expand its service management and wide area network solutions business. The operations of RGB were transferred to Jade and RGB was renamed Javelin
Holdings International Limited.

By
late 1998, Aspeon was positioned to provide both point of sale and communications solutions to the retail and restaurant industries, but realized it lacked the expertise in
enterprise software and infrastructure in the US and in certain other countries, which would be necessary to complete the Company's end-to-end vision. The Company was not in a
position to build a large enterprise consulting practice due to the difficulty of hiring and retaining the hundreds of consultants needed to serve its

24

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large clients. Aspeon began evaluating alternative business models and identified the ASP Services business as suitable for its vertical focus since it could develop a pre-integrated,
vertically-focused suite of software applications that could be delivered through the Internet in a hosted environment. In 1999, Aspeon began developing its ASP Services business.

In
April 1999, Aspeon acquired Dynamic Technologies, Inc. ("DTI"), a Philadelphia-based provider of hosted messaging, customer relationship management, and custom
software solutions to a variety of customers in the Delaware Valley, Washington, area including Aventis and Right Management. This acquisition served as the platform for Aspeon's ASP Services offering
by providing application development, implementation, and support capabilities. In August 1999, Aspeon acquired Restaurant Consulting Services, Inc. ("RCS"), a provider of technology
outsourcing services including Oracle Financials hosting and communications management to customers such as Champs Entertainment, Inc., Fuddruckers, Chart House, and Xando-Cosi.
Aspeon Solutions, Inc. was formed to be the ASP operating company but did not become active.

The
Company has attempted to assemble a high caliber management team and build an ASP infrastructure designed to assist companies as they turn to outsourcers, like Aspeon, to satisfy
their internal information technology ("IT") needs.

All
of the acquisitions were accounted for by the purchase method, and accordingly, the results of operations of these subsidiaries have been included with those of the Company
commencing on the dates of acquisition. Goodwill resulting from these acquisitions is amortized on a straight-line basis over periods of 3 to 25 years.

The
Company's principal business activities are:



25

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REVENUES

PRODUCTS

POS Products revenues consist primarily of sales of POS hardware, software and peripheral equipment including printers and personal computers. The replacement
cycle for hardware in the POS foodservice industry is generally long, and consequently, revenues for hardware products to a specific end-user tend to be non-recurring. The
Company may experience significant variations in POS Products revenue in any quarterly or annual period.

SERVICES

Services revenues consist primarily of staging and design, installation, maintenance and repair, and consulting services. Maintenance and repair contract
solution services tend to be recurring while services such as staging, design and installation tend not to be recurring. Installation services are not always a required service to be provided for in
connection with the sale of the Company's POS products. Maintenance services are typically provided for under the terms of a single or multi-year maintenance agreement.

Services
revenues also include ASP services revenues consisting primarily of information technology outsourcing, hosting, remote services, help desk and consulting services. Revenues
are classified into two categories: recurring or multi-year contractually based revenue, and revenue generated via non-recurring agreements. Services such as consulting tend
not to be recurring.

ASP
Services also include certain purchases of equipment procured by the Company on behalf of a customer. Typically, these purchases are passed through to the customer with a nominal
markup on the cost to the Company.

As
sales of hardware products and services to specific end-users become more significant relative to total revenues, the Company may experience significant variations in
any quarterly or annual reporting
period. These variations may result from, among other things, delays in installations or the Company's inability to timely address any problems with installations that have been completed or are near
completion. Any of these factors could cause the Company's results of operations to fluctuate significantly from period to period, including on a quarterly basis.

COST OF REVENUES

PRODUCTS

Products cost of revenues consists primarily of POS hardware, software and peripheral equipment costs. POS hardware costs consist of the acquisition costs of
non-Aspeon product line hardware that is resold by the Company and the costs of components and payroll and related costs for assembly, manufacturing, purchasing, quality control and
repairs of Aspeon products. Sales of non-Aspeon hardware generally carry a lower gross margin than do other product sales. The cost of the components incorporated in the Aspeon product
line represents in excess of 80% of the total cost of such products, which is consistent with prior fiscal years. The cost of five components represents in excess of 75% of the total component costs
included in the Aspeon product line.

SERVICES

Services cost of revenues consists primarily of payroll and related costs for technical and support staff providing staging, installation, maintenance,
information technology outsourcing, hosting, remote services, help desk and consulting services. Cost of revenues per contract increases as new installations under the contract are completed.
Consequently, until the Company has a larger volume of matured service contracts, gross margins on such service revenues will be lower than the Company believes can

26

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be realized by its service operations. Additionally, because the Company's service business should generate higher revenues and higher margins in periods in which the Company handles significant
system deployments, and because contracts for such deployments are non-recurring in nature, the Company anticipates that revenues and gross margins from its service business will fluctuate
from period to period.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999

The following discussion sets forth the historical results of operations and financial condition of the Company for the three months ended September 30,
2000 and 1999. The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated:

Three Months Ended
September 30,2000

1999Revenues:Products

67.8
%
66.1
%Services

32.2

33.9Total revenues

100.0

100.0Cost of revenues:Products(1)

90.3

71.6Services(1)

79.5

76.3Total cost of revenues

86.8

73.2Gross profit

13.2

26.8Operating expenses:Research and development

1.7

2.3Selling and marketing

10.1

8.7General and administrative

42.3

11.4Impairment

88.5

Total operating expenses

142.6

22.4Income (loss) from operations

(129.4
)
4.4Interest expense

(1.3
)
(1.2
)Interest income

0.7

0.4Provision for income taxes

(0.3
)
(1.4
)Cumulative effect of accounting change

4.2

Net income (loss)

(126.1
)%
2.2
%


---

REVENUESPRODUCTS.Revenues from POS Product sales increased $0.1 million, or 0.9%, to
$13.3 million for the three months ended September 30, 2000 compared to $13.2 million for the same period a year ago. As a percentage of total revenues, Product sales accounted
for 67.8% and 66.1% for the three months ended September 30, 2000 and 1999, respectively. The moderate increase reflects the continued impact of an industry wide slowdown for POS hardware
resulting in fewer POS Product unit shipments by the Javelin division compared to the same period a year ago.

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REVENUESSERVICES.Revenues from Services decreased $0.5 million, or 6.8%, to $6.3 million
for the three months ended September 30, 2000 compared to $6.8 million for the same period a year ago. As a percentage of total revenues, Services accounted for 32.2% and 33.9% for the
three months ended September 30, 2000 and 1999, respectively. The decrease primarily reflects a significant one-time hardware deployment contract executed in September 1999.

GROSS PROFIT.Gross profit decreased $2.7 million, or 51.7%, to $2.6 million for the three months ended
September 30, 2000 compared with $5.3 million for the same period a year ago. The decrease is comprised of the following:

Three Months Ended September 30,

Increase/
(Decrease)2000

1999

$

%(Dollars in Millions)Products

$
1.3

$
3.7

$
(2.4
)
(65.0
)%Services

$
1.3

$
1.6

$
(0.3
)
(19.0
)%


Gross
profit from products sales decreased primarily due to lower POS unit shipments as discussed above, higher manufacturing fixed costs within the Javelin division, and an increase
in inventory reserves of about $1.3 million due to a shift in product line which dictated the increasing of reserves on inventory of parts for lines to be discontinued, offset, in part, by a
larger portion of POS products sold at higher gross profit directly to end users.

RESEARCH AND DEVELOPMENT.Research and development expenses decreased $0.1 million, or 28.9%, to
$0.3 million for the three months ended September 30, 2000 compared to $0.5 million for the same period a year ago. As a percentage of total revenues, research and development
expenses amounted to 1.7% and 2.3% for the three months ended September 30, 2000 and 1999, respectively. The decrease primarily relates to higher hardware development costs incurred in fiscal
1999 associated with Javelin's Viper POS Product.

SELLING AND MARKETING.Selling and marketing expenses increased approximately $0.2 million, or 14.1%, to
$2.0 million for the three months ended September 30, 2000 compared to $1.7 million for the same period a year ago. As a percentage of total revenues, selling and marketing
expenses amounted to approximately 10.1% and 8.7% for the three months ended September 30, 2000 and 1999, respectively. The increase primarily reflects the increase in ASP services sales
infrastructure costs, including payroll, benefits and travel, offset in part, by higher POS products sales commission costs incurred during the three months ended September 30, 1999.

GENERAL AND ADMINISTRATIVE.General and administrative expenses increased approximately $6.0 million, or 266.4%,
to $8.3 million for the three months ended September 30, 2000 compared to
$2.3 million for the same period a year ago. As a percentage of total revenues, general and administrative expenses amounted to 42.3% and 11.4%, for the three months ended September 30,
2000 and 1999, respectively. The increase is primarily attributable to infrastructure costs, including payroll and related taxes, travel, rent and utilities associated with the ASP services business,
the full year impact of goodwill amortization associated with fiscal 1999 and 2000 acquisitions, severance costs associated with the termination of certain management, higher legal and accounting fees
incurred in connection with the Company's fiscal 2000 audit and pending litigation (Note 9) and the loss incurred on the sale of Aspact (Note 6). Also adding to the greater expense was
an increase in reserves for doubtful accounts of $1.4 million, approximately $750,000 of which related to the ASP services business portion which was disposed of in March 2001.

28

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IMPAIRMENT CHARGE.An impairment charge of $17,366,000 was recorded to write off goodwill relating to DTI and Monument.

INTEREST EXPENSE.Interest expense increased approximately $24,000 to $254,000 for the three months ended
September 30, 2000 compared with $230,000 for the same period a year ago. The increase primarily relates higher borrowings on the Company's credit facility during the period.

INTEREST INCOME.Interest income increased approximately $58,000 to $138,000 for the three months ended
September 30, 2000 compared to $80,000 for the same period a year ago. The increase reflects the impact of available invested proceeds from the Company's March 2000 issuance of preferred
stock during the period.

INCOME TAXES.The Company had provision for foreign income taxes of approximately $57,500 for the three months ended
September 30, 2000 compared to a provision for federal, state and foreign income taxes of $0.3 million for the same period a year ago. The decrease reflects the impact of taxable income
at the Company's foreign subsidiaries.

NET LOSS.Net loss increased by about $25.2 million to $24.8 million for the three month period ended
September 30, 2000 compared to net income of about $445,000 for the same period a year ago. This loss was due primarily to the impairment of goodwill of $17.4 million, the increase in
General and Administrative expenses of about $6 million and the drop in Gross Profit of about $2.8 million.

LIQUIDITY AND CAPITAL RESOURCES

In June 1998, the Company and its U.S. subsidiaries obtained a credit facility of $7,500,000 from an unrelated financial institution. The credit
facility expired in June 2001 and consists of a line of credit of up to $6,000,000 and a term loan of $1,500,000. The credit facility contains a .50% per annum unused line of credit fee, which
is based on the difference between the borrowing capacity and outstanding balance. Borrowings under the term loan are collateralized by substantially all of the assets of the Company, bear interest at
15.65% per annum and are repayable at $25,000 per month with all unpaid principal and interest due in June 2001. At September 30, 2000, borrowings outstanding under the term loan
amounted to $825,000. The Company is not permitted to pay cash dividends to common stockholders under the terms of the credit facility without approval of the unrelated financial institution. Under
the terms of the credit facility, the Company is permitted to borrow up to 80% of eligible accounts receivable (as defined in the loan documents) and 50% of eligible inventory (as defined in the loan
documents) with monthly interest payments based upon the prime rate of a national financial institution plus 1.75% (13.25% as of September 30, 2000). Borrowings under the line of credit are
collateralized by substantially all the assets of the Company. At September 30, 2000, borrowings outstanding under the line of credit amounted to $2,714,900. The credit facility contains
certain restrictive financial and covenants. The Company is required to maintain a stated current ratio, net worth, senior debt service coverage ratio and total debt service coverage ratio. At
June 30, 2000, the Company was in default of certain non-financial covenants. In October 2000, the Company obtained a waiver on all defaults through June 30, 2000
pursuant to certain terms and conditions including accelerating term loan repayments, accruing interest on the term loan at the default rate of 15.65%, and limiting borrowings at that time to
approximately $3,538,000. The term loan was repaid in full in December 2000. At September 30, 2000, the Company continued in default of the covenants mentioned above. In
March 2001, the Company entered into a forbearance agreement with the lender which further limited the borrowings to $1,375,000 and provided for a weekly reduction in the availability. This
agreement expired on June 8, 2001 and the line was repaid in full on May 14, 2001.

In
May 2001, the Company signed a letter of intent for a proposed secured discretionary credit facility not to exceed $2,300,000. The availability of such a facility is subject
to the successful

29

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completion of due diligence procedures by the proposed lender and the negotiation and execution of related loan documents.

Jade
has a line of credit facility of $1,800,000 from an unrelated financial institution. Borrowings under the line of credit are collateralized by all of the assets of Jade and bear
interest at the U.K. Base rate plus 2% (7.7% at September 30, 2000). The credit facility was renewed in October 2000 and expires in August 2001. As of September 30, 2000,
borrowings outstanding under the line amounted to $600,000. Availability under the line at September 30, 2000 totaled $1.2 million. Borrowings under the line are restricted to the
operations of Jade and may not be used to support other operations of the Company.

In
December 2000, Javelin Europe obtained a line of credit facility of approximately $1,000,000 collateralized by substantially all of its assets and bears interest at 1.75%
over the lenders Base Rate. This facility expires in August 2001. Borrowings under the line are restricted to the operations of Javelin Europe and may not be used to support other operations of
the company.

In
July 2001, Javelin Australia expects to conclude a factoring facility amounting to approximately $500,000 or a lesser amount based on eligible receivables. The facility is
cancelable on 30 days notice by either party. The agreement provides for a discount rate of 1.75% + the bank's published overdraft index rate, and a factoring service fee of
0.50%. Borrowings under the line are restricted to the operations of Javelin Australia and may not be used to support other operations of the Company.

In
March 2000, the Company completed a private placement in which the Company sold an aggregate of 10,000 shares of Series A Mandatorily Redeemable and Convertible
Preferred Stock (the "Preferred Stock"), a warrant to acquire 583,334 shares of common stock of the Company at an initial exercise price of $17.00 per share and a warrant to acquire 1,250,000 shares
of common stock of Aspeon Solutions, Inc. ("Aspeon Solutions"), a wholly-owned subsidiary of the Company, at an exercise price of $5.00 per share. Proceeds to the Company amounted to
$9,568,400, net of $431,600 in issuance costs.

In
October 2000, The Nasdaq Stock Market ("Nasdaq") suspended trading in the Company's Common Stock while it sought additional information from the Company. On
November 9, 2000, the Company participated in a hearing before the Nasdaq Listing Qualifications Panel which was held for the purpose of evaluating whether the Company's Common Stock may
continue to be listed on Nasdaq or if it will be delisted. Effective as of January 4, 2001, the Company's Common Stock was delisted from the Nasdaq. The Company's Common Stock is currently
traded over-the-counter and is quoted on the pink sheets.

In
October 2000, a notice of default was received from the Preferred Stockholders due to the Company's failure to timely file its Form 10-K and the
suspension of trading of the Company's common stock by Nasdaq. In accordance with the provisions of the Preferred Stock agreement, the Company is required to pay 1.5% of the stated value of the
Preferred Stock ($9,850,000) for each thirty calendar day period during which defaults remain in connection with the Preferred Stock ($147,800 per month). As a result of the defaults not being cured
within ten days of the default notice, the conversion price of the Preferred Stock was reduced and the Preferred Stockholder had the right to require the Company to redeem the Preferred Stock.

In
January 2001, the Preferred Stockholders served the Company with a Mandatory Redemption Notice in accordance with the terms of the Series A Convertible Preferred
Stock since the Company's Common Stock was no longer listed on the Nasdaq National Market or the New York Stock Exchange. As of the date of filing of this Form 10-Q, the Company has
not complied with the redemption demand and continues to hold discussions with the holder of the preferred stock.

The
terms of the Preferred Stock provide that until the redemption price is paid, the redemption price shall earn interest at a rate equal to the lower of 24% per annum or the highest
rate permitted

30

---

by applicable law. At March 31, 2001, the approximate redemption value for the Preferred Stock was $13,267,400, including interest at the rate of 24% per annum. The holder of the Preferred
Stock may elect by delivering written notice to the Company ("Election Notice") to regain its rights as a holder of the Preferred Stock. If the holder of the Preferred Stock delivers to the Company an
Election Notice, then the conversion price for the Preferred Stock will be reduced by 1% for each day after February 9, 2001 that the Company failed to pay the redemption price, until the day
that the Election Notice is delivered to the Company; provided that the conversion price may not be reduced by more than 50%. As of June 21, 2001, the Preferred Stockholder has not delivered to
the Company an Election Notice, and therefore, the conversion price in effect on the date of conversion of the Preferred Stock, if converted, will be reduced by 50%. The terms of the Preferred Stock
provided that the maximum number of shares of common stock which may be issued upon the conversion of the Preferred Stock initially was set at 1,250,000 shares (subject to certain adjustments);
provided that such amount would be increased in proportion to any decrease in the conversion price resulting from a redemption default. Accordingly, as a result of the redemption default, the
1,250,000 share limitation has been increased to 1,875,000 shares. Shares of Preferred Stock not converted into shares of common stock prior to the March 2002 maturity date of the Preferred
Stock would be required to be redeemed on such maturity date.

The
Company does not have sufficient funds to pay the redemption price for the Preferred Stock. Management is optimistic that a satisfactory settlement agreement will be reached with
the holder of the Preferred Stock, but there can be no assurances to that effect.

In
October 2000, as a result of the default, the Company accreted the Preferred Stock to the mandatory redemption value of $12,312,500. The Preferred Stock was classified as a
current liability during the second quarter as a result of the default.

As
of September 30, 2000, the Company had cash and cash equivalents of $3.1 million and working capital of $14.3 million. Cash used in operating activities for
the three months ended September 30, 2000 amounted to $6.1 million and consisted primarily of the Company's net loss as affected by decreases in accounts payable and accrued expenses, a
decrease in inventory and by an increase in accounts receivable. Cash provided from investing activities for the three months ended September 30, 2000 amounted to $244,400 and consisted
primarily of cash received on repayment of the Promissory Notes from the CEO of the Company. Cash used in financing activities for the three months ended September 30, 2000 amounted to $106,300
and consisted primarily of the preferred stock dividends paid and principal payments on capital leases.

The
Company sustained significant losses during the year ended June 30, 2000 and the three months ended September 30, 2000, and has experienced negative cash flows from
operations since its inception.
At September 30, 2000, the Company's balance of cash and cash equivalents and short-term investments was $3,055,700 and $749,900, respectively, compared to $8,853,200 and $1,025,200
at June 30, 2000. At June 30, 2000, the Company was in default of certain covenants related to its credit facility (Note 3). In October 2000, the Company obtained a waiver
on all defaults through of June 30, 2000 pursuant to certain terms and conditions including accelerating term loan repayments, accruing interest on the term loan at the default rate of 15.65%
and limiting outstanding borrowings to approximately $3,538,000. The credit facility expired in June 2001. In October 2000, the Company received a notice of default from the Preferred
Stockholder, which triggered certain payment requirements as well as a Repricing and Redemption Event, as defined in the Preferred Stock Agreement (see Note 4). The Company is also delinquent
in the payment of various of its trade payables. These matters, among others, raise substantial doubt as to the Company's ability to continue as a going concern.

31

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The Company has taken a number of steps directed towards returning the Company to profitability, including:



No
assurances can be made that these initiatives will return the Company to profitability in the future.

Management
intends to replace its existing domestic line of credit with a new facility to fund its working capital needs. However, no assurances can be made that such financing can be
successfully completed on terms acceptable to the Company. In addition, the management of the Company's UK subsidiaries has renewed its existing line of credit which will expire in August 2001.

Management
continues to evaluate raising additional financing through public or private equity financings. If additional funds are raised through the issuance of equity securities,
our stockholders may experience significant dilution. Furthermore, there can be no assurance that additional financing will be available when needed or that if available, such financing will include
terms favorable to our stockholders or the Company. If such financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products and
services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of
operations.

Management
continues to evaluate exit strategy opportunities relating to the sale of the Company or certain subsidiaries. However, there can be no assurance that any opportunity to
sell the Company, or any of its divisions, would be approved by the stockholders of the Company. Furthermore, there can be no assurance that such transaction can be successfully completed on terms
acceptable to the Company.

At
September 30, 2000, the Company recorded an impairment charge of $17,366,000 relating to the write-off of goodwill and other intangible assets associated with
DTI and Monument.

Effective
July 1, 2000, the Company adopted SFAS No. 133, which establishes new accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at
fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If
the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the
income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

At
July 1, 2000 and September 30, 2000, the Company had derivative instruments consisting of mandatorily redeemable minority interest warrants and an embedded "mandatory
redemption" option associated with its mandatorily redeemable Series A preferred stock. The Company issued these derivatives as an incentive to the Preferred Stockholder to execute the
transaction on March 8, 2000 discussed in Note 4. The manditorily redeemable minority interest warrants were valued at $867,300,

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$50,600 and $2,600 at March 8, 2000, June 30, 2000 and September 30, 2000, respectively. The mandatory redemption option was valued at $93,000, $43,000 and $0 at March 8,
2000, June 30, 2000 and September 30, 2000, respectively. The Company does not use derivative instruments to manage exposures to foreign currency, securities price, and interest rate
risks. Accordingly, the Company has no derivatives designated as hedging instruments.

The
Company recorded a pre- and after-tax increase to income of $817,600 for the cumulative offset at July 1, 2000 for the adoption of SFAS
No. 133. For the three months ended September 30, 2000, derivative gains of $133,000 are included in other income.

NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 1999, Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements" was issued by the Securities and
Exchange Commission staff (the "staff"), which summarizes the staff's views on selected revenue recognition issues based upon existing generally accepted accounting principles. The statements in the
staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices
followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws. The staff has deferred the
implementation date of SAB 101 until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Company's adoption of SAB 101 did not have a material impact on the
consolidated results of operations or financial position of the Company.

In
March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving Stock
Compensation." The adoption of this Interpretation did not have a material impact on the consolidated results of operations or financial position of the Company.

In
November 2000, the Emerging Task Force ("EITF") issued EITF No. 00-27, "Application of Issue No. 98-5, "Accounting for Convertible
Conversion Features or Contingently Adjustable Conversion Ratios', to Certain Convertible Instruments". The adoption of the EITF did not have a material impact on the consolidated results of
operations or financial position.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of risks, including foreign currency fluctuations and changes in interest rates affecting the cost of its debt.

FOREIGN CURRENCY

The Company has subsidiary operations in Australia, Singapore and the United Kingdom and accordingly, the Company is exposed to translation and transaction
gains and losses that could result from changes in foreign currency exchange rates. The Company uses the local currency of the Australian dollar in Australia, the Singapore dollar in Singapore and the
British Pound in the United Kingdom, as its functional currency in those countries. Translation adjustments resulting from translating foreign currency financial statements into U.S. dollars were a
loss of $79,300 and a gain of $100,600 for the three months ended September 30, 2000 and 1999, respectively. To date, the Company has not experienced material transaction gains or losses due to
the limited number of transactions denominated in other than the functional currency of the respective subsidiary operation. Under current market conditions, the Company believes that its foreign
currency market risk is not material. The Company actively monitors its foreign exchange exposure and, should circumstances change, intends to implement strategies to reduce its risk at such time that
it determines that the benefits of

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such strategies outweigh the associated costs. There can be no assurance that management's efforts to reduce foreign exchange exposure will be successful.

INTEREST RATES

The Company's domestic line of credit bears interest based upon the prime rate of a national financial institution plus 1.75% (13.25% as of
September 30, 2000). At September 30, 2000, borrowings under the line of credit amounted to $2,714,900. The Company's term loan bears interest at 15.65% per annum. Outstanding borrowings
under the term loan amounted to $825,000 at September 30, 2000.

As
of September 30, 2000, Jade had a line of credit facility of $1,800,000 from an unrelated financial institution. Borrowings under the line of credit are collateralized by
all of the assets of Jade and bear interest at the U.K. Base rate plus 2% (7.7% at September 30, 2000). Outstanding borrowings under the line amounted to $600,000 with approximately $1,200,000
available for future borrowings at September 30, 2000.

If
interest rates were to increase by 10%, the impact on the Company's consolidated financial statements would be additional interest expense of approximately $58,000 for a one year
period, assuming that the debt amount outstanding remained equal to the balance outstanding at September 30, 2000.

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PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

In October 1999, the Company and two former officers of a subsidiary of the Company were named as defendants in a breach of contract and intentional
tort action brought by an individual, filed in the Court of Common Pleas of Delaware County, Civil Action No. 99-13191, who claims rights to computer software products once offered
for sale by subsidiaries of the Company. The plaintiff is seeking payment of one half of all the sales proceeds of the commercial software product line of "Special Delivery" sold since
February 1997 and makes claim to one half of the asset purchase price (as apportioned to the "Special Delivery" asset) paid by the Company to the shareholders of the subsidiary in
April 1999. The Company and its subsidiaries have indemnification rights against one of the selling shareholders in connection with his representations and warranties made about "Special
Delivery" in various documents. Although the Company and its subsidiaries support the selling shareholder's position as it relates to the plaintiff in this action, cross-claims have been filed against
the selling shareholder, for indemnification and contribution, for further protection. In May 2001, this cross-claim was dropped. At this time, management is unable to determine whether the
outcome of this complaint will have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In
October and November 2000, eight purported class action lawsuits were filed against the Company, the Company's Chief Executive Officer, and its former Chief Financial
Officer in the United States District Court for the Central District of California for alleged violations of the Securities Exchange Act of 1934. After defendants moved to dismiss each of the actions,
the lawsuits were consolidated under a single action, entitled "In re Aspeon Securities Litigation," Case No. SACV 00-995 AHS (ANx), and the appointed lead plaintiff voluntarily filed an
amended and consolidated complaint. Defendants moved to dismiss that complaint, and on April 23, 2001, the Court entered an order dismissing the complaint without prejudice. On May 21,
2001, the appointed lead plaintiff filed a third complaint, styled as a "First Amended Consolidated Complaint." The complaint seeks damages and the reimbursement of costs and expenses. On
June 4, 2001, the defendants moved to dismiss this complaint. A hearing on the defendants' motion to dismiss is presently scheduled for July 30, 2001. At this time, management is unable
to determine whether the outcome of the litigation or associated legal costs will have a material impact on the Company's consolidated financial position, results of operations, or cash flows.

In
May 2000, the Company and a distributor were named as defendants in an action in the United States District Court of Middle North Carolina brought by a former customer of
the distributor. In the case, entitled Performance Oriented Solutions, Inc. vs. Scansource, Inc., and Javelin Systems, Inc., Case
No.: 1:00 CV 621 (M.D.N.C.), the plaintiff alleges certain misrepresentations made by the defendants, consequently resulting in lost profits and incidental losses. In addition, the plaintiff is
seeking punitive damages. At an initial pre-trial conference in April 2001, the parties agreed to a court ordered mediation in September 2001. A trial date was set for
July 2002.

At
this time, management is unable to determine whether the outcome of the litigation or associated legal costs will have a material impact on the consolidated financial position,
results of operations, or cashflows. The Company is not able to assess the probability of an unfavorable outcome or the amount if any, or range of possible loss.

In
all cases Management of the Company considers the actions against the Company to be without merit and intends to defend itself vigorously.

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ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

In August 2000, the holder of 150 shares of Preferred Stock of the Company converted such shares into 53,054 shares of common stock of the Company at a
per share conversion price of $2.85 per share. The issuance of common stock of the Company was exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

In October 2000, a notice of default was received from the Preferred Stockholders due to the Company's failure to timely file its
Form 10-K and the suspension of trading of the Company's common stock by Nasdaq. In accordance with the provisions of certain agreements related to the Preferred Stock the Company
is required to pay the lesser of 1.5% or the highest rate allowed by applicable law, of the stated value of the Preferred Stock ($9,850,000) for each thirty calendar day period during which defaults
remain in connection with the Preferred Stock (approximately $147,800 per month). As a result of the defaults not being cured within ten days of the default notice, the conversion price of the
Preferred Stock was reduced and the Preferred Stockholder had the right to require the Company to redeem the Preferred Stock.

In
January 2001, the Preferred Stockholders served the Company with a mandatory redemption notice in accordance with the terms of the Preferred Stock since the Company's Common
Stock was no longer listed on the Nasdaq National Market or the New York Stock Exchange. As of the filing of this
Form 10-Q, the Company has not complied with the redemption demand and continues to hold discussions with the holder of the Preferred Stock.

The
terms of the Preferred Stock provide that until the redemption price is paid, the redemption price shall earn interest at a rate equal to the lower of 24% per annum or the highest
rate permitted by applicable law. At March 31, 2001, the approximate redemption value for the Preferred Stock was $13,267,400, including interest at the rate of 24% per annum. The holder of the
Preferred Stock may elect by delivering written notice to the Company ("Election Notice") to regain its rights as a holder of the Preferred Stock. If the holder of the Preferred Stock delivers to the
Company an Election Notice, then the conversion price for the Preferred Stock will be reduced by 1% for each day after February 9, 2001 that the Company failed to pay the redemption price,
until the day that the Election Notice is delivered to the Company; provided that the conversion price may not be reduced by more than 50%. As of June 21, 2001, the Preferred Stockholder has
not delivered to the Company an Election Notice, and therefore, the conversion price in effect on the date of conversion of the Preferred Stock, if converted, will be reduced by 50%. The terms of the
Preferred Stock provided that the maximum number of shares of common stock which may be issued upon the conversion of the Preferred Stock initially was set at 1,250,000 shares (subject to certain
adjustments); provided that such amount would be increased in proportion to any decrease in the conversion price resulting from a redemption default. Accordingly, as a result of the redemption
default, the 1,250,000 share limitation has been increased to 1,875,000 shares. Shares of Preferred Stock not converted into shares of common stock prior to the March 2002 maturity date of the
Preferred Stock would be required to be redeemed on such maturity date.

The
Company does not have sufficient funds to pay the redemption price for the Preferred Stock. Management is optimistic that a satisfactory settlement agreement will be reached with
the holder of the Preferred Stock, but there can be no assurances to that effect.

In
October 2000, as a result of the default, the Company accreted the Preferred Stock to the mandatory redemption value of $12,312,500. The Preferred Stock was classified as a
current liability during the second quarter as a result of the default.

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

Not applicable.

ITEM 5.  OTHER INFORMATION.

Effective as of November 2000, Timothy Feeney resigned as the Chief Financial Officer and Chief Administrative Officer of the Company. Mr. Feeney
has agreed to continue as an employee of the Company until February 2001, and during this period he will assist the Company with accounting and administrative matters. In January 2001,
Donald Rutherford was appointed Interim Chief Financial Officer. Mr. Rutherford is also a partner in Tatum CFO Partners LLP.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.



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SIGNATURES

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.

|                  |  | ASPEON, INC.                                                                                           
|----------------- |  | -------------------------------------------------------------------------------------------------------
|June 27, 2001Date |  | /s/RICHARD P. STACKRichard P. Stack Chief Executive Officer and President
(Principal Financial Officer)

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