U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]      QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.

                                       OR

[_]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                        Commission file number 000-21477

                                  ASPEON, INC.
                                  ------------
        (Exact name of small business issuer as specified in its charter)

         Delaware                                       52-1945748
         --------                                       ----------
(State or other jurisdiction of                         (IRS Employer Identifica
   incorporation or organization)                       -tion No.)

           2460 WEST 26th AVENUE, SUITE 380-C, DENVER, COLORADO, 80211
           -----------------------------------------------------------
                    (Address of principal executive offices)

                                 (303) 380 9784
                           (Issuer's telephone number)

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

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [X] No [_]

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

           Class                              Outstanding September 19, 2006
           -----                              ------------------------------
Common Stock, $ 0.01 par value                      20,000,000 shares

         Transitional Small Business Disclosure format: Yes [_] No [X]


<PAGE>


                                      INDEX

                                  ASPEON, INC.


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)                                   PAGE

Consolidated Balance Sheet - September 30, 2001.                              3

Consolidated Statements of Operations - Three Months ended
September 30, 2001 and 2000.                                                  4

Consolidated Statement of Cash Flows - Three Months ended
September 30, 2001 and 2000.                                                  5

Notes to Consolidated Financial Statements.                                   6


Item 2.           Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                        43

Item 3.           Controls and Procedures                                    66




PART II - OTHER INFORMATION

Item 1.           Legal Proceedings                                          67
Item 2.           Changes in Securities                                      68
Item 3.           Defaults on Senior Securities                              68
Item 4.           Submission of Matters to a Vote of Security Holders        68
Item 5.           Other Information                                          68
Item 6.           Exhibits and Reports on Form 8-K.                          68

Unaudited and Audited Extracts From 2002 - 2005 Consolidated Financial
Statements                                                                   74
















                                       2
<PAGE>


Part I.   FINANCIAL INFORMATION

Item I. Financial Statements

<TABLE>
<CAPTION>

                                     Aspeon, Inc.
                              Consolidated Balance Sheet
                                     (Unaudited)



                                                                            September 30,
                                                                                2001
                                                                           --------------
<S>                                                                        <C>
ASSETS

Current Assets
     Cash & Cash Equivalents                                                     506,300                                           $
     Accounts Receivable - net of allowance for doubtful debts                 7,205,500
     Inventories                                                               5,063,200
     Prepaid Expenses and Other Current Assets                                   875,200
                                                                            -------------
               Total Current Assets                                           13,650,200

Property and Equipment, net                                                    2,615,600
Goodwill                                                                      11,293,000
Other Assets, net                                                                440,200

                                                                           --------------
TOTAL ASSETS                                                               $  27,999,000
                                                                           ==============

LIABILITIES, MANDATORILY REDEEMABLE SECURITIES & STOCKHOLDERS' DEFICIT

Current Liabilities
     Line of Credit                                                              659,000                                           $
     Accounts Payable                                                          7,502,500
     Accrued Expenses                                                          2,603,800
     Current Maturities of Long-Term Debt                                        524,900
     Customer Deposits                                                           403,200
     Deferred Revenues                                                         1,597,900
     Income Taxes Payable                                                         15,600
     Manditorily Redeemable Preferred Stock (in default)                      14,671,000
     Purchase Price Payable for Acquisitions                                   2,126,400
                                                                            -------------
               Total Current Liabilities                                      30,104,300

Long-Term Debt, net of current portion                                         2,011,100
Other                                                                             42,900

                                                                            -------------
Total Liabilities                                                             32,158,300

Manditorily Redeemable Series A  Preferred Stock, $0.001 par value,
9,850 issued and outstanding as at September 30, 2001 (liquidation               -
value of $14,671,000)(in default) (classified as a current liability)

Manditorily Redeemable Warrants                                                3,426,600

STOCKHOLDERS' DEFICIT
     Preferred Stock, $0.01 par value: 990,000 shares authorized (1,000,000            0
     authorized, net 10,000 designated as mandatorily redeemable stock), no
     shares issued and outstanding.
     Common Stock, $0.01 par value: 20,000,000 shares authorized,  9,436,225      94,400
     shares issued and outstanding.
     Additional Paid In Capital                                               65,143,600
     Treasury Stock                                                              (60,000)
     Accumulated Deficit                                                     (72,763,900)
                                                                           --------------
               Total Stockholders' Deficit                                    (7,585,900)

TOTAL LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND
                                                                           --------------
STOCKHOLDERS' DEFICIT                                                      $  27,999,000
                                                                           ==============
</TABLE>

       See accompanying Notes to Consolidated Financial Statements.

                                        3

<PAGE>

<TABLE>
<CAPTION>


                                  Aspeon, Inc.
                     Consolidated Statements of Operations
                                  (Unaudited)

                                                                                          Three Months Ended
                                                                                              September 30,
                                                                                      2001                  2000
                                                                                ----------------     ------------------
<S>                                                                             <C>                  <C>

Revenue
      Products                                                                  $     7,815,500      $      13,310,400
      Services                                                                        3,901,800              6,314,700
                                                                                ----------------     ------------------
      Total Revenue                                                                  11,717,300             19,625,100

Cost of Sales
      Products                                                                        6,761,800             12,018,500
      Services                                                                        3,495,700              5,021,000
                                                                                ----------------     ------------------
      Total Cost of Sales                                                            10,257,500             17,039,500
                                                                                ----------------     ------------------
Gross Profit                                                                          1,459,800              2,585,600

Operating Expenses
      Research and Development                                                          262,200                333,400
      General and Administrative Expenses                                             2,062,200              8,307,400
      Selling and Marketing Expenses                                                    996,300              1,976,300
      Impairment Charge                                                                       0             17,336,000
                                                                                ----------------     ------------------
      Total Operating Expenses                                                        3,320,700             27,953,100

      Operating (Loss)                                                               (1,860,900)           (25,367,500)

Interest and Other Income / (Expenses) Net                                             (574,100)              (146,400)
                                                                                ----------------     ------------------
(Loss) before Income Taxes and Cumulative Effect of Accounting Change                (2,435,000)           (25,513,900)

Provision for Income Taxes                                                              (29,900)               (57,500)
                                                                                ----------------     ------------------
(Loss) before Cumulative Effect of Accounting Change                                 (2,464,900)           (25,571,400)

Cumulative Effect of Accounting Change (net of income tax of $0)                              0                817,600
                                                                                ----------------     ------------------
Net (Loss)                                                                           (2,464,900)           (24,753,800)

Accretion of Manditorily Redeemable Series A Preferred Stock Dividends                 (147,800)              (685,500)
                                                                                ----------------     ------------------
Net Loss Available to Common Stockholders                                       $    (2,612,700)     $     (25,439,300)
                                                                                ================     ==================

BASIC AND DILUTED NET (LOSS) PER COMMON SHARE

      Before Cumulative Effect of Accounting Change                             $        ($0.26)     $          ($2.72)
      Cumulative Effect of Accounting Change                                              $0.00                  $0.09
                                                                                ----------------     ------------------
      Net (Loss) Per Common Share                                               $        ($0.26)     $          ($2.63)
                                                                                ================     ==================

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                        9,436,225             9,401,435
                                                                                ================     ==================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                        4


<PAGE>

<TABLE>
<CAPTION>

                                          Aspeon, Inc.
                             Consolidated Statements of Cash Flows
                                          (Unaudited)

                                                                                          Three Months Ended
                                                                                              September 30,
                                                                                       2001                  2000
                                                                                -----------------     ------------------
<S>                                                                             <C>                   <C>
CASH FLOW PROVIDED BY / (USED IN) OPERATING ACTIVITIES

NET (LOSS)                                                                      $     (2,464,900)     $     (24,753,800)

ADJUSTMENTS TO RECONCILE NET (LOSS) TO NET CASH
PROVIDED BY / (USED IN) OPERATING ACTIVITIES
      Cumulative  Effect of Accounting Change                                                  0               (817,600)
      Depreciation and Amortization                                                      706,100              1,565,500
      Warrant Valuation Adjustment                                                             0               (137,800)
      Amortization of Deferred Stock-Based Compensation                                        0                 83,200
      Impairment Charge                                                                        0             17,366,000
      Write-Off of Assets                                                                      0                291,400
      Net Change in Allowance Accounts                                                         0              2,862,600
      Penalty Interest on Manditorily Redeemable Preferred Stock                         554,100                      0

CHANGES IN OPERATING ASSETS & LIABILITIES
      (Increase)/Decrease in Accounts Receivable                                      (1,107,200)            (1,771,800)
      (Increase)/Decrease in Inventories                                               2,121,400              2,687,300
      (Increase)/Decrease in Prepaid Expenses and Other Current Assets                  (411,000)               428,500
      Increase/(Decrease) in Accounts Payable                                           (418,900)            (1,649,900)
      Increase/(Decrease) in Accrued Expenses                                           (530,000)            (2,052,000)
      Increase/(Decrease) in Customer Deposits                                          (540,300)              (788,900)
      Increase/(Decrease) in Deferrred Revenues                                          478,700                552,100
                                                                                -----------------     ------------------
      Total Cash Flow provided by / (used in) Operating Activities                    (1,612,000)            (6,135,200)

CASH FLOW FROM INVESTING ACTIVITIES
      Purchase of Fixed Assets                                                           (56,600)              (336,900)
      Proceeds from Sale of Securities                                                         0                275,300
      Notes Advanced to Related Parties                                                        0               (400,000)
      Repayment of Notes Due From Related Parties                                              0                706,000
                                                                                -----------------     ------------------
      Total Cash Flow provided by / (used in) Investing Activities                       (56,600)               244,400

CASH FLOW FROM FINANCING ACTIVITIES
      Net Borrowing / (Repayments) Under Line of Credit                                 (308,700)               158,400
      Current Obligations Converted to Long-Term Debt                                  1,115,300                      0
      Preferred Stock Dividend Paid                                                            0               (150,000)
      Repayment of Notes Payable and Capital Leases                                      (26,700)              (136,400)
                                                                                -----------------     ------------------
      Total Cash Flow provided by / (used in)  Financing Activities                      779,900               (128,000)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH                                                 215,900                221,300

INCREASE / (DECREASE) IN CASH & CASH EQUIVALENTS                                $       (672,800)     $      (5,797,500)
                                                                                =================     ==================

Cash and Cash Equivalents at the beginning of the period                        $      1,179,100      $       8,853,200
                                                                                =================     ==================
Cash and Cash Equivalents at the end of the period                              $        506,300      $       3,055,700
                                                                                =================     ==================

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest                                                          $         27,100      $         253,900
                                                                                -----------------     ------------------
Cash paid for income tax                                                        $              0      $               0
                                                                                -----------------     ------------------
</TABLE>

                  See accompanying Notes to Consolidated Financial Statements.

                                                5

<PAGE>

<TABLE>
<CAPTION>
                                                  ASPEON, INC.                                  (Continued...)
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                     Common Stock      Treasury Stock     Additional Deferred        Retained      Accumulated
                                                          Paid - in  Stock-based     Earnings /   Comprehensive   Comprehensive
                   Shares     Amount   Shares    Amount   Capital   Compensation    (Accumulated    Profit /      (Profit/Loss)
                                                                                       Deficit)     (Loss)
                      #         $        #         $         $           $             $            $
<S>               <C>          <C>       <C>       <C>   <C>           <C>       <C>           <C>               <C>
Balance, June 30
1999                 8,887,203   88,900        0      0    55,800,700    (6,700)   3,799,700        (72,200)

Shares issued in
connection with        104,802    1,000        0      0     2,059,700         0            0              0
the acquisition
of Monument

Shares issued in
connection with        271,256    2,700        0      0     2,565,300         0            0              0
the earnout provi-
sions of the RGB
and Jade acquisi-
tions

Accretion of man-
datorily redeemable
preferred stock              0        0        0      0     3,708,400         0   (3,708,400)             0
beneficial conver-
sion feature

Accretion of man-
datorily redeemable
preferred stock              0        0        0      0             0         0     (816,000)             0
discount and
dividends

Amortization of
deferred stock-
based compensation           0        0        0      0             0     6,700            0              0

Exercise of stock
options                119,900    1,200        0      0       915,400         0            0              0

Net & Comprehensive
Profit                                                                            (9,301,200)      (895,700)  (10,196,900)
                                                                                                                =========
                      --------  -------- -------- ------  --------- -----------  ----------     ----------
Balance, June 30
2000                 9,383,161   93,800        0      0    65,049,500         0  (10,025,900)      (967,900)

Conversion of man-
datorily redeemable     53,064      600        0      0        94,100         0            0              0
preferred stock

Accretion of man-
datory redeemable
stock discount               0        0        0      0             0         0   (7,192,100)             0
and dividends

Purchase of
Treasury Stock               0        0  (60,000)     0             0         0

Net & Comprehen-
sive (Loss)                                                                      (51,743,300)      (634,500)  (52,377,800)
                                                                                                               =========
                      --------  -------- --------  -----  --------- -----------  ----------       ----------
Balance, June 30
2001                 9,436,225    94,400  (60,000)     0    65,143,600 $       0 (68,961,300)    (1,602,400)

Accretion of man-
datory redeemable
stock discount               0         0        0      0          0            0    (147,800)             0
and dividends

Net & Comprehensive
(Loss)                                                                            (2,464,900)       412,500    (2,052,400)
                                                                                                                =========
                      --------  -------- --------  -----  --------- -----------  ----------      ----------
Balance, September
30 2001              9,436,225 $ 94,400  (60,000)$    0 $ 65,143,600 $        0 $(71,574,000)  $ (1,189,900)

                                                                                                (72,763,900)
</TABLE>
                                       6
<PAGE>

                                                  ASPEON, INC.   (...Continued)
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                             Total

                               $

Balance, June 30
1999                       59,610,400

Shares issued in
connection with             2,060,700
the acquisition
of Monument

Shares issued in
connection with             2,568,000
the earnout provi-
sions of the RGB
and Jade acquisi-
tions

Accretion of man-
datorily redeemable
preferred stock                    0
beneficial conver-
sion feature

Accretion of man-
datorily redeemable
preferred stock             (816,000)
discount and
dividends

Amortization of
deferred stock-
based compensation             6,700

Exercise of stock
options                      916,600

Net & Comprehensive
Profit                   (10,196,900)

                           ----------
Balance, June 30
2000                      54,149,500

Conversion of man-
datorily redeemable           94,700
preferred stock

Accretion of man-
datory redeemable
stock discount            (7,192,100)
and dividends

Purchase of
Treasury Stock               (60,000)

Net & Comprehen-
sive (Loss)              (52,377,800)
                           ----------
Balance, June 30
2001                    $ (5,385,700)

Accretion of man-
datory redeemable
stock discount              (147,800)
and dividends

Net & Comprehensive
(Loss)                    (2,052,400)
                           ----------
Balance, September
30 2001                 $ (7,585,900)

                          (7,585,900)

                                       7

<PAGE>

                                  ASPEON, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Note. 1           General

         We were  incorporated  in the Sate of Delaware in September  1995 under
the name Sunwood Research,  Inc. We changed our name to Javelin Systems, Inc. in
October 1996 and  subsequently  to Aspeon,  Inc. in December  1999.  Our mailing
address is 2460 West 26th Avenue, Suite 380-C, Denver,  Colorado,  80211 and our
telephone number is 303-380-9784.

         Effective  June 30, 2003 we made the  decision to  discontinue  all our
remaining  operating  businesses  and are now focused on  reaching  satisfactory
negotiated  settlements  with our outstanding  creditors,  vigorously  defending
against any further  appeal that may be made  against our  currently  successful
defense of the law suit  brought  against  us by  certain  of our  shareholders,
bringing our financial records and SEC filings up to date,  seeking a listing on
the over the  counter  bulletin  board,  raising  debt and,  or,  equity to fund
negotiated  settlements  with our  creditors  and to meet our ongoing  operating
expenses and attempting to merge with another entity with experienced management
and  opportunities for growth in return for shares of our common stock to create
value for our shareholders. There can be no assurance that this series of events
will be successfully completed.

            Prior  to  our  cessation  of  operations,  our  principal  business
activities were:

    - POS PRODUCTS.  Javelin Systems, a division of Aspeon, Inc. ("Javelin") and
CCI Group, Inc. ("CCI"), a subsidiary of Aspeon, Inc.,  designed,  manufactured,
marketed  and sold open system  touch  screen  point of sale  ("POS")  computers
primarily to the foodservice and retail industries (the "POS Products").

    -SOLUTION SERVICES.  Through our CCI, Jade Communications  Limited ("Jade"),
RGB/Trinet Limited ("RGB"), (subsequently renamed Javelin Holdings International
Limited (UK)),  (collectively "RGB/Jade") and Aspact IT Services (Singapore) Pte
Ltd. ("Aspact")  subsidiaries,  we provided  information  technology  management
services  for  customers  that did not intend or were not able to hire their own
information  technology  personnel  (the  "Solution  Services").  These services
included network design and management,  installation of computer systems, local
and wide area network support, maintenance and repair, and help desk support.

    - APPLICATION SERVICES PROVIDER. Through our Aspeon Solutions, Inc. ("Aspeon
Solutions"),  Dynamic  Technologies,  Inc.  ("DTI"),  SB Holdings,  Inc. ("SB"),
Restaurant   Consulting  Services  ("RCS")  and  Monument  Software  Corporation
("Monument")  subsidiaries,  we  operated  as an  application  service  provider
("ASP"). Our ASP services enabled software applications to be deployed, managed,
supported and upgraded from centrally located servers, rather than on individual
computers (the "ASP Services").  Our ASP Services primarily were directed toward
customers in the foodservice industry.

            An over view of the major events since incorporation is as follows:

            On November 1, 1996,  we completed an initial  public  offering (the
"IPO")  of  850,000  shares of our  common  stock at $5.00  per  share,  netting
proceeds of approximately $3.2 million. Proceeds were used to repay debt with an
outstanding  balance  of  approximately   $745,000  and  for  general  corporate
purposes.

            In December 1997, we acquired all of the outstanding common stock of
POSNET Computers,  Inc.  ("Posnet") and CCI Group, Inc. ("CCI").  Posnet and CCI
provided  full  turn-key   systems   integration   services,   including  system
consulting, staging, training, deployment, product support and maintenance.

                                       8
<PAGE>

            In  March  and  April  1998,  we  established  three   international
subsidiaries to expand our sales and distribution  channels in the international
marketplace.  The  international  subsidiaries  were:  Javelin Systems  (Europe)
Limited   ("Javelin   Europe")   headquartered   in  England;   Javelin  Systems
International Pte Ltd ("Javelin Asia")  headquartered in Singapore;  and Javelin
Systems Australia Pty Limited ("Javelin Australia"), subsequently renamed Aspeon
Systems (Asia Pacific) Pty Ltd, headquartered in Australia.

            In May 1998,  Javelin Asia  acquired all of the  outstanding  common
stock  of  Aspact  IT  Services  (Singapore)  Pte  Ltd  ("Aspact").  Aspact  was
headquartered  in  Singapore  and  provided  consulting  and system  integration
services.

            In November 1998, we completed a public offering of 1,395,000 shares
of our common stock at $6.75 per share,  netting proceeds of approximately  $8.1
million. Proceeds were used to repay borrowings under a revolving line of credit
of approximately  $3.2 million,  to purchase all of the outstanding common stock
of RGB/Trinet Limited ("RGB"),  which was subsequently  renamed Javelin Holdings
International Limited (UK), and Jade Communications Ltd ("Jade") and for general
corporate  purposes.  RGB and Jade were  headquartered  in England and  provided
complementary  Wide Area  Networking  (WAN)  products and services  primarily to
large retail, hospitality, and telecommunications companies.

            During the  course of 1998 we  established  a 75% owned  subsidiary,
Teneo Ltd ("Teneo"), in an effort to expand our service management and wide area
network solutions business.

            In January 1999 the business and assets  of Posnet were  transferred
from Posnet and merged with the business and assets of CCI.

            In February 1999, we completed a public offering of 2,375,000 shares
of our common stock at $12.25 per share, netting proceeds of approximately $26.9
million.  Proceeds were used to purchase the outstanding common stock of Dynamic
Technologies,  Inc. ("DTI") and SB Holdings, Inc. ("SB") and for working capital
and general  corporate  purposes.  DTI and SB provided custom  Internet/Intranet
software and services.

            In August 1999, we acquired all of the outstanding  capital stock of
Restaurant  Consulting  Services,  Inc. ("RCS").  RCS implemented,  operated and
supported packaged software applications for the restaurant industry.

            In  January  2000,  we  created  Aspeon  Solutions,   Inc.  ("Aspeon
Solutions")  as a wholly owned  subsidiary to centralize  and continue the rapid
development of our ASP service business.

            On March 8, 2000 we completed a private placement of securities with
Marshall Capital  Management,  Inc., an affiliate of Credit Suisse First Boston,
in  which  we 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 our common stock and a warrant to acquire  1,250,000 shares of
Aspeon Solutions, one of our wholly-owned subsidiaries. Proceeds to us from this
placement  amounted  to $9.6  million,  net of offering  costs,  which were used
primarily to acquire Monument Software Corporation  ("Monument"),  settle future
contingent  payments associated with the acquisition of RCS, hire management and
staff  personnel,   expand  corporate  facilities  and  fund  our  ASP  Services
operations. Monument specialized in the rapid implementation of enterprise-class
financial systems with an emphasis on Oracle Financials



                                       9
<PAGE>


            During  fiscal  2000,  we  sustained  significant  losses and we had
experienced negative cash flows from our operations since inception.  As at June
30,  2000 we were in default of  certain  covenants  under the terms of both our
credit  facility  and  Preferred  Stock and were  delinquent  in the  payment of
various  trade  payables.  Our ability to meet our  obligations  in the ordinary
course of business was  dependent  upon the success of our attempts to return to
profitability,  obtain a waiver of credit  line and  Preferred  Stock  defaults,
raise additional financing through public and, or, private equity financings and
evaluate potential strategic opportunities. We sought to return to profitability
by  streamlining  operations  and  generating  on-going  cost  savings and began
evaluating  strategic  opportunities  for our sale or the sale of certain of our
subsidiaries.

            As part of our efforts to streamline our  operations,  during fiscal
2001 we merged the business of Javelin Asia into Javelin  Australia  and renamed
Javelin  Australia as Aspeon  Systems  (Asia  Pacific) Pty Ltd and we merged the
operations of Monument into those of RCS.

         In August  2000,  we executed a sale  agreement  with the then  current
director of Aspact (the "Purchaser"). The initial purchase price of $350,000 was
payable  to us in  monthly  installments  of  $14,600  commencing  in July 2001.
Consequently,  a loss on sale of  approximately  $229,000 was  recognized in the
three months ended September 30, 2000. In the event the Purchaser consummated an
initial  public  offering or disposed  of all or  substantially  all of Aspact's
common stock,  the  Purchaser was 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 ours.

         In   September    2000,   at   the    insistence   of   our   auditors,
PricewaterhouseCoopers,  LLC  ("PWC"),  we announced  that we would  restate our
first quarter 2000 financial statements as a result of accounting misstatements.
In October 2000 we announced we would require  additional  time to file our form
10-K report for the fiscal year ended June 30, 2000.

          In October 2000, the Nasdaq Stock Market ("Nasdaq")  suspended trading
in our common stock while it sought additional  information from us. On November
9, 2000, we participated  in a hearing before the Nasdaq Listing  Qualifications
Panel which was held for the purpose of evaluating  whether shares of our common
stock would continue to be listed on Nasdaq or if they would be delisted.

         In October and November 2000,  eight  purported  class action  lawsuits
were  filed  against  us, our Chief  Executive  Officer,  and our  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 the  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. The 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 and
on September 17, 2001 the United States  District Court  dismissed the suit with
prejudice and entered judgment in favor of the us and our officers. On September
20,  2001 the lead  plaintiff  in the class  action  suit  appealed  against the
dismissal of the case.  On January 21, 2003 the decision to dismiss the case was
upheld  but  the  lead  plaintiff  was  given  the  opportunity  to  remedy  the
deficiencies  in the complaint that had been filed.  Accordingly on May 30, 2003
the plaintiff filed its "Second Amended Consolidated  Complaint" which again was
subsequently  dismissed  by the  District  Court.  On November 26, 2003 the lead
plaintiff  filed its  "Third  Amended  Consolidated  Complaint"  which was again
dismissed  with  prejudice in March 2004. The lead plaintiff once again appealed
against  the  dismissal  and the United  States  Court of Appeals  for the Ninth
Circuit  affirmed the dismissal with prejudice on February 23, 2006. This is the


                                       10
<PAGE>

fifth  time  that  the  Courts  have  ruled  in  favor  of us  and  against  the
shareholders  who have  brought  this suit  against us. On each of the  previous
occasions the  shareholders  who have brought this suit against us have filed an
appeal  against the decision of the Courts.  There can be no assurance  that the
shareholders  who have  brought  this  suit  against  us will not file a further
appeal  against  the  Courts'  latest  ruling in which case we will  continue to
vigorously defend against the claims.

         In December 2000 we restated the results for the fiscal  quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000 by an aggregate of $1.7
million or $0.19 per share.  Revenue was reduced by $679,000 or 1.05%, our gross
profit was  decreased  by $206,000  or 1.22%,  $1.4  million of the  restatement
related to an  adjustment  to increase the amount  recorded  for the  beneficial
conversion  feature associated with the issuance of our Preferred Stock in March
2000 based upon an independent  valuation and the remaining  adjustments related
to unrecorded compensation expense, amortization of intangible assets, expensing
costs previously capitalized and the additional accrual of general expenses.

         Effective  as of  January  4,  2001 our  shares of  common  stock  were
delisted  from Nasdaq.  As we were in arrears with our filings with the SEC, our
shares of common  stock were not  eligible  to be traded on the over the counter
bulletin  board and  commenced  trading  on the Pink  Sheets  under  the  symbol
ASPE.PK. Subsequently our shares of common stock ceased to be traded on the Pink
Sheets and are now traded on the Gray Sheets.

         In January 2001 our auditors,  PWC, notified us that it was terminating
its auditor relationship with us effective immediately.

         In February  2001 our  subsidiary,  RGB,  sold its interest in Teneo to
employees of Teneo for the consideration of a $350,000 note. Consequently a gain
on sale of $432,000 was recognized during the quarter ended March 31, 2001.

         On March 1, 2001 we completed the sale of the consulting  contracts and
certain of the fixed assets our DTI subsidiary to a company  controlled by DTI's
former owners and certain of our  shareholders  for a purchase price of $900,000
and the return for  cancellation of 200,000 of shares of our common stock 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.

         On  March  19,  2001  we  retained  BDO  Seidman,  LLP  ("BDO")  as our
independent auditing firm. However, as PWC, our previous  independent  auditors,
refused to allow BDO access to PWC's prior year work  papers,  BDO was unable to
complete an audit of our financial statements for later periods at that time.

         During fiscal 2001,  despite our efforts to return to profitability and
the sale of certain of our  subsidiaries,  we continued to generate  significant
losses,  to be in default of certain  covenants under the terms of our Preferred
Stock,  to be delinquent  in the payment of various trade  payables and had been
unable to replace  our line of credit  which had been  repaid in full during the
course of the year.  While we had  appointed  new  auditors,  we were  unable to
generate  audited  financial  accounts due to the lack of  cooperation  from our
previous  auditors  and  consequently  were  unable to comply  with the  listing
requirements  of  either  Nasdaq or the over the  counter  bulletin  board.  Our
relegation  to the Pink Sheets had  serious  adverse  consequences  for both the
confidence  of our  customers or potential  customers and our ability to attract
new debt or equity financing.  The lawsuits brought against us by certain of our
shareholders  diverted a significant  amount of our  management's  time from our
operations which were also severely  effected by the collapse of the tech market
in early 2001.  Nevertheless we continued press ahead by attempting to return to
profitability  through  further cost  reductions,  renegotiate  the terms of our
Preferred  Stock,  settle  the  outstanding  shareholder  litigation,   evaluate
strategic  opportunities for our sale or the sale of certain of our subsidiaries
and raise additional debt and, or, equity funding.


                                       11
<PAGE>

         In August 2001 we, together with our Chief Executive  Officer,  filed a
six count complaint  against our former  auditors,  PWC,  alleging  professional
negligence,   intentional  interference  with  prospective  business  advantage,
negligent  interference  with  prospective  economic  advantage,   violation  of
California   Business  and  Professions  Code  Sections  17200  and  17500,  and
defamation.

         On March 22, 2002 we signed an  agreement  to sell our  subsidiary  RGB
(renamed  Javelin Holdings  International  Ltd.), the UK holding company that in
turn owned our Javelin Europe and Jade subsidiaries, to an investment group that
included  members  of the  existing  UK  management  team for  $125,995  and the
repayment of inter-company  debt.  $750,000 was paid on signing with $175,000 to
be paid upon completion of a technology escrow agreement

         On May 1, 2002 we signed an agreement  with the holder of our Preferred
Shares  that had been in  default.  Under that  agreement,  in return for a cash
payment of $447,500 by us (a) we were released from all liabilities  relating to
our  outstanding  Series A  Convertible  Exchangeable  Preferred  Stock  and the
documents under which those securities had been issued and were outstanding; (b)
all of our outstanding  Series A Convertible  Exchangeable  Preferred Stock were
cancelled; (c) a warrant previously issued by us entitling the holder thereof to
purchase  583,334  shares of our common stock was  cancelled;  and (d) a warrant
previously  issued by our  subsidiary,  Aspeon  Solutions,  entitling the holder
thereof to purchase 1,250,000 shares of the common stock of Aspeon Solutions was
cancelled.  We believed  that the  settlement  had a net positive  effect on our
balance sheet of approximately $19 million.

         In June 2002 we terminated the activities of RCS.

         On  January  17,  2003,  we sold  our  Australian  subsidiary,  Javelin
Australia,  to Mr. Matthew Maley. Prior to the sale, Mr. Maley had served as our
general manager of that  subsidiary.  We received $80,000 at the closing of this
transaction.  Under the Share Sale Agreement  relating to this transaction,  Mr.
Maley agreed to cause Javelin  Australia to pay its account payable to us in the
amount of $239,000 in monthly installments of $10,000 each until the full amount
of the account  payable has been paid.  Mr. Maley  personally  guaranteed  these
payments.

         During the fiscal  years  ending June 30, 2002 and 2003,  we used every
effort to return to profitability  through  on-going cost  reductions,  to raise
additional debt and, or, equity funding and to identify strategic  opportunities
for our sale or the sale of certain of our subsidiaries  However,  the weak tech
market,  together with our inability to produce  audited  accounts and come into
compliance  with the listing  conditions of Nasdaq or over the counter  bulletin
board  markets,  meant we were  unable to attract new  customers  or the debt or
equity financing necessary to secure our financial future.

         On June 30, 2003 we decided to  discontinue  the operations of our last
two  operating  businesses,  Javelin and CCI.  Javelin  ceased  operations  with
immediate effect while CCI completed certain outstanding  customer orders before
ceasing  production  on August  3, 2003 and  continued  to  subcontract  certain
maintenance activities through December 31, 2003.

         In August  2003 we reached an out of court  settlement  in our law suit
against  PWC.  Under the terms of the  settlement  we received a payment of $1.3
million and agreement to write off certain  outstanding  invoices for accounting
and  legal  fees.  Consequently  we  recognized  a  gain  of  $1,007,000  on the
settlement  although  the net cash we  received  after  all costs  totaled  only
$136,000.

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee in an  assignment  for the  benefit of the  creditors  of Aspeon and CCI
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under


                                       12
<PAGE>

which they no longer had any further claim against  Aspeon or CCI.  Consequently
we recognized a gain of $3.2 million on the  establishment of the assignment for
the  benefit  of Aspeon and CCI  creditors.  Certain  Aspeon and CCI  creditors,
totaling in excess of $3.1 million, elected not to participate in the assignment
for the  benefit  of  Aspeon  and CCI  creditors  and  remained  as  outstanding
liabilities of Aspeon and CCI.

         Following  the  establishment  for the  assignment  for the  benefit of
Aspeon  and CCI  creditors  in January  2004,  we had no  assets,  no  operating
business or other source of income,  outstanding  liabilities  in excess of $7.9
million,  an  outstanding  law  suit  brought  against  us  by  certain  of  our
shareholders,  were  substantially  in arrears in  respect  of  maintaining  our
financial  records and our SEC filings,  were no longer  listed on Nasdaq or the
over the  counter  bulletin  board and in due course  ceased to be listed on the
Pink Sheets.

         In April 2005, we appointed  David J Cutler as a new director and Chief
Executive   Officer  and   subsequent  to  that  are  now  focused  on  reaching
satisfactory  negotiated settlements with our outstanding creditors,  vigorously
defending  against any further  appeal  that may be made  against our  currently
successful  defense  of the  law  suit  brought  against  us by  certain  of our
shareholders, bringing our financial records and SEC filings up to date, seeking
a listing on the over the counter bulletin board,  raising  additional debt and,
or,  equity  to  finance  settlements  with  creditors  and to meet our  ongoing
operating  expenses and attempting to merge with another entity with experienced
management and opportunities for growth in return for shares of our common stock
to create value for our shareholders.

         On April 22, 2005,  our sole  director,  David J Cutler entered into an
agreement  with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the
benefit of Aspeon and CCI creditors,  subject to due diligence,  to invest up to
$50,000  cash in us for the benefit of our  creditors  in return for a number of
shares of our common stock to be determined. Following the completion of the due
diligence process during the three months ended December 31, 2005, it was agreed
with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the benefit of
Aspeon and CCI  creditors,  that Mr.  Cutler would invest  $20,000 in us for the
benefit  of Aspeon  and CCI  creditors  in return  for a number of shares of our
common  stock to be  determined.  Accordingly  during  the  three  months  ended
December 31, 2005  $20,000  which had been placed in escrow with Frank G Blundo,
Jr. P.C. by Mr. Cutler was released for the benefit of Aspeon and CCI creditors.
On May 31, 2006, based on an independent third party valuation,  the majority of
our independent  directors approved the issue of 10,536,775 shares of our common
stock to Mr.  Cutler for the  conversion  of  $14,243  of his debt into  equity.
Following  the issue of these shares of our common stock Mr.  Cutler owned 52.7%
of  our  total  authorized  and  issued  share  capital  and  still  had a  loan
outstanding to us of approximately $178,000.

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr.  Cutler has made further  advances to us of $80,000 by way of
loan to meet our ongoing  operating  expenses and fund the costs of bringing our
financial statements and SEC reporting up to date as required. Effective May 31,
2006,  $14,243 of this debt was converted into  10,536,775  shares of our common
stock on the basis of an independent  third party  valuation and the approval of
the majority of our independent  directors.  Following the issue of these shares
of our common stock Mr.  Cutler owned 52.7% of our total  authorized  and issued
share capital and still had a loan outstanding to us of approximately  $178,000.
There is no guarantee that Mr. Cutler will continue to provide  further  funding
to us in the future.

         On  September  9, 2005 we received a letter from the SEC dated June 24,
2005  indicating  that  unless  we  came  into  compliance  with  the  reporting
requirements under the Securities  Exchange Act of 1934 within 15 days we may be
deregistered.  On  September  12, 2005 we faxed a letter to the SEC's  Office of
Enforcement  Liaison  indicating our intention to come into  compliance with the
reporting requirements under the Securities Exchange Act of 1934 by November 15,
2005.


                                       13
<PAGE>

         On  September  12,  2005  we  retained  Larry   O'Donnell,   CPA,  P.C.
(`O'Donnell') as our independent auditing firm.

         By November  15, 2005 we  completed  all  required  SEC filings for the
period July 1, 2003 through  September 30, 2005.  However,  we had not completed
all required SEC filings in respect of the period April 1, 2001 through June 30,
2003 although we had included  substantial  financial  extracts and all material
disclosures  in respect  of these  periods in the  filings we had  completed  in
respect  of  subsequent  periods.  We  believed  the  cost  to  shareholders  in
completing  these  filings in  respect of these  earlier  periods  exceeded  any
benefit to shareholders in completing  these filings as the information in these
filings  was at  least  two  to  four  years  old,  no  longer  relevant  to our
shareholders given our decision to cease all trading operations made on June 30,
2003 and that all material  information in respect of these earlier  periods has
been made available to our shareholders in our SEC filings for later periods.

         In January 2006 we were  contacted  by the SEC's Office of  Enforcement
Liaison who notified us that while they  recognized  the progress we had made in
bringing our SEC filings up to date,  they still  considered us to be delinquent
in our  filings  because of our  failure to  complete  filings in respect of the
period  April 1, 2001  through  June 30,  2003.  In July  2006,  on the basis of
further  audit work and a review of  subsequent  events  performed by O'Donnell,
O'Donnell  completed the audit of our June 30, 2001 financial  statements and on
August 1, 2006 we filed the Form 10QSB for the three months ended  September 30,
2001.  We are  currently  establishing  the  likely  costs and  practicality  of
completing  the SEC  filings  and related  financial  statements  for the period
October 1, 2001 through June 30, 2003. In the meantime  there  continues to be a
risk that our shares of common stock may be  deregistered by the SEC's Office of
Enforcement  Liaison due the  continued  delinquency  of our SEC filings for the
period October1, 2001 through June 30, 2003.

         On February  23, 2006 the United  States Court of Appeals for the Ninth
Circuit affirmed the dismissal with prejudice of the law suit brought against us
by certain  of our  shareholders.  This is the fifth  time that the Courts  have
ruled in favor of us and against the  shareholders  who have  brought  this suit
against us. On each of the previous  occasions the shareholders who have brought
this suit  against us have filed an appeal  against the  decision of the Courts.
There can be no  assurance  that the  shareholders  who have  brought  this suit
against us will not file a further  appeal  against the Courts' latest ruling in
which case we will continue to vigorously defend against the claims.

         Effective March 13, 2006, David Cutler,  at that time our sole director
and officer,  appointed  Wesley F Whiting and Redgie Green as new, non executive
directors to join him on our board of directors.

         On May 31, 2006,  based on an independent  third party  valuation,  the
majority of our independent directors approved the issue of 10,536,775 shares of
our common stock to Mr.  Cutler for the  conversion  of $14,243 of his debt into
equity. Following the issue of these shares of our common stock Mr. Cutler owned
52.7% of our total  authorized  and issued  share  capital  and still had a loan
outstanding to us of approximately $178,000.

         In August  2006,  on the basis of  further  audit  work and a review of
subsequent events performed by O'Donnell,  O'Donnell  completed the audit of our
June 30, 2001 financial statements and in September 2006 we filed the Form 10QSB
for the three months ended September 30, 2001. We are currently establishing the
likely  costs  and  practicality  of  completing  the SEC  filings  and  related
financial  statements  for the period  October 1, 2001 through June 30, 2003. In
the meantime there continues to be a risk that our shares of common stock may be
deregistered  by the  SEC's  Office of  Enforcement  Liaison  due the  continued
delinquency  of our SEC filings for the period  October1,  2001 through June 30,
2003.


                                       14
<PAGE>


Note. 2           Basis of Presentation

         The accompanying  unaudited  financial  statements of Aspeon, Inc. have
been prepared in accordance with generally  accepted  accounting  principles for
interim  financial  information  and with the  instructions  to Form  10-QSB and
Article  10 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for  complete  financial  statements.  In our opinion the  financial  statements
include all adjustments  (consisting of normal recurring  accruals) necessary in
order to make the financial statements not misleading. Operating results for the
three month period ended  September 30, 2001 are not  necessarily  indicative of
the results  that may be  expected  for the year ended June 30,  2002.  For more
complete  financial   information,   these  unaudited   consolidated   financial
statements should be read in conjunction with the audited consolidated financial
statements included in our Annual Report on Form 10-KSB for the years ended June
30, 2001, 2004 and 2005 filed with the SEC.

         Due to the dispute  with our  previous  auditors,  PWC, and our lack of
funds,  the last Form 10-K we filed on a current  basis was filed in  respect of
our  financial  year  ended  June 30,  2000 and the last Form 10-Q we filed on a
current  basis was in respect of the three and nine month period ended March 31,
2001. No further  filings were  completed  until October 28, 2005 when,  between
October 28, 2005 and November  15,  2005,  we filed all required SEC filings and
related  financial  statements for the period July 1, 2003 through September 30,
2005.  However,  we had not  completed  all  required  SEC  filings  and related
financial  statements  in respect of the period  April 1, 2001  through June 30,
2003 although we had included  substantial  financial  extracts and all material
disclosures  in respect  of these  periods in the  filings we had  completed  in
respect  of  subsequent  periods.  We  believed  the  cost  to  shareholders  in
completing  these  filings in  respect of these  earlier  periods  exceeded  any
benefit to shareholders in completing  these filings as the information in these
filings  was at  least  two  to  four  years  old,  no  longer  relevant  to our
shareholders given our decision to cease all trading operations made on June 30,
2003 and that all material  information in respect of these earlier  periods has
been made available to our shareholders in our SEC filings for later periods all
filings were completed

         In January 2006 we were  contacted  by the SEC's Office of  Enforcement
Liaison who notified us that while they  recognized  the progress we had made in
bringing our SEC filings up to date,  they still  considered us to be delinquent
in our  filings  because of our  failure to  complete  filings in respect of the
period April 1, 2001 through June 30, 2003.

         In August  2006,  on the basis of  further  audit  work and a review of
subsequent  events performed by O'Donnell,  O'Donnell has completed the audit of
our June 30, 2001  financial  statements and in September 2006 we filed our Form
10-QSB for the three months ended September 30, 2001.

         We are  currently  establishing  the likely costs and  practicality  of
completing  the SEC  filings  and related  financial  statements  for the period
October 1, 2001 through June 30, 2003. In the meantime  there  continues to be a
risk that our shares of common stock may be  deregistered by the SEC's Office of
Enforcement  Liaison due the  continued  delinquency  of our SEC filings for the
period October1, 2001 through June 30, 2003

         We have also included unaudited and audited extracts from our financial
statements  for the period July 1, 2001 through June 30, 2005 on pages 74 though
76 below.

Note. 3           Liquidity

            As of September 30, 2001, we had $ 506,000 cash and cash equivalents
on hand, a working capital deficit of $ 16.5 million and a shareholders' deficit
of $7.9 million.


                                       15
<PAGE>

            As of March 31, 2006, we had $7 cash on hand,  $49,000 of assets, no
operating  business  or other  source  of  income,  outstanding  liabilities  of
approximately  $8.1  million,  a  stockholders'  deficit of  approximately  $8.1
million and a law suit brought against us by certain of our  shareholders  which
had been  ruled in our favor by the  Courts  but  which  could be  subject  to a
further appeal by the shareholders in question.

            We sustained significant losses during the years ended June 30, 2001
and 2000 and had  experienced  negative  cash  flows from  operations  since our
inception.

         In October  2000,  we received a notice of default  from our  Preferred
Stockholders,  which  triggered  certain  payment  requirements  as  well  as  a
Repricing and Redemption Event, as defined in the Preferred Stock Agreement (see
Note 12 - page 29 below).  We were also  delinquent  in the  payments of various
trade payables.  These matters, among others, raised substantial doubt as to our
ability to continue as a going  concern.  Our continued  existence was dependent
upon, among other factors, our ability to return to profitability, the continued
forbearance of the our lenders and creditors,  the successful  renegotiation  of
the terms of our Preferred  Stock,  the outcome of  litigation  filed against us
which  alleged  violations of the federal  securities  laws (Note 17 see page 38
below),  and our ability to raise funds from additional debt and, or, equity. We
had reduced our workforce and planed to further reduce expenditures. We believed
that such reductions,  the securing of a new working capital borrowing facility,
together  with  funds  expected  to  be  generated  from  operations,  would  be
sufficient to meet our expected short-term needs for working capital,  exclusive
of any  obligation to redeem our Preferred  Stock as discussed in Note 12 - page
29 below. However,  there could be no assurance that sufficient cash flows would
be generated by us to avoid the further  depletion of our working capital,  that
we would successfully  renegotiate the terms of our Preferred Stock, or that the
outcome  of the  litigation  would  not have a  material  adverse  impact on our
operations.  Accordingly,  management  intended  to  obtain  additional  debt or
private equity financing.  There could be no assurance that such additional debt
or  equity  financing  would be  available,  if and  when  needed,  or that,  if
available, such financing could be completed on commercially favorable terms.

         Subsequently  we were  unable  to  improve  the  profitability  or cash
generation of our operations or to obtain additional debt or equity.  During the
years  ended June 30, 2002 and 2003 we had no  alternative  but to sell or close
down our remaining operating  businesses leaving a substantial short fall to our
creditors.

            Consequently we are now dependent on raising  additional equity and,
or, debt to fund any negotiated  settlements with our outstanding  creditors and
meet our ongoing operating expenses.  There is no assurance that we will be able
to raise the  necessary  equity  and,  or,  debt that we will need to be able to
negotiate  acceptable  settlements  with our  outstanding  creditors or fund our
ongoing operating expenses.

            We believe  that the  proceeds  from our  Directors'  and  Officers'
insurance  policy  would  be  sufficient  to meet the  legal  cost  incurred  in
defending any further appeal against the Court's latest decision. However, there
is no assurance that the proceeds from our  Directors'  and Officers'  insurance
policy would be  sufficient  to meet the legal cost  incurred in  defending  any
further appeal against the Court's  decision and if they are exhausted there are
no further funds to defend the suit and we would have no alternative but to file
for  bankruptcy.  Moreover,  if we were to lose an appeal  against  the  Court's
decision it is unlikely  that the proceeds  from the  Directors'  and  Officers'
insurance  policy would be sufficient to cover any damages assessed and again we
would have no alternative  but to file for  bankruptcy.  In the meantime,  it is
unlikely  that we will be able to merge with  another  entity  with  experienced
management and opportunities for growth in return for shares of our common stock
to create value for our  shareholders  until there is no doubt that the law suit
has finally be settled on a basis that is satisfactory to us.


                                       16
<PAGE>

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr. Cutler made further  advances to us of $80,000 by way of loan
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  Effective  May 31, 2006,
$14,243 of this debt was converted into 10,536,775 shares of our common stock on
the basis of an  independent  third  party  valuation  and the  approval  of the
majority of our  independent  directors.  Following the issue of these shares of
our common stock Mr. Cutler owned 52.7% of our total authorized and issued share
capital and still had a loan outstanding to us of approximately $178,000.  There
is no guarantee that Mr. Cutler will continue to provide  further  funding to us
in the future. There is no guarantee that Mr. Cutler will continue to provide us
with further financing in the future.

         It is our current  intention to seek to reach  satisfactory  negotiated
settlements  with our  outstanding  creditors,  vigorously  defend  against  any
further appeal that may be made against our currently  successful defense of the
law suit brought against us by certain of our shareholders,  bring our financial
records  and SEC  filings  up to date,  seek a listing  on the over the  counter
bulletin  board,  raise debt and, or,  equity  financing to fund the  negotiated
settlements  with our  creditors  and to meet  ongoing  operating  expanses  and
attempt  to  merge  with  another   entity  with   experienced   management  and
opportunities  for growth in return  for  shares of our  common  stock to create
value for our  shareholders.  There is no  assurance  that this series of events
will be satisfactorily completed.

Note. 4           Basis of Consolidation

         The accompanying consolidated financial statements include the accounts
of Aspeon  and its  wholly-owned  subsidiaries.  All  significant  inter-company
transactions and balances have been eliminated.

Note. 5           Acquisitions and Dispositions

         From  December   1997  to  March  2000  we   established  a  number  of
subsidiaries   to  conduct  our  operating   activities   and  purchased   other
subsidiaries  for a  combination  of shares of our common  stock and cash.  From
August  2000 to  December  2003 our  liquidity  problems  were such that we were
forced to sell,  or  discontinue,  all of our  operating  businesses.  Our final
operating  activities  terminated in December 2003 and our remaining assets were
transferred  to the trustee of the  assignment for the benefit of the Aspeon and
CCI  creditors  effective  January 1, 2004.  A summary of our  acquisitions  and
disposals is as follows:

<TABLE>
<CAPTION>

<S>                                         <C>                                 <C>
Aspeon, Inc.                                established September 1995.         ceased trading operations as
at June 30, 2003.

                                                                                assets transferred to the trustee
                                                                                for the assignment for the benefit
                                                                                of Aspeon and CCI creditors in January
                                                                                2004



                                       17
<PAGE>

CCI Group, Inc.                             acquired December 1997.             ceased manufacturing in
                                                                                August 2003.

                                                                                ceased providing services in December 2003.


                                                                                assets transferred to the trustee for
                                                                                the assignment for the benefit of
                                                                                Aspeon and CCI creditors in January
                                                                                2004.

Posnet Computers, Inc.                      acquired December 1997.             merged into CCI Group,Inc.
                                                                                in January 1999.

Javelin Systems Europe, Ltd.                established March 1998.             sold March 2002.

Javelin Systems International Ltd           established March 1998.             merged into Javelin Systems
                                                                                Australia Pty Ltd between
June - September 2000.

Javelin Systems Australia Pty Ltd           established March 1998.             sold January 2003.

Aspact IT Services (Singapore) Pte Ltd      acquired May 1998.                  sold August 2000.

Javelin Holdings International Ltd          acquired November 1998.             sold March 2002.
(formerly RGB Trinet Ltd)

Jade Communications, Ltd                    acquired November 1998.             sold March 2002.

Dynamic Technologies, Inc.                  acquired April 1999.                assets sold March 2001.

SB Holdings, Inc.                           acquired April 1999.                assets sold March 2001.

Restaurant Consulting Services, Inc.        acquired August 1999.               ceased trading in June 2002.

Aspeon Solutions, Inc.                      established February 2000.          dormant from June 2002.

Teneo Ltd (75% ownership)                   established March 2000.             sold March 2001.

Monument Software Corporation.              acquired March 2000.                merged with RCS in fiscal
                                                                                2001.
</TABLE>

         In August  2000,  we 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,  was
payable  to us in  monthly  installments  of  $14,600  commencing  in July 2001.
Consequently,  a loss on sale of  approximately  $229,000 was recognized for the
fiscal  year ended June 30,  2001.  In the event the  Purchaser  consummated  an
initial  public  offering or disposed  of all or  substantially  all of Aspact's
common stock,  the Purchaser  would 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 ours.


                                       18
<PAGE>

         In February  2001,  our  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 fiscal year ended June 30, 2001.

         On March 1, 2001, we completed the sale of the consulting contracts and
certain of the fixed assets of our Dynamic  Technologies,  Inc. (DTI) subsidiary
to a company controlled by DTI's former owners and certain shareholders of ours,
for a purchase  price of  $900,000  and the return for  cancellation  of 200,000
shares  of our  Common  Stock  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 fiscal year ended June 30, 2001.

Note. 6           Summary of Significant Accounting Policies

Cash and Cash  Equivalents  -- Cash and  cash  equivalents  consist  of cash and
highly  liquid debt  instruments  with  original  maturities  of less than three
months.

Inventories - Inventories at September 30, 2001 and 2000 consisted  primarily of
point of sale computer  hardware and  components and were stated at the lower of
cost (first-in first-out) or market.

Property and  Equipment-  Property and  equipment  were stated at fair value and
depreciated using the straight-line  method over the following  estimated useful
lives:

Leasehold improvements                               2 - 10 years
Office furniture, fixtures and equipment             5 - 7   years
Computer equipment and software                      3 - 5  years
Equipment on lease                                   3     years
Warehouse equipment                                  7     years
Test equipment                                       7     years
Depot spares                                         7     years
Vehicles                                             5     years

            Maintenance and repairs were charged to expense as incurred, and the
costs of additions and betterments were capitalized. Leasehold improvements were
amortized  over the  shorter of the useful  life of the asset or the life of the
related  lease.  When assets were sold or  otherwise  disposed  of, the cost and
related accumulated depreciation and amortization were removed from the accounts
and any resulting gain or loss was recognized.

Deferred  Costs and Other --  Offering  costs  with  respect  to issue of common
stock,  warrants or options by us were initially  deferred and ultimately offset
against the proceeds from these equity transactions if successful or expensed if
the proposed equity transaction is unsuccessful.

Impairment of Long-Lived  and  Intangible  Assets -- In the event that facts and
circumstances indicated that the cost of long-lived and intangible assets may be
impaired,  an evaluation of recoverability  was performed.  If an evaluation was
required, the estimated future undiscounted cash flows associated with the asset
were  compared to the asset's  carrying  amount to determine if a write-down  to
market value or discounted cash flow value was required.

An  impairment  charge of  $17,366,000  was  recognized  at September  30, 2000,
$16,643,600  in respect of the  goodwill  associated  with the DTI and  Monument
acquisitions and $741,400 in respect of other intangible  assets.  No impairment
charge was recognized in the three months ended September 30, 2001.

                                       19
<PAGE>

Financial Instruments -- The estimated fair values for financial instruments was
determined  at  discrete  points in time based on relevant  market  information.
These  estimates  involved  uncertainties  and  could  not  be  determined  with
precision.  The  carrying  amounts  of notes  receivable,  accounts  receivable,
accounts payable and accrued liabilities  approximated fair value because of the
short-term  maturities  of these  instruments.  The fair value of notes  payable
approximated to their carrying value as generally their interest rates reflected
our effective annual borrowing rate.

Income Taxes -- We account for income taxes under the  liability  method,  which
requires  recognition  of deferred tax assets and  liabilities  for the expected
future tax  consequences  of events  that have been  included  in the  financial
statements  or  tax  returns.  Under  this  method,   deferred  tax  assets  and
liabilities  are  determined  based  on the  difference  between  the  financial
statements  and tax bases of assets and  liabilities  using enacted tax rates in
effect for the year in which the differences are expected to reverse.

Foreign  Currency  Translation -- The consolidated  financial  statements of our
non-U.S.  operations were translated into U.S.  dollars for financial  reporting
purposes.  The assets and liabilities of non-U.S.  operations  whose  functional
currencies are other than the U.S. dollar are translated at rates of exchange at
fiscal  year-end,  and revenues and expenses are translated at average  exchange
rates for the fiscal year. The cumulative  translation  effects are reflected in
accumulated other comprehensive  income (loss). Gains and losses on transactions
denominated in other than the functional currency of an operation were reflected
in other income (expense).

Revenue  Recognition -- We sold our hardware and third-party  software  products
both as part of a solutions  package and on a  stand-alone  basis.  Sales of our
products which were part of a solutions  package  typically  included  hardware,
third-party   software  and   installation.   Revenues   associated  with  these
arrangements  were  recognized  upon the completion of the  installation  of the
product.  Sales of  products,  which were part of a solution,  were  included in
products  revenue while  installation  and consulting  services were included in
services  revenue.  Revenues from sales of products sold on a stand-alone  basis
were  recognized  upon shipment to the customer.  Estimated  product returns and
sales allowances were provided for when revenue was recognized.

             Service contract revenues were recognized  ratably over the term of
the related contract. These revenues were generally from maintenance,  help desk
and application services  arrangements.  Revenues earned under time and material
type arrangements were recognized as services were performed, and primarily were
comprised of information technology services.

            Revenues  from  fixed  fee  arrangements  under  which  we  provided
software  customization,  development services,  or significant  implementations
were recognized on the  percentage-of-completion  method of accounting, based on
the costs incurred to total estimated costs. We provided for anticipated  losses
by a charge to income in the period the losses were first identified.

Customer  deposits and deferred  revenues -- Customer  deposits  represent  cash
received in advance of product shipment while deferred revenues  represents cash
received in advance of the performance of service contract revenues.

Warranties--  Our  products  were under  warranty  for defects in  material  and
workmanship for one year. Certain components  included our products were covered
by manufacturers'  warranties.  We established an accrual for estimated warranty
costs when the related revenue was recognized.

Advertising cost -- Advertising costs were expensed as incurred.

Research  and  development  - Research  and  development  costs are  expensed as
incurred.  Research and development expenses  principally  comprised payroll and
related costs, and the cost of prototypes.

                                       20
<PAGE>

Comprehensive Income (Loss) -- Comprehensive income is defined as all changes in
stockholders'  equity (deficit),  exclusive of transactions with owners, such as
capital  investments.  Comprehensive income includes net income or loss, changes
in certain assets and liabilities  that are reported  directly in equity such as
translation  adjustments on investments in foreign  subsidiaries  and unrealized
gains  (losses)  on  available-for-sale  securities.  The net loss for the three
months ended  September 30, 2001 was  $(2,465,000)  compared to a  comprehensive
loss of  $(2,052,000) a variance of $413,000.  The net loss for the three months
ended September 30, 2000 was $(24,754,000)  compared to a comprehensive  loss of
$(24,833,000)  a  variance  of  $79,000.  In both  years  the  variance  related
primarily  to  the  change  in  the  cumulative  foreign  currency   translation
adjustment relating to our non-US  subsidiaries in Australia,  Singapore and the
United Kingdom and unrealized gains (losses) on available-for-sale securities.

Income  (Loss)  Per  Share  -- The  income  (loss)  per  share is  presented  in
accordance  with the provisions of Statement of Financial  Accounting  Standards
(SFAS) No. 128,  Earnings Per Share.  SFAS No. 128 replaced the  presentation of
primary and fully diluted earnings (loss) per share (EPS) with a presentation of
basic EPS and diluted  EPS.  Basic EPS is  calculated  by dividing the income or
loss available to common  stockholders by the weighted  average number of common
stock  outstanding for the period.  Diluted EPS reflects the potential  dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised or converted  into common  stock.  Basic and diluted EPS were the same
for the three  months  ended  September  30, 2001 and 2000 as we had losses from
operations and, therefore,  the effect of all additional  potential common stock
was antidilutive.

Stock-Based  Compensation -- As permitted under the SFAS No. 123, Accounting for
Stock-Based  Compensation,  we  account  for  our  stock-based  compensation  in
accordance with the provisions of Accounting  Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees.  As such,  compensation expense is
recorded  on the date of grant if the  current  market  price of the  underlying
stock  exceeds  the  exercise  price.  Certain  pro  forma  net  income  and EPS
disclosures  for employee  stock option grants are also included in the notes to
the financial  statements as if the fair value method as defined in SFAS No. 123
had been applied.  Transactions in equity  instruments  with  non-employees  for
goods or services are accounted for by the fair value method.

Use of Estimates -- The preparation of our consolidated  financial statements in
conformity with generally accepted accounting  principles requires management to
make  estimates  and  assumptions  that  affect the  amounts  reported  in these
financial  statements and accompanying  notes.  Actual results could differ from
those estimates.  Due to uncertainties inherent in the estimation process, it is
possible that these estimates could be materially revised within the next year.

Cumulative  Effect of  Accounting  Change -- Effective  July 1, 2000, we adopted
SFAS No. 133,  which  established  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,  were  required  to  be  recorded  on  the
consolidated  balance sheet at fair value. If the derivative was 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 were 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 were recorded in other comprehensive  income
(OCI) and were  recognized in the income  statement when the hedged item affects
earnings.  Ineffective portions of changes in the fair value of cash flow hedges
were recognized in earnings.







                                       21
<PAGE>


          At July 1, 2000 and September 30, 2000, we 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. We issued these  derivatives as an incentive to the preferred
stockholder to execute the  transaction on March 8, 2000 discussed in Note 12 on
page 29 below. 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.  We did not use  derivative  instruments  to manage  exposures  to
foreign currency, securities price, and interest rate risks. Accordingly, we had
no derivatives designated as hedging instruments.

         We 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,     June 30,   September 30,
                                           2000          2000            2000
                                       ------------  ------------ ------------
Risk free interest rate                        6.6%          6.2%          5.9%
Dividend yield                                None          None          None
Volatility                                    84.0%        107.0%        130.0%
Term                                       6 years     5.7 years      5.4 years
Exercise 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,     June 30,  September 30,
                                              2000         2000           2000
                                        ------------  -----------  -------------
Risk free interest rate                         6.5%          6.4%           --
Dividend yield                                 None          None          None
Volatility                                     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.

Recently 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. Our adoption of SAB 101 did not have a
material impact on our consolidated results of operations or financial position.

         In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions involving


                                       22
<PAGE>

Stock Compensation." The adoption of this Interpretation did not have a material
impact on our consolidated results of operations or financial position.

         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 this EITF did not have a material  impact on our
consolidated results of operations or financial position.

         On June 30,  2001,  the FASB  approved  the  issuance  of SFAS No. 141,
Business  Combinations and SFAS No. 142,  Goodwill and Other Intangible  Assets.
SFAS No. 141 states that all business combinations should be accounted for using
the  purchase  method  of  accounting;  use  of  pooling-of-interest  method  is
prohibited.  Accounting for the excess of the fair value of net assets over cost
(negative  goodwill),  will be  allocated  to  certain  assets  first  with  any
remaining excess recognized as an extraordinary  gain. SFAS No. 141 is effective
for business combinations  completed after June 30, 2001. SFAS No. 142 addresses
the  accounting for all purchased  intangible  assets but not the accounting for
internally developed intangible assets. Goodwill will no longer be amortized and
will be reviewed for impairment in accordance  with SFAS No. 142.  Goodwill will
be tested  annually and on an interim basis if an event or  circumstance  occurs
between the annual tests that might reduce the fair value of the reporting  unit
below its carrying  value.  SFAS No 142 is effective for fiscal years  beginning
after  December  31,  2001,   with  early  adoption   permitted   under  certain
circumstances.   Goodwill  and  intangible  assets  acquired  in  a  transaction
completed after June 30, 2001 but before SFAS No. 142 is initially  applied will
be accounted  for in  accordance  with SFAS No. 142. ". The adoption of SFAS No.
141 and SFAS No. 142 did not have a material impact on our consolidated  results
of operations or financial position.

            In June  2001,  the  FASB  approved  for  issuance  SFAS  143  Asset
Retirement  Obligations.   SFAS  143  establishes  accounting  requirements  for
retirement obligations associated with tangible long-lived assets, including (1)
the  timing  of  the  liability  recognition,  (2)  initial  measurement  of the
liability,  (3) allocation of asset  retirement cost to expense,  (4) subsequent
measurement of the liability and (5) financial statement  disclosures.  SFAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related  long-lived asset and  subsequently  allocated to expense using a
systematic  and  rational  method.  The  statement is  effective  for  financial
statements  issued for fiscal years  beginning after June 15, 2002. The adoption
of SFAS No. 143 did not have a material  impact on our  consolidated  results of
operations or financial position.

            In October 2001, the FASB also approved SFAS 144, Accounting for the
Impairment  or  Disposal  of  Long-Lived  Assets.  SFAS 144  replaces  SFAS 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of. The new accounting model for long-lived assets to be disposed of
by sale applies to all long-lived assets, including discontinued operations, and
replaces  the   provisions  of  APB  Opinion  No.  30,   Reporting   Results  of
Operations-Reporting the Effects of Disposal of a Segment of a Business, for the
disposal of segments of a business. Statement 144 requires that those long-lived
assets be measured  at the lower of  carrying  amount or fair value less cost to
sell, whether reported in continuing  operations or in discontinued  operations.
Therefore,  discontinued operations will no longer be measured at net realizable
value or  include  amounts  for  operating  losses  that have not yet  occurred.
Statement 144 also broadens the reporting of discontinued  operations to include
all components of an entity with operations that can be  distinguished  from the
rest of the entity and that will be  eliminated  from the ongoing  operations of
the  entity in a disposal  transaction.  The  provisions  of  Statement  144 are
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001 and, generally, are to be applied prospectively.  The adoption
of SFAS No. 144 did not have a material  impact on our  consolidated  results of
operations or financial position.

            In April  2002,  the  FASB  issued  SFAS  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  Among other things, this statement rescinds FASB Statement No. 4,
"Reporting  Gains and Losses from  Extinguishment  of Debt" which  required  all


                                       23
<PAGE>

gains and losses from  extinguishment of debt to be aggregated and, if material,
classified  as an  extraordinary  item,net of related  income tax  effect.  As a
result, the criteria in APB Opinion No. 30, "Reporting the Results of Operations
--  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will
now be used to  classify  those  gains and losses.  The  provisions  of SFAS 145
related to the  classification  of debt  extinguishment  are effective for years
beginning  after  May 15,  2002.  The  adoption  of SFAS No.  145 did not have a
material impact on our consolidated results of operations or financial position.

            In July  2002,  the FASB  issued  SFAS  146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities." SFAS 146 provides new guidance on
the  recognition  of costs  associated  with exit or  disposal  activities.  The
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred  rather than at the date of  commitment to an
exit or disposal plan. SFAS 146 supercedes previous accounting guidance provided
by  the  EITF  Issue  No.  94-3  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." EITF Issue No. 94-3 required recognition of
costs at the date of commitment to an exit or disposal  plan.  SFAS 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31,  2002.  The  adoption of SFAS No. 146 did not have a material  impact on our
consolidated results of operations or financial position.

            In December 2002, the Financial  Accounting Standards Board ("FASB")
issued  SFAS  148  "Accounting  for  Stock-Based   Compensation--Transition  and
Disclosure--an  amendment of SFAS 123." SFAS 148 provides alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation from the intrinsic  value-based method of
accounting  prescribed by APB 25. As allowed by SFAS 123, we elected to continue
to apply the intrinsic  value-based  method of accounting,  and have adopted the
disclosure  requirements  of SFAS 123. We elected not to adopt the provisions of
SFAS 148.

            In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
Consolidation of Variable  Interest  Entities,  which requires variable interest
entities  (commonly  referred  to as SPEs)  to be  consolidated  by the  primary
beneficiary  of the entity if certain  criteria are met. FIN No. 46 is effective
immediately  for all new variable  interest  entities  created or acquired after
January 31, 2003.  The adoption of this statement does not impact our historical
or present financial statements, as we have not created or acquired any variable
interest entities, nor do we expect to in the future.

            In April 2003,  the FASB issued  Statement of  Financial  Accounting
Standard No. 149,  "Amendment  of Statement 133 on  Derivative  Instruments  and
Hedging  Activities"  (SFAS  149).  SFAS  149  amends  and  clarifies  financial
accounting  and  reporting  for  derivative   instruments,   including   certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives)   and  for  hedging   activities  under  FASB  Statement  No.  133,
"Accounting  for Derivative  Instruments  and Hedging  Activities".  SFAS 149 is
generally  effective for contracts  entered into or modified after June 30, 2003
or hedging  relationships  designated  after June 30, 2003. The adoption of SFAS
No. 149 did not have a material impact on our consolidated results of operations
or financial position.

            In May 2003, the FASB issued Financial  Accounting Standard No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities  and Equity" (SFAS 150).  SFAS 150  establishes  standards for how a
company   classifies   and   measures   certain   financial   instruments   with
characteristics  of both  liabilities  and equity.  It  requires  that a company
classify a financial  instrument  that is within the scope as a liability (or an
asset in some  circumstances).  SFAS 150 is effective for financial  instruments
entered into or modified  after May 31, 2003,  and otherwise is effective at the
beginning  of the first  interim  period  beginning  after  June 15,  2003.  The
adoption  of SFAS No.  150 did not have a  material  impact on our  consolidated
results of operations or financial position.

            In January,  2004 the  Financial  Accounting  Standards  Board (`the
FASB') issued Statement of Financial Accounting Standards No. 132 (revised 2003)
"Employers'  Disclosures about Pensions and Other Postretirement  Benefits",  an
amendment  of FASB  Statements  No.  87,  88,  and 106.  The  Statement  revises


                                       24
<PAGE>

employers'  disclosures  about  pension plans and other  postretirement  benefit
plans.  The  statement  retains the  disclosure  requirements  contained in FASB
Statement No. 132, which it replaces, and requires additional annual disclosures
about the assets,  obligations,  cash flows,  and net  periodic  benefit cost of
defined benefit pension plans and other defined  benefit  postretirement  plans.
Statement No. 132R  requires us to provide  disclosures  in interim  periods for
pensions and other postretirement  benefits. The initial application of SFAS No.
132R will have no impact on our financial statements

            In November 2004, the FASB issued Statement of Financial  Accounting
Standards  No. 151,  "Inventory  Costs-- an amendment of ARB No. 43,  Chapter 4"
(hereinafter  "SFAS No. 151"). This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage).  Under some circumstances,  SFAS No. 151 mandates that items such as
idle facility expense, excessive spoilage, double freight, and re-handling costs
be recognized as current-period  charges.  In addition,  this statement requires
that  allocation  of fixed  production  overheads to the costs of  conversion be
based on the normal  capacity of the  production  facilities.  This statement is
effective for inventory  costs incurred during fiscal years beginning after June
15,  2005.  We do not  believe  that the  adoption  of SFAS No.  151 will have a
material impact on our financial conditions or results of operation

            In December 2004, the FASB issued Statement of Financial  Accounting
Standards No. 152, which amends SFAS Statement No. 66,  "Accounting for Sales of
Real Estate," to reference the financial  accounting and reporting  guidance for
real estate  time-sharing  transactions  that is provided in AICPA  Statement of
Position (SOP) 04-2,  "Accounting  for Real Estate  Time-Sharing  Transactions."
This statement also amends SFAS No. 67, "Accounting for Costs and Initial Rental
Operations  of Real  Estate  Projects,"  to  state  that  the  guidance  for (a)
incidental operations and (b) costs incurred to sell real estate projects,  does
not apply to real estate  time-sharing  transactions.  The  accounting for those
operations  and costs is subject to the guidance in SOP 04-2.  This statement is
effective for financial  statements  for fiscal years  beginning  after June 15,
2005.  We do not believe  that the adoption of SFAS No. 152 will have a material
impact on our financial conditions or results of operation.

            In December 2004, the FASB issued Statement of Financial  Accounting
Standards No. 153  (hereinafter  "SFAS No. 153").  This statement  addresses the
measurement of exchanges of nonmonetary  assets. The guidance in APB Opinion No.
29,  "Accounting for Nonmonetary  Transactions,"  is based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets exchanged.  The guidance in that opinion,  however,  included certain
exceptions  to that  principle.  SFAS No. 153 amends APB Opinion 29 to eliminate
the  exception  for  nonmonetary  exchanges  of  similar  productive  assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial  substance.  A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. This statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is permitted for
nonmonetary  asset  exchanges  incurred  during fiscal years beginning after the
date of this  statement  is issued.  We do not believe that the adoption of SFAS
No. 153 will have a material  impact on our  financial  conditions or results of
operation

            In December  2004,  the FASB issued a revision to FASB Statement No.
123,  Accounting for Stock Based  Compensation.  This  Statement  supersedes APB
Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  and its  related
implementation guidance. This Statement establishes standards for the accounting
for transactions in which an entity  exchanges its equity  instruments for goods
or  services.  It  also  addresses   transactions  in  which  an  entity  incurs
liabilities  in exchange for goods or services  that are based on the fair value
of the  entity's  equity  instruments  or that may be settled by the issuance of


                                       25
<PAGE>

those equity instruments. We do not believe that the adoption of SFAS No. 123( R
) will  have a  material  impact  on our  financial  conditions  or  results  of
operation

            In March 2005,  the FASB  Interpretation  No.47 "FIN 47" was issued,
which  clarifies  certain  terminology  as  used  in  FASB  Statement  No.  143,
"Accounting for Asset Retirement Obligations".  In addition it clarifies when an
entity would have sufficient  information to reasonably  estimate the fair value
of an asset retirement obligation.  FIN 47 is effective no later than the end of
fiscal  years  ending  after  December  15,  2005.  Early  adoption of FIN 47 is
encouraged.  We do not believe  that the adoption of FIN 47 will have a material
impact on our financial conditions or results of operation.

            In May 2005,  the FASB issued FASB Statement No. 154, which replaces
APB  Opinion  No. 20 and FASB No. 3. This  Statement  provides  guidance  on the
reporting of accounting  changes and error corrections.  It established,  unless
impracticable  retrospective  application as the required method for reporting a
change  in   accounting   principle  in  the  absence  of  explicit   transition
requirements  to a  newly  adopted  accounting  principle.  The  Statement  also
provides guidance when the  retrospective  application for reporting of a change
in accounting  principle is  impracticable.  The reporting of a correction of an
error by restating  previously issued financial  statements is also addressed by
this Statement.  This Statement is effective for financial statements for fiscal
years  beginning after December 15, 2005.  Earlier  application is permitted for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after the date this Statement is issued.  We do not believe that the adoption of
FASB Statement No. 154 will have a material  impact on our financial  conditions
or results of operation.

            In February  2006,  the FASB issued FASB Statement No. 155, which is
an amendment of FASB Statements No. 133 and 140. This Statement; a) permits fair
value  remeasurement  for any  hybrid  financial  instrument  that  contains  an
embedded derivative that otherwise would require bifurcation, b) clarifies which
interest-only strip and principal-only strip are not subject to the requirements
of  Statement  133,  c)  establishes  a  requirement  to evaluate  interests  in
securitized   financial  assets  to  identify  interest  that  are  freestanding
derivatives or that are hybrid  financial  instruments  that contain an embedded
derivative  requiring  bifurcation,  d) clarifies that  concentrations of credit
risk in the  form of  subordination  are not  embedded  derivatives,  e)  amends
Statement  140 to eliminate  the  prohibition  on a  qualifying  special-purpose
entity  from  holding a  derivative  financial  instrument  that  pertains  to a
beneficial  interest other than another derivative  financial  instrument.  This
Statement is effective for financial statements for fiscal years beginning after
September 15, 2006.  Earlier  adoption of this  Statement is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued any
financial statements for that fiscal year. We does not believe that the adoption
of  FASB  Statement  No.  155  will  have a  material  impact  on our  financial
conditions or results of operation

            In March 2006,  the Financial  Accounting  Standards  Board (`FASB')
issued  FASB  Statement  No. 156,  which  amends FASB  Statement  No. 140.  This
Statement  establishes,  among other things,  that accounting for all separately
recognized  servicing  assets and servicing  liabilities.  This Statement amends
Statement 140 to require that all  separately  recognized  servicing  assets and
servicing liabilities be initially measured at fair value, if practicable.  This
Statement  permits,  but  does  not  require,  the  subsequent   measurement  of
separately  recognized servicing assets and servicing liabilities at fair value.
An entity that uses  derivative  instruments  to mitigate the risks  inherent in
servicing  assets and  servicing  liabilities  is  required to account for those


                                       26
<PAGE>

derivative instruments at fair value. Under this Statement,  an entity can elect
subsequent  fair value  measurement  to account  for its  separately  recognized
servicing assets and servicing  liabilities.  By electing that option, an entity
may simplify its  accounting  because this Statement  permits  income  statement
recognition of the potential offsetting changes in fair value of those servicing
assets  and  servicing  liabilities  and  derivative  instruments  Is  the  same
accounting  period.  This  Statement is effective for financial  statements  for
fiscal  years  beginning  after  September  15, 2006.  Earlier  adoption of this
Statement is permitted as of the beginning of an entity's fiscal year,  provided
the entity has not yet issued any financial  statements for that fiscal year. We
do not believe that the adoption of FASB  Statement No. 156 will have a material
impact on our financial conditions or results of operation.

Business  Segments -- In June 1997,  the Financial  Accounting  Standards  Board
issued SFAS No. 131,  Disclosures  About  Segments of an Enterprise  and Related
Information  ("SFAS No.  131").  SFAS No. 131 changes  the way public  companies
report  segment  information  in annual  financial  statements and also requires
those  companies to report  selected  segment  information in interim  financial
reports to stockholders.  It also establishes  standards for related disclosures
about products and services,  geographic areas, and major customers. We used 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 our reportable  segments.  Following the
cessation  of our  trading  operations  effective  June 30,  2003 we believe our
operations  during fiscal 2005 and 2004  comprised only one segment and as such,
adoption of SFAS No. 131 does not impact the  disclosures  made in our financial
statements.

Note. 7.                   Assets

            Effective  January  1,  2004,  all our  remaining  assets,  with the
exception of certain other  receivables,  were transferred to the trustee of the
assignment for benefit of the Aspeon and CCI creditors at a fair market value of
$496,000.  Our only remaining asset - other  receivables - related to Directors'
and  Officers'  insurance  due  from  our  insurance  company  to be paid to our
attorneys  in respect of legal fees  incurred in respect of the law suit brought
against us by certain of our shareholders

Note 8.           Intangible Assets

GOODWILL

             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. We determined that
for these acquired companies, there were no other identifiable intangible assets
that would require an allocation of the purchase  price.  Goodwill was stated at
cost and was amortized on a straight-line  basis over periods ranging from three
to 25 years.

OTHER INTANGIBLE ASSETS

            Other intangible  assets include the estimated value associated with
a non-compete  agreement,  workforce and software acquired in the acquisition of
DTI (Note 5, page 15 above).  These items are being amortized on a straight-line
basis over periods ranging from two to ten years.


                                       27
<PAGE>

            At  September  30,  2000,  we  recorded  an  impairment   charge  of
$17,366,000.  The provision included charges for the write-off of $16,624,600 of
goodwill  associated  with DTI and Monument and the  write-off of the  remaining
$741,400 balance of other intangible assets.

Note 9.            Liabilities

         In  December  2003,  we  appointed  attorney  Frank  Blundo Jr. P.C. as
trustee  of an  assignment  for the  benefit  of the  Aspeon  and CCI  creditors
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors  totaling $3.7 million  elected to be participate in, and
be bound by the terms of,  the  assignment  for the  benefit  of Aspeon  and CCI
creditors  under which they no longer had any further  claim  against  Aspeon or
CCI.
         Certain Aspeon and CCI  creditors,  totaling in excess of $3.1 million,
elected not to  participate  in the assignment for the benefit of Aspeon and CCI
creditors and remained as outstanding liabilities of Aspeon and CCI.

         As at June  30,  2005  and 2004 our  total  liabilities  also  included
certain liabilities in respect of Javelin Asia and RCS that remained outstanding
following the termination of their operations.

Note 10.                   Accrued Severance Costs

            Included in accrued  expenses as of June 30, 2000 was  $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,  we entered into
consulting agreements with five of the terminated employees, in which a total of
200,000 of our 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 June 30, 2001, there are no remaining accrued costs associated
with these termination agreements.

            As of March 31, 2001,  the  remaining  balance of accrued  severance
costs  included  in the  accrued  expenses  is  $354,000  which  represents  the
remaining  accrued costs  incurred  during the quarter ended  December 31, 2000.
Such costs  include  payroll,  related  expenses  and health  benefits  for five
terminations.  Four of the termination  agreements provided for the extension of
the exercise  period to ninety days for previously  granted stock  options.  The
fifth termination agreement 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 for
all  agreements  was less than the  exercise  price;  accordingly,  there was no
impact to the consolidated statements of operations.

Note. 11          Lines of Credit, Debt & Notes Payable

            In June 1998, we and our subsidiaries  obtained a credit facility of
$7,500,000 from an unrelated financial institution.  The credit facility was for
three  years to expire in June 2001 and  consisted  of a line of credit of up to
$6,000,000 and a term loan of $1,500,000.  The credit facility contained a 0.50%


                                       28
<PAGE>

per annum unused line of credit fee, which was based on the  difference  between
the borrowing capacity and outstanding balance.

            Borrowings under the term loan were  collateralized by substantially
all of our  assets,  bore  interest  at 13.65% per annum and were  repayable  at
$25,000 per month with all unpaid  principal  and interest due in June 2001.  At
June 30, 2000, borrowings  outstanding under the term loan amounted to $900,000.
We were 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,  we were permitted to borrow
up to 80% of  eligible  accounts  receivable  (as  defined)  and 50% of eligible
inventory (as defined) with monthly interest  payments based upon the prime rate
of a  national  financial  institution  plus 1.75%  (9.5% as of June 30,  2000).
Borrowings under the line of credit were  collateralized by substantially all of
our assets. At June 30, 2000, borrowings  outstanding under the line amounted to
$2,497,000.

            The credit facility contained certain  restrictive monthly financial
and  non-financial  covenants  (e.g.,  limitation  on capital  expenditures  and
indebtedness).  We were required to maintain a stated current ratio,  net worth,
senior debt service  coverage ratio and total debt service  coverage  ratio.  At
June 30, 2000, we were in default of certain non-financial covenants. In October
2000,  we 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 11.5%,  and limiting
borrowings to approximately $3,538,000.

         At September 30, 2000, we had borrowings outstanding under our domestic
line of credit  facility  and term loan  amounting  to  $2,714,900  and $825,000
respectively.


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

         i) an amount equal to 80% of the our net eligible receivables; plus

         ii) an amount not to exceed the lesser of:

         A) 50% of the value of our eligible inventory,  calculated at the lower
         of cost or market value and determined on the FIFO basis; or

         B) $675,000  provided  that,  commencing on March 19, 2001,  and on the
         first day of each week  thereafter  such  amount  shall be  reduced  by
         $50,000 per week; less

         iii) any Loan Reserves.

         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.

         Jade had a line of credit facility of approximately  $1,800,000 from an
unrelated  financial  institution.  Borrowings  under  the line of  credit  were
collateralized  by all of the assets of Jade and bore  interest at the U.K. Base
rate plus 2% (7.7% at September  30, 2000).  The credit  facility was renewed in
October  2000  through  August  2001  and was  subsequently  renewed  again.  At
September  30,  2000,  borrowings  under  the  line  amounted  to  approximately


                                       29
<PAGE>

$600,000.  Availability  under  the line at  September  30,  2000  totaled  $1.2
million. Borrowings under the line were restricted to the operations of Jade and
were  not to be used to  support  our  other  operations.  At  March  31,  2001,
borrowings  under the line a borrowings under the line amounted to approximately
$656,700. Availability under the line at March 31, 2001 totaled $1.1 million. We
did not guarantee  this line of credit which ceased to be a liability of ours on
the sale of RGB in March 2002.


          In December 2000, Javelin Europe obtained a line of credit facility of
approximately  $1,000,000  collateralized by substantially all of its assets and
bore  interest at 1.75% over the lenders  Base Rate.  This  facility  expired in
August 2001 at which date it was  further  extended.  Borrowings  under the line
were  restricted to the  operations  of Javelin  Europe and could not be used to
support our other  operations.  At March 31, 2001,  borrowings  under the line a
borrowings under the line amounted to approximately $297,200. Availability under
the line at March 31, 2001 totaled $327,700  million.  We did not guarantee this
line of credit which  ceased to be a liability  ours on the sale of RGB in March
2002.

         In July,  2001,  Javelin  Australia  entered into a factoring  facility
amounting  to  approximately  $500,000  or a lesser  amount  based  on  eligible
receivables.  The facility was cancelable on 30 days notice by either party. The
agreement provided 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 were
restricted  to the  operations  of  Javelin  Australia  and could not be used to
support other our operations. We provided a guarantee for this facility that was
to be released on the sale of Javelin  Australia  in January 2003 and in respect
of which we were indemnified by the purchaser of Javelin Australia.

         On September 12, 2002 we entered into a Secured Convertible  Promissory
Note Purchase  Agreement with three  individuals.  Under that  agreement,  those
three individuals, who were Richard Stack, one of our directors, Kenneth Kadlec,
our Vice President of Engineering,  and Horace Hertz, subsequently a director of
ours, loaned to us $125,000,  $50,000 and $75,000,  respectively.  Each of those
loans  was  represented  by a  Secured  Convertible  Promissory  Note,  and bore
interest  at the rate of ten  percent  per annum.  Interest on the loans was due
monthly,  and the principal amount of the loans was due on the first anniversary
of the loans.  Repayment  of the loans was  secured by a  security  interest  in
substantially  all of  our  assets.  The  principal  amount  of  the  loans  was
convertible at any time at the election of the lenders into shares of our common
stock  at a  conversion  price  of  $0.08  per  share.  In  connection  with the
consummation of these loans,  Robert Nichols and Edward Brooks resigned from our
Board of  Directors,  and Horace  Hertz was  elected to our Board of  Directors.
These  Secured  Convertible  Promissory  Notes were repaid in full in  September
2003.

            As at March 31,  2006 the balance of notes  payable  included a note
payable of $128,000 to an individual who had previously sold his business to us.
We had  renegotiated the terms of the deferred earnout due to him on the sale of
his  business to us such that the note  payable  represented  the balance due to
him. We were in default in repayment of the note payable as at March 31, 2006.

            The  remainder of the balance of notes  payable as at March 31, 2006
represents  a loan to us of  $169,000  by David J Cutler,  our  Chief  Executive
Officer and one of our directors.  The loan, bearing interest at 8%, was made to
meet our ongoing operating expenses and fund the costs of bringing our financial
statements and SEC reporting up to date. Effective May 31, 2006, $14,243 of this
debt was converted into 10,536,775 shares of our common stock on the basis of an
independent  third  party  valuation  and the  approval  of the  majority of our
independent  directors.  Following the issue of these shares of our common stock
Mr.  Cutler owned 52.7% of our total  authorized  and issued  share  capital and
still had a loan  outstanding to us of approximately  $178,000.  There can be no
assurance that Mr. Cutler will provide us with further funding in the future.


                                       30
<PAGE>

Note. 12          Mandatorily Redeemable Series A Preferred Stock

         In March 2000,  we  completed a private  placement  in which we 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 our common stock
at an  initial  exercise  price of $17.00  per share  and a warrant  to  acquire
1,250,000 shares of common stock of our wholly owned subsidiary company,  Aspeon
Solutions,  at an exercise price of $5.00 per share.  Proceeds to us amounted to
$9,568,400, net of $431,600 in issuance costs.


         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                                          $        5,274,500
Warrants, Aspeon                                                  3,426,600
Warrants, Aspeon Solutions                                          867,300
                                                         ------------------

 Total net proceeds                                      $        9,568,400
                                                         ==================

         The Preferred Stock  conversion price was less than the market value of
our common stock on the date of issuance;  accordingly, we 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 was 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 was accreted  over the minimum
period from the date of issuance to the date on which the Preferred  Stock could
first be redeemed at our  initiative  (March  2002),  and increased the net loss
available to common  stockholders  by  $2,462,400  for the three and nine months
ended March 31, 2001.

         The holder of the Preferred Stock  ("Preferred  Stockholders")  had the
following  rights: i) the right of first offer for the subsequent sale of equity
securities by us through March 2001, ii) the right to exchange  Preferred  Stock
for equity  securities  subsequently  issued by us, 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  contained  the  following  preferences:  i)
cumulative  dividends  at an annual  rate of 6%,  payable  quarterly  in cash or
common  stock at the our  option  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 our 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 us in March 2002 at the original  issuance price ($1,000
per share) plus unpaid dividends,  or at our option 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


                                       31
<PAGE>

(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.

         In August  2000,  the  holder  of 150  shares  of our  Preferred  Stock
converted  such  shares into  53,054  shares of our common  stock at a per share
conversion  price of  $2.58.The  issuance  of the common  stock was exempt  from
registration pursuant to Section 3(a)(9) of the Securities Act of 1933.

         During the nine  months  ended  March 31,  2001,  we paid  $553,400  in
dividends to the  Preferred  Stockholder.  As of March 31, 2001,  we had accrued
dividends  of $40,000  that have been  recorded as an increase to the  Preferred
Stock carrying value.

         The components of the accretion of the mandatory  redeemable  preferred
stock included in the statements of stockholders'  equity for the three and nine
months ended March 31, 2001 were as follows:

<TABLE>
<CAPTION>

                                                 Three months      Nine months
                                                     Ended             Ended
                                               ----------------  -----------------
                                               March 31, 2001       March 31, 2001
<S>                                            <C>               <C>
Discount accretion to stated face value        $ --              $  4,138,400
Premium on mandatory redemption accretion        --                 2,462,400
Dividend recordation                              147,800           443,500
                                               ----------------  -----------------
                                               $  147,800        $  7,044,300
                                               ================  =================
</TABLE>

         In October  2000, a notice of default was received  from the  Preferred
Stockholders  due to our failure to timely file our Form 10-K and the suspension
of trading of our common stock by Nasdaq.  In accordance  with the provisions of
certain  agreements  related to the Preferred  Stock we were 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 us to
redeem the Preferred Stock.

         For the three and nine month  period  ended  March 31,  2001 we accrued
default  interest of $390,900  and  $914,000,  respectively,  as  calculated  in
accordance  with the provisions of the preferred  stock agreement as an increase
to the Preferred Stock carrying value.

         In January 2001, the Preferred  Stockholders served us with a mandatory
redemption  notice in accordance with the terms of the Preferred Stock since our
common stock was no longer listed on the Nasdaq  National Market or the New York
Stock Exchange.  We were not in a position to comply with the redemption  demand
and entered into  negotiations  with the holder of the Preferred  Stock to alter
the terms of the agreement.

         The terms of the  Preferred  Stock  provide  that until the  redemption
price was paid, the redemption  price would 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  had the  right to elect by  delivering  written  notice  to us
("Election  Notice") to regain its rights as a holder of the Preferred Stock. If
the holder of the Preferred Stock had delivered us an Election Notice,  then the
conversion  price for the Preferred Stock would have been reduced by 1% for each
day after February 9, 2001 that we failed to pay the redemption price, until the
day that the Election  Notice was delivered to us;  provided that the conversion


                                       32
<PAGE>

price could not be reduced by more than 50%. The Preferred  Stockholder  elected
not to deliver to us an Election Notice, and therefore,  the conversion price in
effect on the date of  conversion of the Preferred  Stock,  if converted,  would
have been reduced by 50%. The terms of the  Preferred  Stock  provided  that the
maximum  number of shares of common  stock  which  could have 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  was  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 have been  required to be redeemed on such  maturity
date.

         On May 1, 2002, we signed an agreement with the Preferred  Stockholders
under which, in return for a cash payment of $447,500 by us (a) we were released
from all  liabilities  relating  to the our  outstanding  Series  A  Convertible
Exchangeable  Preferred Stock and the documents under which those securities had
been  issued  and  were  outstanding;  (b)  all  of  our  outstanding  Series  A
Convertible   Exchangeable  Preferred  Stock  were  cancelled;   (c)  a  Warrant
previously  issued by us entitling the holder thereof to purchase 583,334 shares
of our common stock were cancelled;  and (d) a Warrant  previously issued by our
subsidiary,  Aspeon  Solutions,  Inc.,  entitling the holder thereof to purchase
1,250,000 shares of the common stock of Aspeon Solutions was cancelled.

         We believe that the settlement had a net positive effect on our balance
sheet of approximately $19 million.

Note. 13 Stockholders' Equity

Common Stock

         In August 2000,  150 shares of Preferred  Stock plus accrued and unpaid
dividends  were  converted  into  53,064  shares of our common  stock  valued at
$94,700.

         On April 22, 2005,  our sole  director,  David J Cutler entered into an
agreement  with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the
benefit of Aspeon and CCI creditors,  subject to due diligence,  to invest up to
$50,000  cash in us for the benefit of our  creditors  in return for a number of
shares of our common stock to be determined. Following the completion of the due
diligence process during the three months ended December 31, 2005, it was agreed
with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the benefit of
Aspeon and CCI  creditors,  that Mr.  Cutler would invest  $20,000 in us for the
benefit  of Aspeon  and CCI  creditors  in return  for a number of shares of our
common  stock to be  determined.  Accordingly  during  the  three  months  ended
December 31, 2005  $20,000  which had been placed in escrow with Frank G Blundo,
Jr. P.C. by Mr. Cutler was released for the benefit of Aspeon and CCI creditors.
On May 31, 2006, based on an independent third party valuation,  the majority of
our independent  directors approved the issue of 10,536,775 shares of our common
stock to Mr.  Cutler for the  conversion  of  $14,243  of his debt into  equity.
Following  the issue of these shares of our common stock Mr.  Cutler owned 52.7%
of  our  total  authorized  and  issued  share  capital  and  still  had a  loan
outstanding to us of approximately $178,000.

Stock Options

         In August  1996,  we  adopted a stock  incentive  award plan (the "1996
Plan")  under  which  the  Board of  Directors  (the  "Board"),  or a  committee
appointed for such purpose, was authorized to grant options, restricted stock or
other stock-based compensation to the directors, officers, eligible employees or
consultants to acquire up to an aggregate of 300,000 shares of our common stock.
Options issued under the Plan generally vested over a 3-year period based on the
following  schedule:  40% after year one, 30% after year two, and 30% at the end
of year three. All options expired ten years from the date of grant.


                                       33
<PAGE>

            In  December  1997,  our  stockholders   approved  our  1997  Equity
Incentive Plan (the "1997 Plan") under which the Board, or a committee appointed
for such purpose,  was  authorized to grant options,  restricted  stock or other
stock-based  compensation  to the  directors,  officers,  eligible  employees or
consultants  to acquire up to an  aggregate  of  2,100,000  shares of our common
stock.  Options issued under the 1997 Plan generally  vested 20% per year over a
5-year period. All options expired ten years from the date of grant.

            In April 1999, the Board approved our 1999 Non-Officer  Stock Option
Plan (the "1999 Plan") under which the Board, or a committee  appointed for such
purpose, was authorized to grant non-statutory  options to eligible employees or
consultants  who were not officers or members of the Board,  to acquire up to an
aggregate of 3,000,000  shares of our common  stock.  Options  granted under the
1999  Plan  vested  25%  per  year  over  a  4-year  period,  in  equal  monthly
installments  over thirty-six  months or 100% upon grant  issuance.  All options
expired ten years from the date of grant.

            As at June 30, 2000 we had a total of 2,336,967 options  outstanding
with  exercise  prices  between  $3.78 and $8.04 per share,  a weighted  average
exercise price of $7.92 and an average  remaining life of 5.8 years.  656,258 of
these options had vested at an average exercise price of $7.62.

            During the fiscal year June 30, 2001,  2,107,500  stock options were
issued at an exercise price of $4.00.

            During the fiscal year ended June 30, 2002,  1,655,000 stock options
were  issued at an  exercise  price of $0.35 and 600,000  with  exercise  prices
ranging from $0.50 to $1.50.

            During the fiscal year ended June 30, 2003,  2,000,000 stock options
were issued at an exercise  price of $0.07 and 600,000 with an exercise price of
$0.06.

            During the fiscal  years  ended June 30,  2004 and June 30 2005,  no
stock options were issued.

            Subsequent to June 30, 2000, no stock options were exercised

During the fiscal  years ended June 20, 2001 to June 30, 2003,  all  outstanding
stock options were  cancelled  except for the following  which were  outstanding
during the year ended June 30 2004:


                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                              YEAR ENDED
                                                              JUNE 30, 2004
                                                              ------------------------------------------
                                                                                      WEIGHTED
                                                                                      AVERAGE
                                                                OPTIONS             EXERCISE PRICE
<S>                                                           <C>                 <C>
FOR OPTIONS GRANTED AT FAIR MARKET
  VALUE ON THE DATE OF GRANT:
Options outstanding beginning of
period................                                           850,000            $0.063
  Granted..........................                                   --                --
  Exercised........................                                   --                --
  Canceled.........................                                   --                --
                                                               -----------         --------
Options outstanding................                              850,000            $0.063
                                                               ===========         ========
Options exercisable................                              616,667            $0.063
                                                               ===========         ========
</TABLE>

            All the above  options were  cancelled  during the fiscal year ended
June 30, 2005 with the resignation of Richard P Stack in April 2005.

Warrants

            In  connection  with our  initial  public  offering,  we issued  the
representatives  of the  underwriters a warrant to purchase 85,000 shares of our
common stock at $6.25 per share.  During the year ended June 30, 1998,  warrants
to purchase  65,570 shares of our common stock were exchanged into 36,362 shares
of common  stock  through a  cashless  exercise.  During the year ended June 30,
1999, warrants to purchase 19,430 shares of our common stock were exchanged into
10,790 shares of common stock through a cashless  exercise.  As of June 30, 1999
there were no warrants outstanding.

            In  connection  with the credit  facility  described  in Note 11, we
issued  warrants to  purchase  100,000  shares of its common  stock at $9.00 per
share to the financial institution and warrants to purchase 35,000 shares of its
common stock at prices ranging from $9.36 to $12.65 to its independent financial
advisors. The fair value of these warrants was estimated at $621,900 at the date
of grant using a  Black-Scholes  pricing  model with the  assumptions  described
above. The fair value of the warrants was reflected as deferred  financing costs
included  in other  assets and in  additional  paid in  capital  in our  balance
sheets. As of June 30, 2000,  deferred financing costs of $312,900 were included
in other assets. The warrants expired unexercised in June 2003.

            In March  2000,  we issued  warrants a warrant  to  acquire  583,334
shares of our common stock at an initial  exercise price of $17.00 per share and
a warrant  to  acquire  1,250,000  shares of common  stock of our  wholly  owned
subsidiary,  Aspeon Solutions,  Inc., at an exercise price of $5.00 per share in
connection  with its issuance of our  Preferred  Stock (Note 12). On May 1, 2002
both of these warrants were  cancelled as part of our negotiated  settlements of
the liabilities outstanding with our Preferred Shareholders.

            Consequently  as at March 31, 2006 no warrants were  outstanding and
none have been issued subsequently.

Note. 14 Treasury Stock

         In connection  with the sale of certain  assets  related to the sale of
DTI in March 2001,  200,000  shares of common  stock,  valued at  $60,000,  were
cancelled


                                       35
<PAGE>

Note. 15 Related Party Transactions

            On August 10, 1999, we loaned $116,000 to Edmund Brooks,  one of our
directors and the Chief Executive Officer of our Javelin Systems  division.  The
loan bore  interest at an annual rate of 6% per annum.  The loan was made to Mr.
Brooks for personal  reasons.  The loan was secured by a pledge of 39,000 shares
of common stock of AFC Enterprises, Inc. owned by Mr. Brooks. The loan principal
and interest  was repaid in December  2001 subject to a discount of 8% in return
for repayment of the loan prior to its due date of August 2002.

            On September 25, 1999, we loaned $80,000 to Andrew F. Puzder, one of
our  directors.  The loan bore  interest at an annual rate of 6% per annum.  The
loan was made to Mr.  Puzder for  personal  reasons.  The loan was  secured by a
pledge of Mr. Puzder's option to purchase 30,000 shares of our common stock. The
largest amount outstanding under this loan was approximately  $85,300.  The loan
principal and interest was repaid in full in November 2000.

            In April 2000,  we loaned  $300,000 to Richard P. Stack,  one of our
directors and our Chief Executive  Officer.  The loan bore interest at an annual
rate of 6.6% per annum. The loan was made to Mr. Stack for personal reasons. The
loan principal and interest was repaid in full in September 2000.

            In August 2000, the company loaned $400,000 to Richard P. Stack, one
of our directors and our Chief Executive  Officer.  The loan bore interest at an
annual  rate of 6.6% per  annum.  The loan was made to Mr.  Stack  for  personal
reasons. The loan principal and interest was repaid in full in September 2000.

         In August  2000,  we 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,  was
payable to the us in monthly  installments  of $14,600  commencing in July 2001.
Consequently,  a loss on sale of  approximately  $229,000 was recognized for the
fiscal  year ended June 30,  2001.  In the event the  Purchaser  consummated  an
initial  public  offering or disposed  of all or  substantially  all of Aspact's
common stock,  the Purchaser  would 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 ours.

         In February  2001,  our  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 fiscal year ended June 30, 2001.

         On March 1, 2001, we completed the sale of the consulting contracts and
certain of the fixed assets of our Dynamic  Technologies,  Inc. (DTI) subsidiary
to a company controlled by DTI's former owners and certain shareholders of ours,
for a purchase  price of  $900,000  and the return for  cancellation  of 200,000
shares  of our  Common  Stock  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 fiscal year ended March 31, 2001.

         On September 12, 2002 we entered into a Secured Convertible  Promissory
Note Purchase  Agreement with three  individuals.  Under that  agreement,  those
three individuals, who were Richard Stack, one of our directors, Kenneth Kadlec,
our Vice  President of  Engineering,  and Horace  Hertz,  loaned to us $125,000,
$50,000 and  $75,000,  respectively.  Each of those loans was  represented  by a
Secured  Convertible  Promissory  Note,  and  bore  interest  at the rate of ten
percent per annum.  Interest  on the loans was due  monthly,  and the  principal


                                       36
<PAGE>

amount of the loans was due on the first anniversary of the loans.  Repayment of
the loans was secured by a security interest in substantially all of our assets.
The principal amount of the loans was convertible at any time at the election of
the lenders into shares of our common  stock at a conversion  price of $0.08 per
share.  In connection with the  consummation of these loans,  Robert Nichols and
Edward Brooks resigned from our Board of Directors, and Horace Hertz was elected
to our Board of  Directors.  These  Secured  Convertible  Promissory  Notes were
repaid in full in September 2003.

         On April 22, 2005,  our sole  director,  David J Cutler entered into an
agreement  with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the
benefit of Aspeon and CCI creditors,  subject to due diligence,  to invest up to
$50,000  cash in us for the benefit of our  creditors  in return for a number of
shares of our common stock to be determined. Following the completion of the due
diligence process during the three months ended December 31, 2005, it was agreed
with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the benefit of
Aspeon and CCI  creditors,  that Mr.  Cutler would invest  $20,000 in us for the
benefit  of Aspeon  and CCI  creditors  in return  for a number of shares of our
common  stock to be  determined.  Accordingly  during  the  three  months  ended
December 31, 2005  $20,000  which had been placed in escrow with Frank G Blundo,
Jr. P.C. by Mr. Cutler was released for the benefit of Aspeon and CCI creditors.
On May 31, 2006, based on an independent third party valuation,  the majority of
our independent  directors approved the issue of 10,536,775 shares of our common
stock to Mr.  Cutler for the  conversion  of  $14,243  of his debt into  equity.
Following  the issue of these shares of our common stock Mr.  Cutler owned 52.7%
of  our  total  authorized  and  issued  share  capital  and  still  had a  loan
outstanding to us of approximately $178,000.

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr.  Cutler has made further  advances to us of $80,000 by way of
loan to meet our ongoing  operating  expenses and fund the costs of bringing our
financial statements and SEC reporting up to date as required. Effective May 31,
2006,  $14,243 of this debt was converted into  10,536,775  shares of our common
stock on the basis of an independent  third party  valuation and the approval of
the majority of our independent  directors.  Following the issue of these shares
of our common stock Mr.  Cutler owned 52.7% of our total  authorized  and issued
share capital and still had a loan outstanding to us of approximately  $175,000.
There is no guarantee that Mr. Cutler will continue to provide  further  funding
to us in the future.

Note.16  Segment Reporting

            Our  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 Research and Development segment provides all research and devel
-opment activities for the other business segments

            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,  mission-critical
business  application services customized to meet industry specific needs of the
foodservice and retail industry.

                                       37
<PAGE>

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

            Information about our reportable segments for the three months ended
September 30 follows:

<TABLE>
<CAPTION>

                                      POS             SOLUTION            ASP
                                    PRODUCTS          SERVICES        SERVICES       TOTAL
                                  --------------     -----------     -----------   -----------
<S>                               <C>               <C>              <C>           <C>
2001
Revenues......................     $  4,416,900     $  7,617,700     $   686,100   $ 12,720,700
Net income (loss).............       (2,275,000)          89,200        (286,500)    (2,472,300)
Total assets..................     $ 17,727,900     $  8,454,700     $ 1,816,400   $ 27,990,000

2000
Revenues......................      $12,465,100     $  7,243,700     $ 2,942,900   $ 22,651,700
Net income (loss).............       (3,884,100)      (1,062,800)    (19,469,000)   (24,415,900)
Total assets..................      $44,937,900     $ 12,626,200     $ 4,779,400   $ 62,343,500
</TABLE>

A reconciliation of total segment sales to total consolidated revenues and total
segment net income (loss) to total  consolidated net income (loss) for the three
months ended September 30 is as follows:


                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                            2001                   2000
                                                          -----------           ------------
<S>                                                      <C>                   <C>
REVENUES:
  Total segment revenues..............................   $  12,720,700          $ 22,651,700
  Elimination of inter-segment revenues...............      (1,003,400)           (3,026,600)
                                                         --------------        -----------------
  Consolidated revenues...............................   $  11,717,300          $ 19,625,100
                                                         ==============        =================
NET (LOSS):
  Total segment net (loss).....................          $  (2,472,300)         $(24,415,900)
  Elimination of inter-segment gross profit net of
    income taxes......................................           5,600              (138,600)
  Elimination of non-segment expenses, net of taxes...            --                (199,300)
                                                         --------------        -----------------
  Consolidated net (loss)......................          $  (2,466,700)         $(24,753,800)
                                                         ==============        =================
</TABLE>


Specified  items included in segment (loss) for the three months ended September
30:

<TABLE>
<CAPTION>

                                          POS              SOLUTION              ASP
                                        PRODUCTS           SERVICES            SERVICES             TOTAL
                                    ------------------  -------------       --------------     --------------
<S>                                 <C>                 <C>                 <C>                 <C>
2001

Interest expense..............      $   (556,900)       $    (11,500)       $     (13,200)      $   (581,600)
Interest income...............             1,700               5,800                  --               7,500
Depreciation and amortization
  expense.....................          (201,500)            (49,600)            (455,000)          (706,100)
Income tax (expense) /
  benefit...................              (7,800)             37,700                  --              29,900
Expenditures for additions to
  long-lived assets...........      $      8,200        $     36,400        $      12,000       $     56,600

2000

Interest expense..............      $   (219,100)       $    (28,300)       $      (6,500)      $   (253,900)
Interest income...............           117,700              13,300                6,500            137,500
Depreciation and amortization
  expense.....................          (262,000)           (264,000)          (1,039,300)        (1,565,500)
Impairment Charge                            --                 --            (17,366,000)       (17,366,000)
Income tax (expense) /
  benefit...................              75,000            (133,500)                --              (57,500)
Expenditures for additions to
  long-lived assets...........      $    (57,000)       $    (42,800)       $    (236,300)      $   (336,900)
</TABLE>


Revenues and long-lived  asset  information by geographic area as of and for the
three months ended September 30:


                                       39
<PAGE>

<TABLE>
<CAPTION>

                          UNITED
                          STATES            EUROPE           ASIA          AUSTRALIA         TOTAL
                        -----------       -----------      ----------   ----------------   -----------
<S>                        <C>            <C>            <C>            <C>              <C>
2001

Revenues..............     $ 6,094,400    $ 5,115,100    $     --       $   507,800      $ 11,717,300
Long-lived assets.....     $39,318,600    $ 2,377,800    $ 1,454,700    $    42,400      $ 43,193,500

2000

Revenues..............     $ 2,391,700    $   127,500    $   485,700    $    50,900      $  3,055,800
Long-lived assets.....     $ 5,381,300    $   270,500    $   912,000    $    38,400      $  6,602,200
</TABLE>


Note.17  Commitments

Litigation

            In October 1999,  we, and two former  officers of DTI, were named as
defendants in a breach of contract and intentional tort action brought by Daniel
Boudwin who claimed rights to computer  software  products once offered for sale
by certain of our subsidiaries. This action was taken in Pennsylvania's Delaware
Court of Common Pleas.  The plaintiff was seeking payment of one-half of all the
sales proceeds of the  commercial  software  product line of "Special  Delivery"
from  February 1997 and made claim to one-half of the asset  purchase  price (as
apportioned to the "Special  Delivery"  asset) paid by us to the shareholders of
DTI in April 1999. We and our  subsidiaries had  indemnification  rights against
one of the selling  shareholders  in  connection  with his  representations  and
warranties made about "Special Delivery" in various  documents.  Although we and
our subsidiaries  supported the selling shareholder's  position as it related to
the  plaintiff  in this  action,  cross-claims  were filed  against  the selling
shareholder,  for  indemnification  and  contribution,  for further  protection.
During 2001 we settled the case by stipulated  judgment and a one off payment of
$65,000 in full and final  settlement of any and all outstanding  liabilities in
respect of this case.

         In October and November 2000,  eight  purported  class action  lawsuits
were  filed  against  us, our Chief  Executive  Officer,  and our  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 the  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. The 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 and
on September 17, 2001 the United States  District Court  dismissed the suit with
prejudice and entered judgment in favor of the us and our officers. On September
20,  2001 the lead  plaintiff  in the class  action  suit  appealed  against the
dismissal of the case.  On January 21, 2003 the decision to dismiss the case was
upheld  but  the  lead  plaintiff  was  given  the  opportunity  to  remedy  the
deficiencies  in the complaint that had been filed.  Accordingly on May 30, 2003
the plaintiff filed its "Second Amended Consolidated  Complaint" which again was
subsequently  dismissed  by the  District  Court.  On November 26, 2003 the lead
plaintiff  filed its  "Third  Amended  Consolidated  Complaint"  which was again
dismissed  with  prejudice in March 2004. The lead plaintiff once again appealed

                                       40
<PAGE>

against  the  dismissal  and the United  States  Court of Appeals  for the Ninth
Circuit  affirmed the dismissal with prejudice on February 23, 2006. This is the
fifth  time  that  the  Courts  have  ruled  in  favor  of us  and  against  the
shareholders  who have  brought  this suit  against us. On each of the  previous
occasions the  shareholders  who have brought this suit against us have filed an
appeal  against the decision of the Courts.  There can be no assurance  that the
shareholders  who have  brought  this  suit  against  us will not file a further
appeal  against  the  Courts'  latest  ruling in which case we will  continue to
vigorously defend against the claims.

     In May 2000, we 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  alleged certain  misrepresentations  made by the
defendants,  consequently  resulting in lost profits and incidental  losses.  In
addition,  the plaintiff was seeking punitive  damages.  The case was settled by
Stipulation  of  Voluntary  Dismissal  and a one off payment of $90,000 by us in
full and final  settlement of any and all liabilities  arising in respect of the
case.

         In August 2001, we, together with our Chief Executive Officer,  filed a
six count complaint  against our former  auditors,  PWC,  alleging  professional
negligence,   intentional  interference  with  prospective  business  advantage,
negligent  interference  with  prospective  economic  advantage,   violation  of
California   Business  and  Professions  Code  Sections  17200  and  17500,  and
defamation. In August 2003 we reached an out of court settlement in our law suit
against  PWC.  Under the terms of the  settlement  we received a payment of $1.3
million and agreement to write off certain  outstanding  invoices for accounting
and  legal  fees.  Consequently  we  recognized  a  gain  of  $1,007,000  on the
settlement  although  the net cash we  received  after  all costs  totaled  only
$136,000.

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee in an  assignment  for the  benefit of the  creditors  of Aspeon and CCI
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under
which they no longer had any further claim against Aspeon or CCI. Certain Aspeon
and  CCI  creditors,  totaling  in  excess  of  $3.1  million,  elected  not  to
participate  in the  assignment  for the benefit of Aspeon and CCI creditors and
remained as outstanding liabilities of Aspeon and CCI.

Guarantees

          In July, 2001,  Javelin  Australia  entered into a factoring  facility
amounting  to  approximately  $500,000  or a lesser  amount  based  on  eligible
receivables.  The facility was cancelable on 30 days notice by either party. The
agreement provided 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 were
restricted  to the  operations  of  Javelin  Australia  and could not be used to
support our other operations. Aspeon provided a guarantee for this facility that
was to be  released  on its sale of Javelin  Australia  in  January  2003 and in
respect of which it was indemnified by the purchaser of Javelin Australia.

         We  leased  office  and  warehouse  space in  Warrington,  Cheshire  UK
comprising approximately 7,200 square feet to support sales, administration, and
warehousing  activities  for the Solutions  Services  business.  We paid rent of
approximately  $4,500 per month.  The lease expired in 2001 and was subsequently
extended to September 2003. Aspeon,  Inc. provided a guaranty in respect of this
lease that was to be released on its sale of RGB in March 2002 and in respect of
which it was  indemnified by the  purchasers of RGB.  Aspeon,  Inc.'s  potential


                                       41
<PAGE>

contingent  liability in respect of this lease ended in September  2003 with the
expiration of the lease

Note.18  Subsequent Events

         On March 22, 2002 we signed an  agreement  to sell our  subsidiary  RGB
(renamed  Javelin Holdings  International  Ltd.), the UK holding company that in
turn owned our Javelin Europe and Jade subsidiaries, to an investment group that
included  members  of the  existing  UK  management  team for  $125,995  and the
repayment of inter-company  debt.  $750,000 was paid on signing with $175,000 to
be paid upon completion of a technology escrow agreement.

         On May 1, 2002 we signed an agreement  with the holder of our Preferred
Shares  that had been in  default.  Under that  agreement,  in return for a cash
payment of $447,500 by us (a) we were released from all liabilities  relating to
our  outstanding  Series A  Convertible  Exchangeable  Preferred  Stock  and the
documents under which those securities had been issued and were outstanding; (b)
all of our outstanding  Series A Convertible  Exchangeable  Preferred Stock were
cancelled; (c) a warrant previously issued by us entitling the holder thereof to
purchase  583,334  shares of our common stock was  cancelled;  and (d) a warrant
previously  issued by our  subsidiary,  Aspeon  Solutions,  entitling the holder
thereof to purchase 1,250,000 shares of the common stock of Aspeon Solutions was
cancelled.  We believed  that the  settlement  had a net positive  effect on our
balance sheet of approximately $19 million.

         In June 2002 we terminated the activities of RCS.

         On  January  17,  2003,  we sold  our  Australian  subsidiary,  Javelin
Australia,  to Mr. Matthew Maley. Prior to the sale, Mr. Maley had served as our
general manager of that  subsidiary.  We received $80,000 at the closing of this
transaction.  Under the Share Sale Agreement  relating to this transaction,  Mr.
Maley agreed to cause Javelin  Australia to pay its account payable to us in the
amount of $239,000 in monthly installments of $10,000 each until the full amount
of the account  payable has been paid.  Mr. Maley  personally  guaranteed  these
payments.

         During the fiscal  years  ending June 30, 2002 and 2003,  we used every
effort to return to profitability  through  on-going cost  reductions,  to raise
additional debt and, or, equity funding and to identify strategic  opportunities
for our sale or the sale of certain of our subsidiaries  However,  the weak tech
market,  together with our inability to produce  audited  accounts and come into
compliance  with the listing  conditions of Nasdaq or over the counter  bulletin
board  markets,  meant we were  unable to attract new  customers  or the debt or
equity financing necessary to secure our financial future.

         On June 30, 2003 we decided to  discontinue  the operations of our last
two  operating  businesses,  Javelin and CCI.  Javelin  ceased  operations  with
immediate effect while CCI completed certain outstanding  customer orders before
ceasing  production  on August  3, 2003 and  continued  to  subcontract  certain
maintenance activities through December 31, 2003.

         In August  2003 we reached an out of court  settlement  in our law suit
against  PWC.  Under the terms of the  settlement  we received a payment of $1.3
million and agreement to write off certain  outstanding  invoices for accounting
and  legal  fees.  Consequently  we  recognized  a  gain  of  $1,007,000  on the
settlement  although  the net cash we  received  after  all costs  totaled  only
$136,000.

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee in an  assignment  for the  benefit of the  creditors  of Aspeon and CCI
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under
which they no longer had any further claim against  Aspeon or CCI.  Consequently
we recognized a gain of $3.2 million on the  establishment of the assignment for
the  benefit  of Aspeon and CCI  creditors.  Certain  Aspeon and CCI  creditors,
totaling in excess of $3.1 million, elected not to participate in the assignment
for the  benefit  of  Aspeon  and CCI  creditors  and  remained  as  outstanding
liabilities of Aspeon and CCI.


                                       42
<PAGE>

         Following  the  establishment  for the  assignment  for the  benefit of
Aspeon  and CCI  creditors  in January  2004,  we had no  assets,  no  operating
business or other source of income,  outstanding  liabilities  in excess of $7.9
million,  an  outstanding  law  suit  brought  against  us  by  certain  of  our
shareholders,  were  substantially  in arrears in  respect  of  maintaining  our
financial  records and our SEC filings,  were no longer  listed on Nasdaq or the
over the  counter  bulletin  board and in due course  ceased to be listed on the
Pink Sheets.

         In April 2005, we appointed  David J Cutler as a new director and Chief
Executive   Officer  and   subsequent  to  that  are  now  focused  on  reaching
satisfactory  negotiated settlements with our outstanding creditors,  vigorously
defending  against any further  appeal  that may be made  against our  currently
successful  defense  of the  law  suit  brought  against  us by  certain  of our
shareholders, bringing our financial records and SEC filings up to date, seeking
a listing on the over the counter bulletin board,  raising  additional debt and,
or,  equity  to  finance  settlements  with  creditors  and to meet our  ongoing
operating  expenses and attempting to merge with another entity with experienced
management and opportunities for growth in return for shares of our common stock
to create value for our shareholders. There can be no assurance that this series
of events will be successfully completed.

         On April 22, 2005,  our sole  director,  David J Cutler entered into an
agreement  with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the
benefit of Aspeon and CCI creditors,  subject to due diligence,  to invest up to
$50,000  cash in us for the benefit of our  creditors  in return for a number of
shares of our common stock to be determined. Following the completion of the due
diligence process during the three months ended December 31, 2005, it was agreed
with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the benefit of
Aspeon and CCI  creditors,  that Mr.  Cutler would invest  $20,000 in us for the
benefit  of Aspeon  and CCI  creditors  in return  for a number of shares of our
common  stock to be  determined.  Accordingly  during  the  three  months  ended
December 31, 2005  $20,000  which had been placed in escrow with Frank G Blundo,
Jr. P.C. by Mr. Cutler was released for the benefit of Aspeon and CCI creditors.
On May 31, 2006, based on an independent third party valuation,  the majority of
our independent  directors approved the issue of 10,536,775 shares of our common
stock to Mr.  Cutler for the  conversion  of  $14,243  of his debt into  equity.
Following  the issue of these shares of our common stock Mr.  Cutler owned 52.7%
of  our  total  authorized  and  issued  share  capital  and  still  had a  loan
outstanding to us of approximately $178,000.

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr.  Cutler has made further  advances to us of $80,000 by way of
loan to meet our ongoing  operating  expenses and fund the costs of bringing our
financial statements and SEC reporting up to date as required. Effective May 31,
2006,  $14,243 of this debt was converted into  10,536,775  shares of our common
stock on the basis of an independent  third party  valuation and the approval of
the majority of our independent  directors.  Following the issue of these shares
of our common stock Mr.  Cutler owned 52.7% of our total  authorized  and issued
share capital and still had a loan outstanding to us of approximately  $185,000.
There is no guarantee that Mr. Cutler will continue to provide  further  funding
to us in the future.

         On  September  9, 2005 we received a letter from the SEC dated June 24,
2005  indicating  that  unless  we  came  into  compliance  with  the  reporting
requirements under the Securities  Exchange Act of 1934 within 15 days we may be
deregistered.  On  September  12, 2005 we faxed a letter to the SEC's  Office of
Enforcement  Liaison  indicating our intention to come into  compliance with the
reporting requirements under the Securities Exchange Act of 1934 by November 15,
2005.

         On  September  12,  2005  we  retained  Larry   O'Donnell,   CPA,  P.C.
(`O'Donnell') as our independent auditing firm.




                                       43
<PAGE>

         By November  15, 2005 we  completed  all  required  SEC filings for the
period July 1, 2003 through  September 30, 2005.  However,  we had not completed
all required SEC filings in respect of the period April 1, 2001 through June 30,
2003 although we had included  substantial  financial  extracts and all material
disclosures  in respect  of these  periods in the  filings we had  completed  in
respect  of  subsequent  periods.  We  believed  the  cost  to  shareholders  in
completing  these  filings in  respect of these  earlier  periods  exceeded  any
benefit to shareholders in completing  these filings as the information in these
filings  was at  least  two  to  four  years  old,  no  longer  relevant  to our
shareholders given our decision to cease all trading operations made on June 30,
2003 and that all material  information in respect of these earlier  periods has
been made available to our shareholders in our SEC filings for later periods.

         In January 2006 we were  contacted  by the SEC's Office of  Enforcement
Liaison who notified us that while they  recognized  the progress we had made in
bringing our SEC filings up to date,  they still  considered us to be delinquent
in our  filings  because of our  failure to  complete  filings in respect of the
period  April 1, 2001 through  June 30,  2003.  In August 2006,  on the basis of
further  audit work and a review of  subsequent  events  performed by O'Donnell,
O'Donnell completed the audit of our June 30, 2001 and in September we filed the
Form 10QSB for the three  months ended  September  30,  2001.  We are  currently
establishing the likely costs and practicality of completing the SEC filings and
related  financial  statements  for the period  October 1, 2001 through June 30,
2003.  In the  meantime  there  continues to be a risk that our shares of common
stock may be  deregistered  by the SEC's Office of  Enforcement  Liaison due the
continued  delinquency of our SEC filings for the period October 1, 2001 through
June 30, 2003.

         On February  23, 2006 the United  States Court of Appeals for the Ninth
Circuit affirmed the dismissal with prejudice of the law suit brought against us
by certain  of our  shareholders.  This is the fifth  time that the Courts  have
ruled in favor of us and against the  shareholders  who have  brought  this suit
against us. On each of the previous  occasions the shareholders who have brought
this suit  against us have filed an appeal  against the  decision of the Courts.
There can be no  assurance  that the  shareholders  who have  brought  this suit
against us will not file a further  appeal  against the Courts' latest ruling in
which case we will continue to vigorously defend against the claims.

         Effective March 13, 2006, David Cutler,  at that time our sole director
and officer,  appointed  Wesley F Whiting and Redgie Green as new, non executive
directors to join him on our board of directors.

         On May 31, 2006,  based on an independent  third party  valuation,  the
majority of our independent directors approved the issue of 10,536,775 shares of
our common stock to Mr.  Cutler for the  conversion  of $14,243 of his debt into
equity. Following the issue of these shares of our common stock Mr. Cutler owned
52.7% of our total  authorized  and issued  share  capital  and still had a loan
outstanding to us of approximately $178,000

         In August  2006,  on the basis of  further  audit  work and a review of
subsequent events performed by O'Donnell,  O'Donnell  completed the audit of our
June 30, 2001 financial statements and in September 2006 we filed the Form 10QSB
for the three months ended September 30, 2001. We are currently establishing the
likely  costs  and  practicality  of  completing  the SEC  filings  and  related
financial statements for the period October 1, 2001 through June 30, 2003.In the
meantime  there  continues  to be a risk that our shares of common  stock may be
deregistered  by the  SEC's  Office of  Enforcement  Liaison  due the  continued
delinquency  of our SEC filings for the period  October 1, 2001 through June 30,
2003.


                                       44
<PAGE>


ITEM 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial  statements  included in this  report.  This  discussion
contains  forward-looking  statements that involve risks and uncertainties.  Our
actual results could differ  materially from those  anticipated in these forward
looking  statements  as a result of any  number of  factors,  including  but not
limited to, our ability to reach satisfactorily  negotiated settlements with our
outstanding creditors,  vigorously defend against any further appeal that may be
made against our currently successful defense of the law suit brought against us
by certain of our  shareholders,  bring our financial records and SEC filings up
to date,  achieve a listing on the over the counter  bulletin board,  raise debt
and, or, equity to fund  negotiated  settlements  with our creditors and to meet
our ongoing  operating  expenses and merge with another entity with  experienced
management and opportunities for growth in return for shares of our common stock
to create value for our shareholders.

OVERVIEW

         We were  incorporated  in the Sate of Delaware in September  1995 under
the name Sunwood Research,  Inc. We changed our name to Javelin Systems, Inc. in
October 1996 and  subsequently  to Aspeon,  Inc. in December  1999.  Our mailing
address is 2460 West 26th Avenue, Suite 380-C, Denver,  Colorado,  80211 and our
telephone number is 303-380-9784.

         Effective  June 30, 2003 we made the  decision to  discontinue  all our
remaining  operating  businesses  and are now focused on  reaching  satisfactory
negotiated  settlements  with our outstanding  creditors,  vigorously  defending
against any further  appeal that may be made  against our  currently  successful
defense of the law suit  brought  against  us by  certain  of our  shareholders,
bringing our financial records and SEC filings up to date,  seeking a listing on
the over the  counter  bulletin  board,  raising  debt and,  or,  equity to fund
negotiated  settlements  with our  creditors  and to meet our ongoing  operating
expenses and attempting to merge with another entity with experienced management
and  opportunities for growth in return for shares of our common stock to create
value for our shareholders. There can be no assurance that this series of events
will be successfully completed.

            Prior  to  our  cessation  of  operations,  our  principal  business
activities were:

    - POS PRODUCTS.  Javelin Systems, a division of Aspeon, Inc. ("Javelin") and
CCI Group, Inc. ("CCI"), a subsidiary of Aspeon, Inc.,  designed,  manufactured,
marketed  and sold open system  touch  screen  point of sale  ("POS")  computers
primarily to the foodservice and retail industries (the "POS Products").

    -SOLUTION SERVICES.  Through our CCI, Jade Communications  Limited ("Jade"),
RGB/Trinet Limited ("RGB"), (subsequently renamed Javelin Holdings International
Limited (UK)),  (collectively "RGB/Jade") and Aspact IT Services (Singapore) Pte
Ltd. ("Aspact")  subsidiaries,  we provided  information  technology  management
services  for  customers  that did not intend or were not able to hire their own
information  technology  personnel  (the  "Solution  Services").  These services
included network design and management,  installation of computer systems, local
and wide area network support, maintenance and repair, and help desk support.

    - APPLICATION SERVICES PROVIDER. Through our Aspeon Solutions, Inc. ("Aspeon
Solutions"),  Dynamic  Technologies,  Inc.  ("DTI"),  SB Holdings,  Inc. ("SB"),
Restaurant   Consulting  Services  ("RCS")  and  Monument  Software  Corporation
("Monument")  subsidiaries,  we  operated  as an  application  service  provider
("ASP"). Our ASP services enabled software applications to be deployed, managed,
supported and upgraded from centrally located servers, rather than on individual
computers (the "ASP Services").  Our ASP Services primarily were directed toward
customers in the foodservice industry.


            An over view of the major events since incorporation is as follows:

            On November 1, 1996,  we completed an initial  public  offering (the
"IPO")  of  850,000  shares of our  common  stock at $5.00  per  share,  netting
proceeds of approximately $3.2 million. Proceeds were used to repay debt with an
outstanding  balance  of  approximately   $745,000  and  for  general  corporate
purposes.


                                       45
<PAGE>

            In December 1997, we acquired all of the outstanding common stock of
POSNET Computers,  Inc.  ("Posnet") and CCI Group, Inc. ("CCI").  Posnet and CCI
provided  full  turn-key   systems   integration   services,   including  system
consulting, staging, training, deployment, product support and maintenance.

            In  March  and  April  1998,  we  established  three   international
subsidiaries to expand our sales and distribution  channels in the international
marketplace.  The  international  subsidiaries  were:  Javelin Systems  (Europe)
Limited   ("Javelin   Europe")   headquartered   in  England;   Javelin  Systems
International Pte Ltd ("Javelin Asia")  headquartered in Singapore;  and Javelin
Systems Australia Pty Limited ("Javelin Australia"), subsequently renamed Aspeon
Systems (Asia Pacific) Pty Ltd, headquartered in Australia.

            In May 1998,  Javelin Asia  acquired all of the  outstanding  common
stock  of  Aspact  IT  Services  (Singapore)  Pte  Ltd  ("Aspact").  Aspact  was
headquartered  in  Singapore  and  provided  consulting  and system  integration
services.

            In November 1998, we completed a public offering of 1,395,000 shares
of our common stock at $6.75 per share,  netting proceeds of approximately  $8.1
million. Proceeds were used to repay borrowings under a revolving line of credit
of approximately  $3.2 million,  to purchase all of the outstanding common stock
of RGB/Trinet Limited ("RGB"),  which was subsequently  renamed Javelin Holdings
International Limited (UK), and Jade Communications Ltd ("Jade") and for general
corporate  purposes.  RGB and Jade were  headquartered  in England and  provided
complementary  Wide Area  Networking  (WAN)  products and services  primarily to
large retail, hospitality, and telecommunications companies.

            During the  course of 1998 we  established  a 75% owned  subsidiary,
Teneo Ltd ("Teneo"), in an effort to expand our service management and wide area
network solutions business.

     In January  1999 the business  and assets of Posnet were  transferred  from
Posnet and merged with the business and assets of CCI.

            In February 1999, we completed a public offering of 2,375,000 shares
of our common stock at $12.25 per share, netting proceeds of approximately $26.9
million.  Proceeds were used to purchase the outstanding common stock of Dynamic
Technologies,  Inc. ("DTI") and SB Holdings, Inc. ("SB") and for working capital
and general  corporate  purposes.  DTI and SB provided custom  Internet/Intranet
software and services.

     In  August  1999,  we  acquired  all of the  outstanding  capital  stock of
Restaurant  Consulting  Services,  Inc. ("RCS").  RCS implemented,  operated and
supported packaged software applications for the restaurant industry.

            In  January  2000,  we  created  Aspeon  Solutions,   Inc.  ("Aspeon
Solutions")  as a wholly owned  subsidiary to centralize  and continue the rapid
development of our ASP service business.

            On March 8, 2000 we completed a private placement of securities with
Marshall Capital  Management,  Inc., an affiliate of Credit Suisse First Boston,
in  which  we 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 our common stock and a warrant to acquire  1,250,000 shares of
Aspeon Solutions, one of our wholly-owned subsidiaries. Proceeds to us from this
placement  amounted  to $9.6  million,  net of offering  costs,  which were used
primarily to acquire Monument Software Corporation  ("Monument"),  settle future
contingent  payments associated with the acquisition of RCS, hire management and
staff  personnel,   expand  corporate  facilities  and  fund  our  ASP  Services
operations. Monument specialized in the rapid implementation of enterprise-class
financial systems with an emphasis on Oracle Financials


                                       46
<PAGE>

            During  fiscal  2000,  we  sustained  significant  losses and we had
experienced negative cash flows from our operations since inception.  As at June
30,  2000 we were in default of  certain  covenants  under the terms of both our
credit  facility  and  Preferred  Stock and were  delinquent  in the  payment of
various  trade  payables.  Our ability to meet our  obligations  in the ordinary
course of business was  dependent  upon the success of our attempts to return to
profitability,  obtain a waiver of credit  line and  Preferred  Stock  defaults,
raise additional financing through public and, or, private equity financings and
evaluate potential strategic opportunities. We sought to return to profitability
by  streamlining  operations  and  generating  on-going  cost  savings and began
evaluating  strategic  opportunities  for our sale or the sale of certain of our
subsidiaries.

            As part of our efforts to streamline our  operations,  during fiscal
2001 we merged the business of Javelin Asia into Javelin  Australia  and renamed
Javelin  Australia as Aspeon  Systems  (Asia  Pacific) Pty Ltd and we merged the
operations of Monument into those of RCS.

         In August  2000,  we executed a sale  agreement  with the then  current
director of Aspact (the "Purchaser"). The initial purchase price of $350,000 was
payable  to us in  monthly  installments  of  $14,600  commencing  in July 2001.
Consequently,  a loss on sale of  approximately  $229,000 was  recognized in the
three months ended September 30, 2000. In the event the Purchaser consummated an
initial  public  offering or disposed  of all or  substantially  all of Aspact's
common stock,  the  Purchaser was 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 ours.

         In   September    2000,   at   the    insistence   of   our   auditors,
PricewaterhouseCoopers,  LLC  ("PWC"),  we announced  that we would  restate our
first quarter 2000 financial statements as a result of accounting misstatements.
In October 2000 we announced we would require  additional  time to file our form
10-K report for the fiscal year ended June 30, 2000.

          In October 2000, the Nasdaq Stock Market ("Nasdaq")  suspended trading
in our common stock while it sought additional  information from us. On November
9, 2000, we participated  in a hearing before the Nasdaq Listing  Qualifications
Panel which was held for the purpose of evaluating  whether shares of our common
stock would continue to be listed on Nasdaq or if they would be delisted.

         In October and November 2000,  eight  purported  class action  lawsuits
were  filed  against  us, our Chief  Executive  Officer,  and our  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 the  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. The 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 and
on September 17, 2001 the United States  District Court  dismissed the suit with


                                       47
<PAGE>

prejudice and entered judgment in favor of the us and our officers. On September
20,  2001 the lead  plaintiff  in the class  action  suit  appealed  against the
dismissal of the case.  On January 21, 2003 the decision to dismiss the case was
upheld  but  the  lead  plaintiff  was  given  the  opportunity  to  remedy  the
deficiencies  in the complaint that had been filed.  Accordingly on May 30, 2003
the plaintiff filed its "Second Amended Consolidated  Complaint" which again was
subsequently  dismissed  by the  District  Court.  On November 26, 2003 the lead
plaintiff  filed its  "Third  Amended  Consolidated  Complaint"  which was again
dismissed  with  prejudice in March 2004. The lead plaintiff once again appealed
against  the  dismissal  and the United  States  Court of Appeals  for the Ninth
Circuit  affirmed the dismissal with prejudice on February 23, 2006. This is the
fifth  time  that  the  Courts  have  ruled  in  favor  of us  and  against  the
shareholders  who have  brought  this suit  against us. On each of the  previous
occasions the  shareholders  who have brought this suit against us have filed an
appeal  against the decision of the Courts.  There can be no assurance  that the
shareholders  who have  brought  this  suit  against  us will not file a further
appeal  against  the  Courts'  latest  ruling in which case we will  continue to
vigorously defend against the claims.

         In December 2000 we restated the results for the fiscal  quarters ended
September 30, 1999, December 31, 1999 and March 31, 2000 by an aggregate of $1.7
million or $0.19 per share.  Revenue was reduced by $679,000 or 1.05%, our gross
profit was  decreased  by $206,000  or 1.22%,  $1.4  million of the  restatement
related to an  adjustment  to increase the amount  recorded  for the  beneficial
conversion  feature associated with the issuance of our Preferred Stock in March
2000 based upon an independent  valuation and the remaining  adjustments related
to unrecorded compensation expense, amortization of intangible assets, expensing
costs previously capitalized and the additional accrual of general expenses.

         Effective  as of  January  4,  2001 our  shares of  common  stock  were
delisted  from Nasdaq.  As we were in arrears with our filings with the SEC, our
shares of common  stock were not  eligible  to be traded on the over the counter
bulletin  board and  commenced  trading  on the Pink  Sheets  under  the  symbol
ASPE.PK. Subsequently our shares of common stock ceased to be traded on the Pink
Sheets and are now traded on the Gray Sheets.

         In January 2001 our auditors,  PWC, notified us that it was terminating
its auditor relationship with us effective immediately.

         In February  2001 our  subsidiary,  RGB,  sold its interest in Teneo to
employees of Teneo for the consideration of a $350,000 note. Consequently a gain
on sale of $432,000 was recognized during the quarter ended March 31, 2001.

         On March 1, 2001 we completed the sale of the consulting  contracts and
certain of the fixed assets our DTI subsidiary to a company  controlled by DTI's
former owners and certain of our  shareholders  for a purchase price of $900,000
and the return for  cancellation of 200,000 of shares of our common stock 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.

         On  March  19,  2001  we  retained  BDO  Seidman,  LLP  ("BDO")  as our
independent auditing firm. However, as PWC, our previous  independent  auditors,
refused to allow BDO access to PWC's prior year work  papers,  BDO was unable to
complete an audit of our financial statements for later periods at that time.

         During fiscal 2001,  despite our efforts to return to profitability and
the sale of certain of our  subsidiaries,  we continued to generate  significant
losses,  to be in default of certain  covenants under the terms of our Preferred
Stock,  to be delinquent  in the payment of various trade  payables and had been
unable to replace  our line of credit  which had been  repaid in full during the
course of the year.  While we had  appointed  new  auditors,  we were  unable to


                                       48
<PAGE>

generate  audited  financial  accounts due to the lack of  cooperation  from our
previous  auditors  and  consequently  were  unable to comply  with the  listing
requirements  of  either  Nasdaq or the over the  counter  bulletin  board.  Our
relegation  to the Pink Sheets had  serious  adverse  consequences  for both the
confidence  of our  customers or potential  customers and our ability to attract
new debt or equity financing.  The lawsuits brought against us by certain of our
shareholders  diverted a significant  amount of our  management's  time from our
operations which were also severely  effected by the collapse of the tech market
in early 2001.  Nevertheless we continued press ahead by attempting to return to
profitability  through  further cost  reductions,  renegotiate  the terms of our
Preferred  Stock,  settle  the  outstanding  shareholder  litigation,   evaluate
strategic  opportunities for our sale or the sale of certain of our subsidiaries
and raise additional debt and, or, equity funding.

         In August 2001 we, together with our Chief Executive  Officer,  filed a
six count complaint  against our former  auditors,  PWC,  alleging  professional
negligence,   intentional  interference  with  prospective  business  advantage,
negligent  interference  with  prospective  economic  advantage,   violation  of
California   Business  and  Professions  Code  Sections  17200  and  17500,  and
defamation.

         On March 22, 2002 we signed an  agreement  to sell our  subsidiary  RGB
(renamed  Javelin Holdings  International  Ltd.), the UK holding company that in
turn owned our Javelin Europe and Jade subsidiaries, to an investment group that
included  members  of the  existing  UK  management  team for  $125,995  and the
repayment of inter-company  debt.  $750,000 was paid on signing with $175,000 to
be paid upon completion of a technology escrow agreement

         On May 1, 2002 we signed an agreement  with the holder of our Preferred
Shares  that had been in  default.  Under that  agreement,  in return for a cash
payment of $447,500 by us (a) we were released from all liabilities  relating to
our  outstanding  Series A  Convertible  Exchangeable  Preferred  Stock  and the
documents under which those securities had been issued and were outstanding; (b)
all of our outstanding  Series A Convertible  Exchangeable  Preferred Stock were
cancelled; (c) a warrant previously issued by us entitling the holder thereof to
purchase  583,334  shares of our common stock was  cancelled;  and (d) a warrant
previously  issued by our  subsidiary,  Aspeon  Solutions,  entitling the holder
thereof to purchase 1,250,000 shares of the common stock of Aspeon Solutions was
cancelled.  We believed  that the  settlement  had a net positive  effect on our
balance sheet of approximately $19 million.

         In June 2002 we terminated the activities of RCS.

         On  January  17,  2003,  we sold  our  Australian  subsidiary,  Javelin
Australia,  to Mr. Matthew Maley. Prior to the sale, Mr. Maley had served as our
general manager of that  subsidiary.  We received $80,000 at the closing of this
transaction.  Under the Share Sale Agreement  relating to this transaction,  Mr.
Maley agreed to cause Javelin  Australia to pay its account payable to us in the
amount of $239,000 in monthly installments of $10,000 each until the full amount
of the account  payable has been paid.  Mr. Maley  personally  guaranteed  these
payments.

         During the fiscal  years  ending June 30, 2002 and 2003,  we used every
effort to return to profitability  through  on-going cost  reductions,  to raise
additional debt and, or, equity funding and to identify strategic  opportunities
for our sale or the sale of certain of our subsidiaries  However,  the weak tech
market,  together with our inability to produce  audited  accounts and come into
compliance  with the listing  conditions of Nasdaq or over the counter  bulletin
board  markets,  meant we were  unable to attract new  customers  or the debt or
equity financing necessary to secure our financial future.

         On June 30, 2003 we decided to  discontinue  the operations of our last
two  operating  businesses,  Javelin and CCI.  Javelin  ceased  operations  with
immediate effect while CCI completed certain outstanding  customer orders before
ceasing  production  on August  3, 2003 and  continued  to  subcontract  certain
maintenance activities through December 31, 2003.

         In August  2003 we reached an out of court  settlement  in our law suit
against  PWC.  Under the terms of the  settlement  we received a payment of $1.3
million and agreement to write off certain  outstanding  invoices for accounting


                                       49
<PAGE>

and  legal  fees.  Consequently  we  recognized  a  gain  of  $1,007,000  on the
settlement  although  the net cash we  received  after  all costs  totaled  only
$136,000.

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee in an  assignment  for the  benefit of the  creditors  of Aspeon and CCI
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under
which they no longer had any further claim against  Aspeon or CCI.  Consequently
we recognized a gain of $3.2 million on the  establishment of the assignment for
the  benefit  of Aspeon and CCI  creditors.  Certain  Aspeon and CCI  creditors,
totaling in excess of $3.1 million, elected not to participate in the assignment
for the  benefit  of  Aspeon  and CCI  creditors  and  remained  as  outstanding
liabilities of Aspeon and CCI.

         Following  the  establishment  for the  assignment  for the  benefit of
Aspeon  and CCI  creditors  in January  2004,  we had no  assets,  no  operating
business or other source of income,  outstanding  liabilities  in excess of $7.9
million,  an  outstanding  law  suit  brought  against  us  by  certain  of  our
shareholders,  were  substantially  in arrears in  respect  of  maintaining  our
financial  records and our SEC filings,  were no longer  listed on Nasdaq or the
over the  counter  bulletin  board and in due course  ceased to be listed on the
Pink Sheets.

         In April 2005, we appointed  David J Cutler as a new director and Chief
Executive   Officer  and   subsequent  to  that  are  now  focused  on  reaching
satisfactory  negotiated settlements with our outstanding creditors,  vigorously
defending  against any further  appeal  that may be made  against our  currently
successful  defense  of the  law  suit  brought  against  us by  certain  of our
shareholders, bringing our financial records and SEC filings up to date, seeking
a listing on the over the counter bulletin board,  raising  additional debt and,
or,  equity  to  finance  settlements  with  creditors  and to meet our  ongoing
operating  expenses and attempting to merge with another entity with experienced
management and opportunities for growth in return for shares of our common stock
to create value for our shareholders.

         On April 22, 2005,  our sole  director,  David J Cutler entered into an
agreement  with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the
benefit of Aspeon and CCI creditors,  subject to due diligence,  to invest up to
$50,000  cash in us for the benefit of our  creditors  in return for a number of
shares of our common stock to be determined. Following the completion of the due
diligence process during the three months ended December 31, 2005, it was agreed
with Frank G Blundo,  Jr.  P.C.,  trustee of the  assignment  for the benefit of
Aspeon and CCI  creditors,  that Mr.  Cutler would invest  $20,000 in us for the
benefit  of Aspeon  and CCI  creditors  in return  for a number of shares of our
common  stock to be  determined.  Accordingly  during  the  three  months  ended
December 31, 2005  $20,000  which had been placed in escrow with Frank G Blundo,
Jr. P.C. by Mr. Cutler was released for the benefit of Aspeon and CCI creditors.
On May 31, 2006, based on an independent third party valuation,  the majority of
our independent  directors approved the issue of 10,536,775 shares of our common
stock to Mr.  Cutler for the  conversion  of  $14,243  of his debt into  equity.
Following  the issue of these shares of our common stock Mr.  Cutler owned 52.7%
of  our  total  authorized  and  issued  share  capital  and  still  had a  loan
outstanding to us of approximately $178,000.


                                       50
<PAGE>

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr.  Cutler has made further  advances to us of $80,000 by way of
loan to meet our ongoing  operating  expenses and fund the costs of bringing our
financial statements and SEC reporting up to date as required. Effective May 31,
2006,  $14,243 of this debt was converted into  10,536,775  shares of our common
stock on the basis of an independent  third party  valuation and the approval of
the majority of our independent  directors.  Following the issue of these shares
of our common stock Mr.  Cutler owned 52.7% of our total  authorized  and issued
share capital and still had a loan outstanding to us of approximately  $178,000.
There is no guarantee that Mr. Cutler will continue to provide  further  funding
to us in the future.

         On  September  9, 2005 we received a letter from the SEC dated June 24,
2005  indicating  that  unless  we  came  into  compliance  with  the  reporting
requirements under the Securities  Exchange Act of 1934 within 15 days we may be
deregistered.  On  September  12, 2005 we faxed a letter to the SEC's  Office of
Enforcement  Liaison  indicating our intention to come into  compliance with the
reporting requirements under the Securities Exchange Act of 1934 by November 15,
2005.

         On  September  12,  2005  we  retained  Larry   O'Donnell,   CPA,  P.C.
(`O'Donnell') as our independent auditing firm.

         By November  15, 2005 we  completed  all  required  SEC filings for the
period July 1, 2003 through  September 30, 2005.  However,  we had not completed
all required SEC filings in respect of the period April 1, 2001 through June 30,
2003 although we had included  substantial  financial  extracts and all material
disclosures  in respect  of these  periods in the  filings we had  completed  in
respect  of  subsequent  periods.  We  believed  the  cost  to  shareholders  in
completing  these  filings in  respect of these  earlier  periods  exceeded  any
benefit to shareholders in completing  these filings as the information in these
filings  was at  least  two  to  four  years  old,  no  longer  relevant  to our
shareholders given our decision to cease all trading operations made on June 30,
2003 and that all material  information in respect of these earlier  periods has
been made available to our shareholders in our SEC filings for later periods.

         In January 2006 we were  contacted  by the SEC's Office of  Enforcement
Liaison who notified us that while they  recognized  the progress we had made in
bringing our SEC filings up to date,  they still  considered us to be delinquent
in our  filings  because of our  failure to  complete  filings in respect of the
period  April 1, 2001 through  June 30,  2003.  In August 2006,  on the basis of
further  audit work and a review of  subsequent  events  performed by O'Donnell,
O'Donnell  completed the audit of our June 30, 2001 financial  statements and in
September 2006 we filed the Form 10QSB for the three months ended  September 30,
2001.  We are  currently  establishing  the  likely  costs and  practicality  of
completing  the SEC  filings  and related  financial  statements  for the period
October 1, 2001 through June 30,  2003.In the meantime  there  continues to be a
risk that our shares of common stock may be  deregistered by the SEC's Office of
Enforcement  Liaison due the  continued  delinquency  of our SEC filings for the
period October 1, 2001 through June 30, 2003

         On February  23, 2006 the United  States Court of Appeals for the Ninth
Circuit affirmed the dismissal with prejudice of the law suit brought against us
by certain  of our  shareholders.  This is the fifth  time that the Courts  have
ruled in favor of us and against the  shareholders  who have  brought  this suit
against us. On each of the previous  occasions the shareholders who have brought


                                       51
<PAGE>

this suit  against us have filed an appeal  against the  decision of the Courts.
There can be no  assurance  that the  shareholders  who have  brought  this suit
against us will not file a further  appeal  against the Courts' latest ruling in
which case we will continue to vigorously defend against the claims.

         Effective March 13, 2006, David Cutler,  at that time our sole director
and officer,  appointed  Wesley F Whiting and Redgie Green as new, non executive
directors to join him on our board of directors.

         On May 31, 2006,  based on an independent  third party  valuation,  the
majority of our independent directors approved the issue of 10,536,775 shares of
our common stock to Mr.  Cutler for the  conversion  of $14,243 of his debt into
equity. Following the issue of these shares of our common stock Mr. Cutler owned
52.7% of our total  authorized  and issued  share  capital  and still had a loan
outstanding to us of approximately $178,000.

         In August  2006,  on the basis of  further  audit  work and a review of
subsequent events performed by O'Donnell,  O'Donnell  completed the audit of our
June 30, 2001 financial statements and in September 2006 we filed the Form 10QSB
for the three months ended September 30, 2001. We are currently establishing the
likely  costs  and  practicality  of  completing  the SEC  filings  and  related
financial  statements  for the period  October 1, 2001 through June 30, 2003. In
the meantime there continues to be a risk that our shares of common stock may be
deregistered  by the  SEC's  Office of  Enforcement  Liaison  due the  continued
delinquency  of our SEC filings for the period  October 1, 2001 through June 30,
2003

LIQUIDITY AND CAPITAL RESOURCES

            As of September 30, 2001, we had $ 506,000 cash and cash equivalents
on hand, a working capital deficit of $ 16.5 million and a shareholders' deficit
of $7.9 million.

         As of March 31,  2006,  we had $7 cash on hand,  $49,000 of assets,  no
operating  business  or other  source  of  income,  outstanding  liabilities  of
approximately  $8.1  million,  a  stockholders'  deficit of  approximately  $8.1
million and a law suit brought against us by certain of our  shareholders  which
had been  ruled in our favor by the  Courts  but  which  could be  subject  to a
further appeal by the shareholders in question.

         We sustained  significant  losses  during the years ended June 30, 2001
and 2000 and had  experienced  negative  cash  flows from  operations  since our
inception.

         In October  2000,  we received a notice of default  from our  Preferred
Stockholders,  which  triggered  certain  payment  requirements  as  well  as  a
Repricing and Redemption Event, as defined in the Preferred Stock Agreement (see
Note 12 - page 29 above).  We were also  delinquent  in the  payments of various
trade payables.  These matters, among others, raised substantial doubt as to our
ability to continue as a going  concern.  Our continued  existence was dependent
upon, among other factors, our ability to return to profitability, the continued
forbearance of the our lenders and creditors,  the successful  renegotiation  of
the terms of our Preferred  Stock,  the outcome of  litigation  filed against us
which  alleged  violations of the federal  securities  laws (Note 17 see page 38
above),  and our ability to raise funds from additional debt and, or, equity. We
had reduced our workforce and planed to further reduce expenditures. We believed
that such reductions,  the securing of a new working capital borrowing facility,
together  with  funds  expected  to  be  generated  from  operations,  would  be
sufficient to meet our expected short-term needs for working capital,  exclusive
of any  obligation to redeem our Preferred  Stock as discussed in Note 12 - page


                                       52
<PAGE>

29 above. However,  there could be no assurance that sufficient cash flows would
be generated by us to avoid the further  depletion of our working capital,  that
we would successfully  renegotiate the terms of our Preferred Stock, or that the
outcome  of the  litigation  would  not have a  material  adverse  impact on our
operations.  Accordingly,  management  intended  to  obtain  additional  debt or
private equity  financing.  There could be no assurance that  additional debt or
equity financing would be available,  if and when needed, or that, if available,
such financing could be completed on commercially favorable terms.

         Subsequently  we were  unable  to  improve  the  profitability  or cash
generation of our operations or to obtain additional debt or equity.  During the
years  ended June 30, 2002 and 2003 we had no  alternative  but to sell or close
down our remaining operating  businesses leaving a substantial short fall to our
creditors.

            Consequently we are now dependent on raising  additional equity and,
or, debt to fund any negotiated  settlements with our outstanding  creditors and
meet our ongoing operating expenses.  There is no assurance that we will be able
to raise the  necessary  equity  and,  or,  debt that we will need to be able to
negotiate  acceptable  settlements  with our  outstanding  creditors or fund our
ongoing operating expenses.

            We believe  that the  proceeds  from our  Directors'  and  Officers'
insurance  policy  would  be  sufficient  to meet the  legal  cost  incurred  in
defending any further appeal against the Court's latest decision. However, there
is no assurance that the proceeds from our  Directors'  and Officers'  insurance
policy would be  sufficient  to meet the legal cost  incurred in  defending  any
further appeal against the Court's  decision and if they are exhausted there are
no further funds to defend the suit and we would have no alternative but to file
for  bankruptcy.  Moreover,  if we were to lose an appeal  against  the  Court's
decision it is unlikely  that the proceeds  from the  Directors'  and  Officers'
insurance  policy would be sufficient to cover any damages assessed and again we
would have no alternative  but to file for  bankruptcy.  In the meantime,  it is
unlikely  that we will be able to merge with  another  entity  with  experienced
management and opportunities for growth in return for shares of our common stock
to create value for our  shareholders  until there is no doubt that the law suit
has finally be settled on a basis that is satisfactory to us.

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr. Cutler made further  advances to us of $80,000 by way of loan
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  Effective  May 31, 2006,
$14,243 of this debt was converted into 10,536,775 shares of our common stock on
the basis of an  independent  third  party  valuation  and the  approval  of the
majority of our  independent  directors.  Following the issue of these shares of
our common stock Mr. Cutler owned 52.7% of our total authorized and issued share
capital and still had a loan outstanding to us of approximately $178,000.  There
is no guarantee that Mr. Cutler will continue to provide  further  funding to us
in the future.

         It is our current  intention to seek to reach  satisfactory  negotiated
settlements  with our  outstanding  creditors,  vigorously  defend  against  any
further appeal that may be made against our currently  successful defense of the
law suit brought against us by certain of our shareholders,  bring our financial
records  and SEC  filings  up to date,  seek a listing  on the over the  counter
bulletin  board,  raise debt and, or,  equity  financing to fund the  negotiated
settlements  with our  creditors  and to meet  ongoing  operating  expanses  and


                                       53
<PAGE>

attempt  to  merge  with  another   entity  with   experienced   management  and
opportunities  for growth in return  for  shares of our  common  stock to create
value for our  shareholders..  There is no assurance  that this series of events
will be satisfactorily completed

Delisting from NASDAQ Market and the Over the Counter Bulletin Board

            Our shares of common stock were listed on the Nasdaq National Market
System under the symbol  "ASPEE." On October 10,  2000,  the Nasdaq Stock Market
("Nasdaq")  suspended  trading  in our  shares of common  stock  while it sought
additional  information from us. On October 11, 2000, Nasdaq sent a letter to us
stating that our shares of common stock would be delisted  from Nasdaq if we did
not  file our Form  10-K  for the  fiscal  year  ended  June 30,  2000  with the
Securities  and Exchange  Commission  ("SEC") by October 18, 2000. Our Form 10-K
for the  fiscal  year  ended  June 30,  2000 was not  filed  with the SEC by the
October 18, 2000  deadline.  On  November 9, 2000 we  participated  in a hearing
before the Nasdaq Listing Qualifications Panel which was held for the purpose of
evaluating  whether our shares of common  stock  would  continue to be listed on
Nasdaq or if they  would be  delisted.  Effective  January 4, 2001 our shares of
common stock were delisted from Nasdaq. As we were delinquent in our SEC filings
our  shares  of  common  stock  were not  eligible  to be listed on the over the
counter  bulletin board and  consequently  commenced  trading on the Pink Sheets
under the symbol ASPE.PK. Subsequently our shares of common stock have ceased to
be traded on the Pink Sheets and are now traded on the Grey Sheets.

         On  September  9, 2005 we received a letter from the SEC dated June 24,
2005  indicating  that  unless  we  came  into  compliance  with  the  reporting
requirements under the Securities  Exchange Act of 1934 within 15 days we may be
deregistered.  On  September  12, 2005 we faxed a letter to the SEC's  Office of
Enforcement  Liaison  indicating our intention to come into  compliance with the
reporting requirements under the Securities Exchange Act of 1934 by November 15,
2005.

         By November  15, 2005 we  completed  all  required  SEC filings for the
period July 1, 2003 through  September 30, 2005.  However,  we had not completed
all required SEC filings in respect of the period April 1, 2001 through June 30,
2003 although we had included  substantial  financial  extracts and all material
disclosures  in respect  of these  periods in the  filings we had  completed  in
respect  of  subsequent  periods.  We  believed  the  cost  to  shareholders  in
completing  these  filings in  respect of these  earlier  periods  exceeded  any
benefit to shareholders in completing  these filings as the information in these
filings  was at  least  two  to  four  years  old,  no  longer  relevant  to our
shareholders given our decision to cease all trading operations made on June 30,
2003 and that all material  information in respect of these earlier  periods has
been made available to our shareholders in our SEC filings for later periods.

         In January 2006 we were  contacted  by the SEC's Office of  Enforcement
Liaison who notified us that while they  recognized  the progress we had made in
bringing our SEC filings up to date,  they still  considered us to be delinquent
in our  filings  because of our  failure to  complete  filings in respect of the
period  April 1, 2001  through  June 30,  2003.  In July  2006,  on the basis of
further  audit work and a review of  subsequent  events  performed by O'Donnell,
O'Donnell  completed the audit of our June 30, 2001 financial  statements and on
August 1, 2006 we filed the Form 10QSB for the three months ended  September 30,
2001.  We are  currently  establishing  the  likely  costs and  practicality  of
completing  the SEC  filings  and related  financial  statements  for the period
October 1, 2001 through June 30, 2003. In the meantime  there  continues to be a
risk that our shares of common stock may be  deregistered by the SEC's Office of
Enforcement  Liaison due the  continued  delinquency  of our SEC filings for the
period October 1, 2001 through June 30, 2003.

Results of Operations - Three Months Ended  September 30, 2001 Compared to Three
Months Ended September 30, 2001

         On June 30, 2003 we decided to  discontinue  the operations of our last
two  operating  businesses,  Aspeon  and  CCI.  Aspeon  ceased  operations  with

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<PAGE>

immediate effect while CCI completed certain outstanding  customer orders before
ceasing production  operations on August 3, 2003 and its maintenance  operations
on December 31, 2003.

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee  for an  assignment  for the  benefit of the  Aspeon  and CCI  creditors
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under
which they no longer had any further claim against Aspeon or CCI. Certain Aspeon
and CCI creditors, totaling in excess of 3.1 million, elected not to participate
in the  assignment  for the benefit of Aspeon and CCI  creditors and remained as
outstanding liabilities of Aspeon and CCI.

         Consequently  from  January  1,  2004 we had no  assets,  no  operating
business or other sources of income.

Revenue.

         Revenue for the three months ended  September 30, 2001 was  $11,717,000
compared to  $19,625,000  for the three  months  ended  September  30,  2000,  a
decrease of  $7,908,000  or 40.3%.  Our mix of products  and  services  sold was
largely  unchanged  between the three months ended  September 30, 2001 and 2000.
The sale of products  represented 66.7% of our total revenue in the three months
ended  September 30, 2001 compared to 67.8% the three months ended September 30,
2000, a decrease of 1.1%.  Conversely the sale of services  represented 33.3% of
our total  revenues in the three months  ended  September  30, 2001  compared to
32.2% the three  months  ended  September  30,  2000,  an increase of 1.1%.  The
revenue for  products  sold for the three months  ended  September  30, 2001 was
$7,816,000  compared to  $13,310,000  for the three months ended  September  30,
2000, a decrease of $5,494,000 or 41.3%.  The revenue for services  provided for
the three months ended September 30, 2001 was $3,902,000  compared to $6,315,000
for the three months ended September 30, 2000, a decrease of $2,413,000 or 38.2%

         The decease in revenues  was due to the industry  wide  slowdown in POS
hardware sales and technology spending as a whole, together with the uncertainty
and loss of  confidence  in the  marketplace  in our  abilities  to support  our
products  arising from the  restatement of our financial  results,  the law suit
brought  against us by  certain  of our  shareholders,  the  resignation  of our
auditors, our de-listing from Nasdaq and our weakened financial position.
Cost of Sales

         Cost of  sales  for the  three  months  ended  September  30,  2001 was
$10,258,000  compared to  $17,040,000  for the three months ended  September 30,
2000, a decrease of $6,782,000 or 39.8%,  broadly in line with the overall 40.3%
decrease in total revenues.

         The  cost of  sales  for  products  sold  for the  three  months  ended
September 30, 2001 was $6,762,000  compared to $12,019,000  for the three months
ended  September  30, 2000, a decrease of  $5,257,000  or 43.8%  compared to the
41.3% decrease in revenue from the sale of products as set out above, a variance
of 2.5%.  This decrease of cost of sales as a percentage of revenue for products
sold was attributable to increasing inventory reserves in the three months ended
September  30,  2000 on our  inventory  of  parts  for the  product  lines to be
discontinued. The cost of services provided for the three months ended September
30,  2001 was  $3,496,000  compared to  $5,021,000  for the three  months  ended
September  30, 2000,  a decrease of  $1,525,000  or 30.4%  compared to the 38.2%


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<PAGE>

decrease in revenue from the provision of services as set out above,  a variance
of  7.8%.  Cost of sales as a  percentage  of  revenue  from  services  provided
increased  during the three months ended September 30, 2001 as we entered into a
one  significant  contract  with low  margins in 2000 and had a major  impact on
margins  in 2001 and our  revenue  fell by more than we were able to reduce  our
fixed costs of sales for services.

Gross Profit

         Gross  profit  for the  three  months  ended  September  30,  2001  was
$1,460,000,  or 12.5% of revenue,  compared to $2,586,000,  or 13.2% of revenue,
for the three months ended September 30, 2000, a negative  variance of 0.7%. The
gross profit on the sale of products was  $1,054,000,  or 13.5% of revenue,  for
the three months ended  September  30, 2001 compared to  $1,292,000,  or 9.7% of
revenue,  for the three months ended September 30, 2000, a positive  variance of
3.8%.  The gross  profit on the  provision  of services was $406,100 or 10.4% of
revenue,  for the three months ended  September 30, 2001 compared to $1,294,000,
or 20.5% of revenue,  for the three months ended  September 30, 2000, a negative
variance of 10.1%.  The reasons for these  variances in gross profit are set out
above.

Research and Development Expenses

         Research and development  expenses for the three months ended September
30,  2001  were  $262,000,  compared  to  $333,000  for the three  months  ended
September  30, 2000, a decrease of $71,000,  or 21.3%.  As a percentage of total
revenues,  research and development  expenses  amounted to 2.2% and 1.7% for the
three  months ended  September  30, 2001 and 2000  respectively,  an increase of
0.5%. The decreased expenditure on research and development relates primarily to
additional  development  costs  and  activities  relating  to the  design of new
products in the three months ended September 30, 2000.

General and Administrative Expenses.

         General  and  administrative   expenses  for  the  three  months  ended
September 30, 2001 were  $2,063,000  compared to $8,307,000 for the three months
ended September 30, 2000, a decrease of $6,244,000, or 75.2%. As a percentage of
total revenues,  general and administrative expenses amounted to 17.6% and 42.3%
for the three months ended September 30, 2001 and 2000 respectively,  a decrease
of 24.7%.  This  decrease was primarily due to the fact that the three months to
September 30, 2000 included  substantial one off infrastructure costs associated
with the ASP service business,  higher goodwill  amortization costs prior to the
substantial  write off of  goodwill  at  September  30,  2000,  severance  costs
associated with the  termination of certain  management,  substantial  legal and
accounting  fees  incurred  in  connection  with  our  2000  audit  and  pending
litigation  and the loss  incurred  on the sale of  Aspact.  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,
part of which was sold in March 2001.

Selling and Marketing Expenses

         Selling and marketing expenses for the three months ended September 30,
2001 were $996,000,  compared to $1,976,000 for the three months ended September
30, 2000, a decrease of $980,000,  or 49.6%.  As a percentage of total revenues,
selling and marketing  expenses  amounted to 8.5% and 10.1% for the three months


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<PAGE>

ended September 30, 2001 and 2000 respectively, a decrease of 2.6%. The variance
arose due to the fact  that the three  months to  September  30,  2000  included
substantial one off costs in respect of ASP service sales  infrastructure  costs
while the three months ended September 30, 2001 reflected the impact of the cost
reduction  programs  introduced  by us to  conserve  cash and attempt to achieve
profitability.

Impairment Charge

         An impairment  charge of  $17,366,000  was  recognized at September 30,
2000,  $16,643,600  in  respect  of the  goodwill  associated  with  the DTI and
Monument  acquisitions  and $741,400 in respect of other intangible  assets.  No
impairment charge was recognized in the three months ended September 30, 2001

Operating Loss.

         An operating  loss of  $(1,861,000)  was recognized in the three months
ending September 30, 2001 compared to an operating loss of $(23,368,000) for the
three months ended September 30, 2000, a decrease of  $(21,507,000)  or 92%, due
to the factors discussed above.

Interest and Other Income / (Expenses) Net

         Interest  expense and other  income /  (expenses)  for the three months
ended  September 30, 2001 was an expense of  $(574,000),  compared to an expense
$(146,000)  for the three  months  ended  September  30,  2000,  an  increase of
$428,000,  or more than 100%.  This  increase  was  primarily  due to a $555,000
accrual of interest relating to our mandatory redeemable preferred stock.

Provision for Income Taxes.

         The provision for income taxes for the three months ended September 30,
2001 was $30,000,  compared to $58,000 for the three months ended  September 30,
2000, a variance of $28,000, or 48.3%. The variance arose as the level on income
which we were not able to offset against our brought forward tax losses declined
between the three months ended September 30, 2001 and 2000.

Net Loss Before Cumulative Effect of Accounting Change.

         A net loss  before  the  cumulative  effect  of  accounting  change  of
$(2,465,000)  was  recognized  in the three  months  ending  September  30, 2001
compared  to a net loss before the  cumulative  effect of  accounting  change of
$(25,571,000)  for the three months  ended  September  30, 2000,  an decrease of
$(23,106,000), or 90.4%, due to the factors discussed above.

Cumulative Effect of Accounting Change

         A cumulative  effect of accounting change of $818,000 was recognized in
the three months ended September 30, 2000 in respect of the adoption of SFAS No.
133 (see Note 6 - page 20 above).  No cumulative effect of accounting change was
recognized in the three months ended September 30, 2001.


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<PAGE>

Net Loss After Cumulative Effect of Accounting Change and Comprehensive Loss.

         The net  loss  for the  three  months  ended  September  30,  2001  was
$(2,465,000)  compared to a  comprehensive  loss of  $(2,052,000)  a variance of
$413,000.  The net  loss for the  three  months  ended  September  30,  2000 was
$(24,754,000)  compared to a comprehensive  loss of  $(24,833,000) a variance of
$79,000.  In both years the  variance  related  to the change in the  cumulative
foreign currency  translation  adjustment relating to our non-US subsidiaries in
Australia, Singapore and the United Kingdom.

Accretion of Manditorily Redeemable Preferred Stock Discount & Dividend

         Accretion  of  manditorily  redeemable  preferred  stock  discount  and
manditorily  redeemable  preferred  stock dividend of $148,000 was recognized in
the three months  ending  September  30, 2001 compared to $686,000 for the three
months ended  September 30, 2000, a decrease of $538,000 or 78.4%.  The basis of
the  calculation  of the accretion of  manditorily  redeemable  preferred  stock
discount and manditorily  redeemable preferred stock dividend is set out in Note
12 on page 29 above.

Net Loss Available to Common Stockholders.

         A net  loss  available  to  common  stockholders  of  $(2,613,000)  was
recognized  in  the  three  months   ending   September  30,  2001  compared  to
$(25,439,000)  for the three  months  ended  September  30,  2000, a decrease of
$(22,826,000) or 89.7%, due to the factors discussed above.

Cash Flow Information

            As of September 30, 2001, we had $ 506,000 cash and cash equivalents
on hand, a working capital deficit of $ 16.5 million and a shareholders' deficit
of $7.9 million.

         As of March 31,  2006,  we had $7 cash on hand,  $49,000 of assets,  no
operating  business  or other  source  of  income,  outstanding  liabilities  of
approximately  $8.1  million,  a  stockholders'  deficit of  approximately  $8.1
million and a law suit brought against us by certain of our  shareholders  which
had been  ruled in our favor by the  Courts  but  which  could be  subject  to a
further appeal by the shareholders in question.

         We sustained  significant  losses  during the years ended June 30, 2001
and 2000 and had  experienced  negative  cash  flows from  operations  since our
inception.

         In October  2000,  we received a notice of default  from our  Preferred
Stockholders,  which  triggered  certain  payment  requirements  as  well  as  a
Repricing and Redemption Event, as defined in the Preferred Stock Agreement (see
Note 12 - page 29 above).  We were also  delinquent  in the  payments of various
trade payables.  These matters, among others, raised substantial doubt as to our
ability to continue as a going  concern.  Our continued  existence was dependent
upon, among other factors, our ability to return to profitability, the continued
forbearance of the our lenders and creditors,  the successful  renegotiation  of
the terms of our Preferred  Stock,  the outcome of  litigation  filed against us
which  alleged  violations of the federal  securities  laws (Note 17 see page 38
above),  and our ability to raise funds from additional debt and, or, equity. We
had reduced our workforce and planed to further reduce expenditures. we believed
that such reductions,  the securing of a new working capital borrowing facility,
together  with  funds  expected  to  be  generated  from  operations,  would  be
sufficient to meet our expected short-term needs for working capital,  exclusive
of any  obligation to redeem our Preferred  Stock as discussed in Note 12 - page
29 above. However,  there could be no assurance that sufficient cash flows would
be generated by us to avoid the further  depletion of our working capital,  that
we would successfully  renegotiate the terms of our Preferred Stock, or that the


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<PAGE>

outcome  of the  litigation  would  not have a  material  adverse  impact on our
operations.  Accordingly,  management  intended  to  obtain  additional  debt or
private equity  financing.  There could be no assurance that  additional debt or
equity financing would be available,  if and when needed, or that, if available,
such financing could be completed on commercially favorable terms.

         Subsequently  we were  unable  to  improve  the  profitability  or cash
generation of our operations or to obtain additional debt or equity.  During the
years  ended June 30, 2002 and 2003 we had no  alternative  but to sell or close
down our remaining operating  businesses leaving a substantial short fall to our
creditors.

            Consequently we are now dependent on raising  additional equity and,
or, debt to fund any negotiated  settlements with our outstanding  creditors and
meet our ongoing operating expenses.  There is no assurance that we will be able
to raise the  necessary  equity  and,  or,  debt that we will need to be able to
negotiate  acceptable  settlements  with our  outstanding  creditors or fund our
ongoing operating expenses.

            We believe  that the  proceeds  from our  Directors'  and  Officers'
insurance  policy  would  be  sufficient  to meet the  legal  cost  incurred  in
defending any further appeal against the Court's latest decision. However, there
is no assurance that the proceeds from our  Directors'  and Officers'  insurance
policy would be  sufficient  to meet the legal cost  incurred in  defending  any
further appeal against the Court's  decision and if they are exhausted there are
no further funds to defend the suit and we would have no alternative but to file
for  bankruptcy.  Moreover,  if we were to lose an appeal  against  the  Court's
decision it is unlikely  that the proceeds  from the  Directors'  and  Officers'
insurance  policy would be sufficient to cover any damages assessed and again we
would have no alternative  but to file for  bankruptcy.  In the meantime,  it is
unlikely  that we will be able to merge with  another  entity  with  experienced
management and opportunities for growth in return for shares of our common stock
to create value for our  shareholders  until there is no doubt that the law suit
has finally be settled on a basis that is satisfactory to us.

         During the fiscal  year ended June 30,  2005,  our then sole  director,
David J Cutler,  advanced to us $88,000 by way of loan,  bearing interest at 8%,
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  In the nine months ended
March 31, 2006 Mr. Cutler made further  advances to us of $80,000 by way of loan
to meet our  ongoing  operating  expenses  and fund the  costs of  bringing  our
financial  statements  and SEC  reporting  up to date.  Effective  May 31, 2006,
$14,243 of this debt was converted into 10,536,775 shares of our common stock on
the basis of an  independent  third  party  valuation  and the  approval  of the
majority of our  independent  directors.  Following the issue of these shares of
our common stock Mr. Cutler owned 52.7% of our total authorized and issued share
capital and still had a loan outstanding to us of approximately $178,000.  There
is no guarantee that Mr. Cutler will continue to provide  further  funding to us
in the future.

         It is our current  intention to seek to reach  satisfactory  negotiated
settlements  with our  outstanding  creditors,  vigorously  defend  against  any
further appeal that may be made against our currently  successful defense of the
law suit brought against us by certain of our shareholders,  bring our financial
records  and SEC  filings  up to date,  seek a listing  on the over the  counter
bulletin  board,  raise debt and, or,  equity  financing to fund the  negotiated
settlements  with our  creditors  and to meet  ongoing  operating  expanses  and
attempt  to  merge  with  another   entity  with   experienced   management  and
opportunities  for growth in return  for  shares of our  common  stock to create
value for our  shareholders..  There is no assurance  that this series of events
will be satisfactorily completed.

            For the three months  ended  September  30,  2001,  net cash used in
operations was $(1,612,000) compared to $(6,135,000) net cash used in operations
in the three months ended  September  30,  2000,  a decrease of  $4,523,000,  or
73.7%. For the three months ended September 30, 2001 the net loss,  adjusted for

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<PAGE>

non-cash  items,  was  $(1,205,000)  compared  to a the net loss,  adjusted  for
non-cash items, of $(3,541,000) for the three months ended September 30, 2000, a
decrease  of  $2,336,000,  or 66% due to the  decreased  level of our  operating
losses for the three  months  ended  September  30, 2001 for the reasons set out
above. In the three months ended September 30, 2001 changes in operating  assets
and  liabilities  consumed  net cash of  $(403,000)  as  compared  to changes in
operating  assets and  liabilities for the three months ended September 30, 2000
which consumed net cash of  $(2,595,000),  a variance of  $2,192,000,  or 84.5%.
This variance in the changes in operating assets and liabilities was largely due
to substantially greater reduction the level of our accounts payable and accrued
expenses in the three months ended  September  30, 2000 as compared to the three
months ended September 30, 2001.

            Cash flow used in investing  activities  was $(57,000) for the three
months ended  September 30, 2001 compared to $244,000 cash provided by investing
activities  for the three  months  ended  September  30,  2000,  a  variance  of
$301,000,  or more than 100%.  In the three months ended  September  30, 2001 we
used $57,000 for the purchase of fixed assets. This compared to the three months
ended September 30, 2000 where we used $337,000 for the purchase of fixed assets
offset by $276,000  received from the proceeds of the sale of investments  and a
net $306,000  from the repayment of advances  under notes  receivable to related
parties.

         Cash flow generated by financing  activities was $780,000 for the three
months  ended  September  30, 2001  compared  to  $(128,000)  used in  financing
activities  for the three  months  ended  September  30,  2000,  a  variance  of
$908,000,  or more than 100%.  In the three months ended  September  30, 2001 we
generated  $1,115,000  from the  conversion of current  obligations to long term
debt offset by $(311,000) in repayment of our line of credit and capital leases.
This  compared to the three months ended  September  30, 2000 where we generated
$158,000  under  our line of  credit  offset  by  $186,000  paid in  respect  of
dividends on our Preferred Stock and capital lease payments.

PLANNED OPERATIONS

            Our  plan  of   operation  is  to  reach   satisfactory   negotiated
settlements with our outstanding  creditors,  vigorously  defending  against any
further appeal that may be made against our currently  successful defense of the
law suit brought against us by certain of our shareholders,  bring our financial
records  and SEC filings up to date,  obtain debt or equity  finance to meet our
ongoing  operating  expenses,  seek re-listing on the over the counter  bulletin
board and attempt to merge with another entity with  experienced  management and
opportunities  for growth in return  for  shares of our  common  stock to create
value for our  shareholders.  There is can be no  assurance  that this series of
events can be successfully completed,  that any such business will be identified
or that any  stockholder  will  realize any return on their  shares after such a
transaction  has been  completed.  In particular  there is no assurance that any
such business will be located or that any stockholder will realize any return on
their shares after such a transaction. Any merger or acquisition completed by us
can be expected  to have a  significant  dilutive  effect on the  percentage  of
shares  held by our  current  stockholders.  We believe we are an  insignificant
participant  among  the  firms  which  engage  in the  acquisition  of  business
opportunities. There are many established venture capital and financial concerns
that have significantly  greater financial and personnel resources and technical
expertise than we have. In view of our limited  financial  resources and limited
management  availability,  we will continue to be at a  significant  competitive
disadvantage compared to our competitors.

General Business Plan
--------------------------------

         We intend to seek,  investigate  and, if such  investigation  warrants,
acquire an  interest  in business  opportunities  presented  to us by persons or
firms which desire to seek the advantages of an issuer who has complied with the

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Securities Act of 1934 (the "1934 Act").  We will not restrict our search to any
specific business,  industry or geographical location, and we may participate in
business  ventures of  virtually  any nature.  This  discussion  of our proposed
business  is  purposefully  general  and is not meant to be  restrictive  of our
virtually  unlimited  discretion to search for and enter into potential business
opportunities.  We  anticipate  that we may be able to  participate  in only one
potential business venture because of our lack of financial resources.

         We may seek a business  opportunity  with entities  which have recently
commenced operations,  or that desire to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets,  to
develop a new  product  or  service,  or for other  corporate  purposes.  We may
acquire assets and establish wholly owned  subsidiaries in various businesses or
acquire existing businesses as subsidiaries.

         We expect that the selection of a business  opportunity will be complex
and risky.  Due to general economic  conditions,  rapid  technological  advances
being made in some  industries  and shortages of available  capital,  we believe
that there are numerous firms seeking the benefits of an issuer who has complied
with the 1934 Act. Such benefits may include facilitating or improving the terms
on which  additional  equity  financing may be sought,  providing  liquidity for
incentive  stock  options  or  similar  benefits  to  key  employees,  providing
liquidity (subject to restrictions of applicable  statutes) for all stockholders
and other factors.  Potentially,  available business  opportunities may occur in
many different  industries and at various  stages of  development,  all of which
will make the task of  comparative  investigation  and analysis of such business
opportunities  extremely  difficult and complex.  We have,  and will continue to
have,  essentially  no assets to provide the owners of  business  opportunities.
However,  we  will be  able  to  offer  owners  of  acquisition  candidates  the
opportunity  to acquire a  controlling  ownership  interest in an issuer who has
complied  with the 1934 Act  without  incurring  the cost and time  required  to
conduct an initial public offering.

         The analysis of new business  opportunities  will be undertaken  by, or
under the  supervision  of,  our sole  director.  We intend  to  concentrate  on
identifying  preliminary prospective business opportunities which may be brought
to our attention  through  present  associations  of our director,  professional
advisors   or  by  our   stockholders.   In   analyzing   prospective   business
opportunities,  we  will  consider  such  matters  as (i)  available  technical,
financial and managerial  resources;  (ii) working  capital and other  financial
requirements; (iii) history of operations, if any, and prospects for the future;
(iv) nature of present and expected  competition;  (v) quality,  experience  and
depth of management services;  (vi) potential for further research,  development
or exploration;  (vii) specific risk factors not now foreseeable but that may be
anticipated to impact the proposed  activities of the company;  (viii) potential
for growth or expansion;  (ix) potential for profit;  (x) public recognition and
acceptance of products, services or trades; (xi) name identification;  and (xii)
other factors that we consider  relevant.  As part of our  investigation  of the
business  opportunity,  we expect to meet  personally  with  management  and key
personnel.  To the extent  possible,  we intend to utilize  written  reports and
personal investigation to evaluate the above factors.

         We will  not  acquire  or merge  with any  company  for  which  audited
financial statements cannot be obtained within a reasonable period of time after
closing of the proposed transaction.

Acquisition Opportunities
------------------------------------

         In implementing a structure for a particular business  acquisition,  we
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another company or entity. We may also acquire stock or
assets of an  existing  business.  Upon  consummation  of a  transaction,  it is
probable  that our  present  management  and  stockholders  will no longer be in


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control of us. In addition,  our sole  director may, as part of the terms of the
acquisition transaction,  resign and be replaced by new directors without a vote
of our stockholders, or sell his stock in us. Any such sale will only be made in
compliance  with the  securities  laws of the United  States and any  applicable
state.

         It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from  registration  under application
federal  and state  securities  laws.  In some  circumstances,  as a  negotiated
element  of the  transaction,  we may  agree to  register  all or a part of such
securities  immediately  after the  transaction  is  consummated or at specified
times  thereafter.  If such  registration  occurs,  it will be undertaken by the
surviving entity after it has  successfully  consummated a merger or acquisition
and is no longer  considered an inactive  company.  The issuance of  substantial
additional securities and their potential sale into any trading market which may
develop  in our  securities  may have a  depressive  effect  on the value of our
securities in the future.  There is no assurance that such a trading market will
develop.

         While the actual  terms of a  transaction  cannot be  predicted,  it is
expected that the parties to any business  transaction will find it desirable to
avoid  the  creation  of a taxable  event and  thereby  structure  the  business
transaction in a so-called "tax-free" reorganization under Sections 368(a)(1) or
351 of the  Internal  Revenue  Code (the  "Code").  In order to obtain  tax-free
treatment  under the Code,  it may be  necessary  for the owner of the  acquired
business to own 80% or more of the voting stock of the surviving entity. In such
event, our stockholders would retain less than 20% of the issued and outstanding
shares of the surviving entity. This would result in significant dilution in the
equity of stockholders.

         As  part of our  investigation,  we  expect  to  meet  personally  with
management  and key personnel,  visit and inspect  material  facilities,  obtain
independent  analysis of verification  of certain  information  provided,  check
references  of  management  and  key  personnel,   and  take  other   reasonable
investigative  measures,  to the extent of our limited  financial  resources and
management expertise.  The manner in which we participate in an opportunity will
depend on the nature of the  opportunity,  the  respective  needs and desires of
both parties, and the management of the opportunity.

         With respect to any merger or acquisition,  and depending  upon,  among
other things, the target company's assets and liabilities, our stockholders will
in all likelihood hold a substantially  lesser percentage  ownership interest in
us following any merger or acquisition.  The percentage ownership may be subject
to  significant  reduction in the event we acquire a target  company with assets
and expectations of growth.  Any merger or acquisition can be expected to have a
significant   dilutive   effect  on  the   percentage  of  shares  held  by  our
stockholders.

         We  will   participate  in  a  business   opportunity  only  after  the
negotiation and execution of appropriate written business  agreements.  Although
the terms of such agreements  cannot be predicted,  generally we anticipate that
such agreements will (i) require specific  representations and warranties by all
of the parties;  (ii) specify certain events of default;  (iii) detail the terms
of closing and the  conditions  which must be  satisfied  by each of the parties
prior to and after such  closing;  (iv)  outline  the  manner of bearing  costs,
including costs associated with the Company's attorneys and accountants; (v) set
forth remedies on defaults; and (vi) include miscellaneous other terms.

         As stated  above,  we will not  acquire or merge with any entity  which
cannot provide  independent  audited  financial  statements  within a reasonable
period of time after closing of the proposed transaction.  We are subject to all
of the  reporting  requirements  included  in the 1934  Act.  Included  in these
requirements as part of a Current Report on Form 8-K,  required to be filed with
the SEC  upon  consummation  of a  merger  or  acquisition,  as well as  audited
financial  statements  included in an Annual Report on Form 10-K (or Form 10-KSB

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as  applicable).  If such  audited  financial  statements  are not  available at
closing, or within time parameters necessary to insure our compliance within the
requirements of the 1934 Act, or if the audited financial statements provided do
not conform to the  representations  made by that  business to be acquired,  the
definitive closing documents will provide that the proposed  transaction will be
voidable,  at the discretion of our present  management.  If such transaction is
voided, the definitive closing documents will also contain a provision providing
for reimbursement for our costs associated with the proposed transaction.

Competition
-----------------

         We believe we are an  insignificant  participant  among the firms which
engage in the acquisition of business opportunities.  There are many established
venture capital and financial concerns that have significantly greater financial
and personnel  resources and  technical  expertise  than we have. In view of our
limited  financial  resources  and  limited  management  availability,  we  will
continue  to  be at a  significant  competitive  disadvantage  compared  to  our
competitors.

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. Our adoption of SAB 101 did not have a material impact on our consolidated
results of operations or financial position.

          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 our  consolidated  results  of  operations  or  financial
position.

         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 this EITF did not have a material  impact on our
consolidated results of operations or financial position.

         On June 30,  2001,  the FASB  approved  the  issuance  of SFAS No. 141,
Business  Combinations and SFAS No. 142,  Goodwill and Other Intangible  Assets.
SFAS No. 141 states that all business combinations should be accounted for using
the  purchase  method  of  accounting;  use  of  pooling-of-interest  method  is
prohibited.  Accounting for the excess of the fair value of net assets over cost
(negative  goodwill),  will be  allocated  to  certain  assets  first  with  any
remaining excess recognized as an extraordinary  gain. SFAS No. 141 is effective
for business combinations  completed after June 30, 2001. SFAS No. 142 addresses
the  accounting for all purchased  intangible  assets but not the accounting for
internally developed intangible assets. Goodwill will no longer be amortized and
will be reviewed for impairment in accordance  with SFAS No. 142.  Goodwill will
be tested  annually and on an interim basis if an event or  circumstance  occurs
between the annual tests that might reduce the fair value of the reporting  unit
below its carrying  value.  SFAS No 142 is effective for fiscal years  beginning
after  December  31,  2001,   with  early  adoption   permitted   under  certain
circumstances.   Goodwill  and  intangible  assets  acquired  in  a  transaction
completed after June 30, 2001 but before SFAS No. 142 is initially  applied will
be accounted  for in  accordance  with SFAS No. 142. ". The adoption of SFAS No.
141 and SFAS No. 142 did not have a material impact on our consolidated  results
of operations or financial position.

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<PAGE>

            In June  2001,  the  FASB  approved  for  issuance  SFAS  143  Asset
Retirement  Obligations.   SFAS  143  establishes  accounting  requirements  for
retirement obligations associated with tangible long-lived assets, including (1)
the  timing  of  the  liability  recognition,  (2)  initial  measurement  of the
liability,  (3) allocation of asset  retirement cost to expense,  (4) subsequent
measurement of the liability and (5) financial statement  disclosures.  SFAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related  long-lived asset and  subsequently  allocated to expense using a
systematic  and  rational  method.  The  statement is  effective  for  financial
statements  issued for fiscal years  beginning after June 15, 2002. The adoption
of SFAS No. 143 did not have a material  impact on our  consolidated  results of
operations or financial position.

            In October 2001, the FASB also approved SFAS 144, Accounting for the
Impairment  or  Disposal  of  Long-Lived  Assets.  SFAS 144  replaces  SFAS 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of. The new accounting model for long-lived assets to be disposed of
by sale applies to all long-lived assets, including discontinued operations, and
replaces  the   provisions  of  APB  Opinion  No.  30,   Reporting   Results  of
Operations-Reporting the Effects of Disposal of a Segment of a Business, for the
disposal of segments of a business. Statement 144 requires that those long-lived
assets be measured  at the lower of  carrying  amount or fair value less cost to
sell, whether reported in continuing  operations or in discontinued  operations.
Therefore,  discontinued operations will no longer be measured at net realizable
value or  include  amounts  for  operating  losses  that have not yet  occurred.
Statement 144 also broadens the reporting of discontinued  operations to include
all components of an entity with operations that can be  distinguished  from the
rest of the entity and that will be  eliminated  from the ongoing  operations of
the  entity in a disposal  transaction.  The  provisions  of  Statement  144 are
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001 and, generally, are to be applied prospectively.  The adoption
of SFAS No. 144 did not have a material  impact on our  consolidated  results of
operations or financial position.

            In April  2002,  the  FASB  issued  SFAS  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  Among other things, this statement rescinds FASB Statement No. 4,
"Reporting  Gains and Losses from  Extinguishment  of Debt" which  required  all
gains and losses from  extinguishment of debt to be aggregated and, if material,
classified as an  extraordinary  item,  net of related  income tax effect.  As a
result, the criteria in APB Opinion No. 30, "Reporting the Results of Operations
--  Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will
now be used to  classify  those  gains and losses.  The  provisions  of SFAS 145
related to the  classification  of debt  extinguishment  are effective for years
beginning  after  May 15,  2002.  The  adoption  of SFAS No.  145 did not have a
material impact on our consolidated results of operations or financial position.

            In July  2002,  the FASB  issued  SFAS  146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities." SFAS 146 provides new guidance on
the  recognition  of costs  associated  with exit or  disposal  activities.  The
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred  rather than at the date of  commitment to an
exit or disposal plan. SFAS 146 supercedes previous accounting guidance provided
by  the  EITF  Issue  No.  94-3  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a Restructuring)." EITF Issue No. 94-3 required recognition of
costs at the date of commitment to an exit or disposal  plan.  SFAS 146 is to be
applied  prospectively to exit or disposal  activities  initiated after December
31,  2002.  The  adoption of SFAS No. 146 did not have a material  impact on our
consolidated results of operations or financial position.

            In December 2002, the Financial  Accounting Standards Board ("FASB")
issued  SFAS  148  "Accounting  for  Stock-Based   Compensation--Transition  and
Disclosure--an  amendment of SFAS 123." SFAS 148 provides alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation from the intrinsic  value-based method of


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accounting  prescribed by APB 25. As allowed by SFAS 123, we elected to continue
to apply the intrinsic  value-based  method of accounting,  and have adopted the
disclosure  requirements  of SFAS 123. We elected not to adopt the provisions of
SFAS 148.

            In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
Consolidation of Variable  Interest  Entities,  which requires variable interest
entities  (commonly  referred  to as SPEs)  to be  consolidated  by the  primary
beneficiary  of the entity if certain  criteria are met. FIN No. 46 is effective
immediately  for all new variable  interest  entities  created or acquired after
January 31, 2003.  The adoption of this statement does not impact our historical
or present financial statements, as we have not created or acquired any variable
interest entities, nor do we expect to in the future.

            In April 2003,  the FASB issued  Statement of  Financial  Accounting
Standard No. 149,  "Amendment  of Statement 133 on  Derivative  Instruments  and
Hedging  Activities"  (SFAS  149).  SFAS  149  amends  and  clarifies  financial
accounting  and  reporting  for  derivative   instruments,   including   certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives)   and  for  hedging   activities  under  FASB  Statement  No.  133,
"Accounting  for Derivative  Instruments  and Hedging  Activities".  SFAS 149 is
generally  effective for contracts  entered into or modified after June 30, 2003
or hedging  relationships  designated  after June 30, 2003. The adoption of SFAS
No. 149 did not have a material impact on our consolidated results of operations
or financial position.

            In May 2003, the FASB issued Financial  Accounting Standard No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities  and Equity" (SFAS 150).  SFAS 150  establishes  standards for how a
company   classifies   and   measures   certain   financial   instruments   with
characteristics  of both  liabilities  and equity.  It  requires  that a company
classify a financial  instrument  that is within the scope as a liability (or an
asset in some  circumstances).  SFAS 150 is effective for financial  instruments
entered into or modified  after May 31, 2003,  and otherwise is effective at the
beginning  of the first  interim  period  beginning  after  June 15,  2003.  The
adoption  of SFAS No.  150 did not have a  material  impact on our  consolidated
results of operations or financial position.

            In January,  2004 the  Financial  Accounting  Standards  Board (`the
FASB') issued Statement of Financial Accounting Standards No. 132 (revised 2003)
"Employers'  Disclosures about Pensions and Other Postretirement  Benefits",  an
amendment  of FASB  Statements  No.  87,  88,  and 106.  The  Statement  revises
employers'  disclosures  about  pension plans and other  postretirement  benefit
plans.  The  statement  retains the  disclosure  requirements  contained in FASB
Statement No. 132, which it replaces, and requires additional annual disclosures
about the assets,  obligations,  cash flows,  and net  periodic  benefit cost of
defined benefit pension plans and other defined  benefit  postretirement  plans.
Statement No. 132R  requires us to provide  disclosures  in interim  periods for
pensions and other postretirement  benefits. The initial application of SFAS No.
132R will have no impact on our financial statements

            In November 2004, the FASB issued Statement of Financial  Accounting
Standards  No. 151,  "Inventory  Costs-- an amendment of ARB No. 43,  Chapter 4"
(hereinafter  "SFAS No. 151"). This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory  Pricing," to clarify the accounting for abnormal  amounts
of  idle  facility  expense,   freight,  handling  costs,  and  wasted  material
(spoilage).  Under some circumstances,  SFAS No. 151 mandates that items such as
idle facility expense, excessive spoilage, double freight, and re-handling costs
be recognized as current-period  charges.  In addition,  this statement requires
that  allocation  of fixed  production  overheads to the costs of  conversion be
based on the normal  capacity of the  production  facilities.  This statement is
effective for inventory  costs incurred during fiscal years beginning after June
15,  2005.  We do not  believe  that the  adoption  of SFAS No.  151 will have a
material impact on our financial conditions or results of operation

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standards No. 152, which amends SFAS Statement No. 66,  "Accounting for Sales of
Real Estate," to reference the financial  accounting and reporting  guidance for
real estate  time-sharing  transactions  that is provided in AICPA  Statement of
Position (SOP) 04-2,  "Accounting  for Real Estate  Time-Sharing  Transactions."


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<PAGE>

This statement also amends SFAS No. 67, "Accounting for Costs and Initial Rental
Operations  of Real  Estate  Projects,"  to  state  that  the  guidance  for (a)
incidental operations and (b) costs incurred to sell real estate projects,  does
not apply to real estate  time-sharing  transactions.  The  accounting for those
operations  and costs is subject to the guidance in SOP 04-2.  This statement is
effective for financial  statements  for fiscal years  beginning  after June 15,
2005.  We do not believe  that the adoption of SFAS No. 152 will have a material
impact on our financial conditions or results of operation.

         In December  2004,  the FASB issued  Statement of Financial  Accounting
Standards No. 153  (hereinafter  "SFAS No. 153").  This statement  addresses the
measurement of exchanges of nonmonetary  assets. The guidance in APB Opinion No.
29,  "Accounting for Nonmonetary  Transactions,"  is based on the principle that
exchanges of  nonmonetary  assets should be measured  based on the fair value of
the assets exchanged.  The guidance in that opinion,  however,  included certain
exceptions  to that  principle.  SFAS No. 153 amends APB Opinion 29 to eliminate
the  exception  for  nonmonetary  exchanges  of  similar  productive  assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial  substance.  A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. This statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is permitted for
nonmonetary  asset  exchanges  incurred  during fiscal years beginning after the
date of this  statement  is issued.  We do not believe that the adoption of SFAS
No. 153 will have a material  impact on our  financial  conditions or results of
operation

         In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation.  This Statement  supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance.   This  Statement   establishes   standards  for  the  accounting  for
transactions  in which an entity  exchanges its equity  instruments for goods or
services.  It also addresses  transactions in which an entity incurs liabilities
in  exchange  for  goods or  services  that are  based on the fair  value of the
entity's  equity  instruments  or that may be settled by the  issuance  of those
equity  instruments.  . We do not believe that the adoption of SFAS No. 123( R )
will have a material impact on our financial conditions or results of operation

         In March 2005, the FASB Interpretation No.47 "FIN 47" was issued, which
clarifies certain terminology as used in FASB Statement No. 143, "Accounting for
Asset  Retirement  Obligations".  In addition it clarifies  when an entity would
have  sufficient  information to reasonably  estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005.  Early  adoption of FIN 47 is encouraged.  We do
not  believe  that the  adoption  of FIN 47 will have a  material  impact on our
financial conditions or results of operation.

         In May 2005, the FASB issued FASB Statement No. 154, which replaces APB
Opinion No.20 and FASB No. 3. This Statement  provides guidance on the reporting
of  accounting   changes  and  error   corrections.   It   established,   unless
impracticable  retrospective  application as the required method for reporting a
change  in   accounting   principle  in  the  absence  of  explicit   transition
requirements  to a  newly  adopted  accounting  principle.  The  Statement  also
provides guidance when the  retrospective  application for reporting of a change
in accounting  principle is  impracticable.  The reporting of a correction of an
error by restating  previously issued financial  statements is also addressed by
this Statement.  This Statement is effective for financial statements for fiscal
years  beginning after December 15, 2005.  Earlier  application is permitted for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after the date this Statement is issued.  We do not believe that the adoption of
FASB Statement No. 154 will have a material  impact on our financial  conditions
or results of operation.

         In February  2006,  the FASB issued FASB Statement No. 155, which is an
amendment of FASB  Statements No. 133 and 140. This  Statement;  a) permits fair
value  remeasurement  for any  hybrid  financial  instrument  that  contains  an
embedded derivative that otherwise would require bifurcation, b) clarifies which
interest-only strip and principal-only strip are not subject to the requirements
of  Statement  133,  c)  establishes  a  requirement  to evaluate  interests  in

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securitized   financial  assets  to  identify  interest  that  are  freestanding
derivatives or that are hybrid  financial  instruments  that contain an embedded
derivative  requiring  bifurcation,  d) clarifies that  concentrations of credit
risk in the  form of  subordination  are not  embedded  derivatives,  e)  amends
Statement  140 to eliminate  the  prohibition  on a  qualifying  special-purpose
entity  from  holding a  derivative  financial  instrument  that  pertains  to a
beneficial  interest other than another derivative  financial  instrument.  This
Statement is effective for financial statements for fiscal years beginning after
September 15, 2006.  Earlier  adoption of this  Statement is permitted as of the
beginning of an entity's fiscal year, provided the entity has not yet issued any
financial statements for that fiscal year. We does not believe that the adoption
of  FASB  Statement  No.  155  will  have a  material  impact  on our  financial
conditions or results of operation

         In March 2006, the Financial Accounting Standards Board (`FASB') issued
FASB  Statement No. 156,  which amends FASB  Statement  No. 140. This  Statement
establishes,  among other things, that accounting for all separately  recognized
servicing assets and servicing liabilities.  This Statement amends Statement 140
to  require  that all  separately  recognized  servicing  assets  and  servicing
liabilities be initially measured at fair value, if practicable.  This Statement
permits,  but  does  not  require,  the  subsequent  measurement  of  separately
recognized  servicing assets and servicing  liabilities at fair value. An entity
that uses  derivative  instruments  to mitigate the risks  inherent in servicing
assets and  servicing  liabilities  is required to account for those  derivative
instruments at fair value. Under this Statement,  an entity can elect subsequent
fair value measurement to account for its separately recognized servicing assets
and servicing  liabilities.  By electing that option, an entity may simplify its
accounting  because this Statement  permits income statement  recognition of the
potential  offsetting  changes  in fair  value of  those  servicing  assets  and
servicing liabilities and derivative  instruments Is the same accounting period.
This Statement is effective for financial  statements for fiscal years beginning
after September 15, 2006.  Earlier adoption of this Statement is permitted as of
the beginning of an entity's fiscal year, provided the entity has not yet issued
any  financial  statements  for that fiscal  year.  We do not  believe  that the
adoption of FASB Statement No. 156 will have a material  impact on our financial
conditions or results of operation.

Effects of Inflation

         Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the future
to have, a material effect on our operating results or financial condition.

ITEM 3.  Controls and Procedures

As of the end of the period covered by this report,  we conducted an evaluation,
under the supervision and with the  participation of our Chief Executive Officer
and Chief  Financial  Officer,  of our  disclosure  controls and  procedures (as
defined in Rules  13a-15(e)  and  15d-15(e)  under the 1934 Act).  Based on this
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that our  disclosure  controls  and  procedures  are  effective  to ensure  that
information  required to be  disclosed  by us in reports  that we file or submit
under the 1934 Act is recorded,  processed,  summarized and reported  within the
time periods  specified in the  Securities  and  Exchange  Commission  rules and
forms.  There was no change in our  internal  control over  financial  reporting
during our most recently completed fiscal quarter that has materially  affected,
or is  reasonably  likely  to  materially  affect,  our  internal  control  over
financial reporting.

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings

            In October 1999,  we, and two former  officers of DTI, were named as
defendants in a breach of contract and intentional tort action brought by Daniel
Boudwin who claimed rights to computer  software  products once offered for sale
by certain of our subsidiaries. This action was taken in Pennsylvania's Delaware
Court of Common Pleas.  The plaintiff was seeking payment of one-half of all the


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sales proceeds of the  commercial  software  product line of "Special  Delivery"
from  February 1997 and made claim to one-half of the asset  purchase  price (as
apportioned to the "Special  Delivery"  asset) paid by us to the shareholders of
DTI in April 1999. We and our  subsidiaries had  indemnification  rights against
one of the selling  shareholders  in  connection  with his  representations  and
warranties made about "Special Delivery" in various  documents.  Although we and
our subsidiaries  supported the selling shareholder's  position as it related to
the  plaintiff  in this  action,  cross-claims  were filed  against  the selling
shareholder,  for  indemnification  and  contribution,  for further  protection.
During 2001 we settled the case by stipulated  judgment and a one off payment of
$65,000 in full and final  settlement of any and all outstanding  liabilities in
respect of this case.

         In October and November 2000,  eight  purported  class action  lawsuits
were  filed  against  us, our Chief  Executive  Officer,  and our  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 the  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. The 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 and
on September 17, 2001 the United States  District Court  dismissed the suit with
prejudice and entered judgment in favor of the us and our officers. On September
20,  2001 the lead  plaintiff  in the class  action  suit  appealed  against the
dismissal of the case.  On January 21, 2003 the decision to dismiss the case was
upheld  but  the  lead  plaintiff  was  given  the  opportunity  to  remedy  the
deficiencies  in the complaint that had been filed.  Accordingly on May 30, 2003
the plaintiff filed its "Second Amended Consolidated  Complaint" which again was
subsequently  dismissed  by the  District  Court.  On November 26, 2003 the lead
plaintiff  filed its  "Third  Amended  Consolidated  Complaint"  which was again
dismissed  with  prejudice in March 2004. The lead plaintiff once again appealed
against  the  dismissal  and the United  States  Court of Appeals  for the Ninth
Circuit  affirmed the dismissal with prejudice on February 23, 2006. This is the
fifth  time  that  the  Courts  have  ruled  in  favor  of us  and  against  the
shareholders  who have  brought  this suit  against us. On each of the  previous
occasions the  shareholders  who have brought this suit against us have filed an
appeal  against the decision of the Courts.  There can be no assurance  that the
shareholders  who have  brought  this  suit  against  us will not file a further
appeal  against  the  Courts'  latest  ruling in which case we will  continue to
vigorously defend against the claims.

     In May 2000, we 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  alleged certain  misrepresentations  made by the
defendants,  consequently  resulting in lost profits and incidental  losses.  In
addition,  the plaintiff was seeking punitive  damages.  The case was settled by
Stipulation  of  Voluntary  Dismissal  and a one off payment of $90,000 by us in
full and final  settlement of any and all liabilities  arising in respect of the
case.

         In August 2001, we, together with our Chief Executive Officer,  filed a
six count complaint  against our former  auditors,  PWC,  alleging  professional
negligence,   intentional  interference  with  prospective  business  advantage,
negligent  interference  with  prospective  economic  advantage,   violation  of
California   Business  and  Professions  Code  Sections  17200  and  17500,  and
defamation. In August 2003 we reached an out of court settlement in our law suit
against  PWC.  Under the terms of the  settlement  we received a payment of $1.3
million and agreement to write off certain  outstanding  invoices for accounting
and  legal  fees.  Consequently  we  recognized  a  gain  of  $1,007,000  on the
settlement  although  the net cash we  received  after  all costs  totaled  only
$136,000.

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<PAGE>

         In December  2003,  we  appointed  attorney  Frank G Blundo Jr. P.C. as
trustee in an  assignment  for the  benefit of the  creditors  of Aspeon and CCI
commencing effective January 1, 2004. Effective January 1, 2004, all of Aspeon's
and CCI's assets were transferred to the trustee for the benefit of those Aspeon
and CCI creditors who elected to  participate  in the assignment for the benefit
of Aspeon and CCI creditors.  The assets  transferred had a fair market value of
$496,000 and creditors totaling $3.7 million elected to participate and be bound
by the terms of the assignment for the benefit of Aspeon and CCI creditors under
which they no longer had any further claim against Aspeon or CCI. Certain Aspeon
and  CCI  creditors,  totaling  in  excess  of  $3.1  million,  elected  not  to
participate  in the  assignment  for the benefit of Aspeon and CCI creditors and
remained as outstanding liabilities of Aspeon and CCI.

Item 2.  Changes in Securities.

All details of changes in our securities  are set out in Note 13.  Shareholders'
Equity on page 32 above.

Item 3.  Defaults upon Senior Securities

All details of our defaults in respect of our debt and our  Preferred  Stock are
set out in Note.  11 Line of Credit,  Debt & Notes  Payable on page 27 above and
Note. 12 Mandatorily Redeemable Series A Preferred Stock on page 29 above.

We are in default on a number of operating and capital leases either directly or
as guarantor for our subsidiary companies.  These liabilities have been included
in the balance of our accounts payable. We will attempt to negotiate  settlement
of all of our  shortfalls to creditors in respect of these  defaults upon senior
securities.

Item 4.  Submission of Matters to Vote of Security Holders

No matters were  submitted by us to a vote of our  security  holders  during our
fiscal  years ended June 30, 2002 through  June 30, 2006 or  subsequent  to that
date

Item 5.  Other Information.

None

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

a.       Exhibits.


     2.0(15)        Share Sale Agreement  dated January 17, 2003 entered into by
                    Aspeon, Inc. and Matthew James Maley.

     3.1(8)         Registrant's    Amended   and   Restated    Certificate   of
                    Incorporation.

     3.2            Registrant's   Certificate   of  Amendment  to  Amended  and
                    Restated Certificate of Incorporation.

     3.3(10)        Registrant's  Certificate of  Designations,  Preferences and
                    Rights of the Series A  Convertible  Exchangeable  Preferred
                    Stock.

     3.4(1)         Registrant's Amended and Restated Bylaws.

     4.1(1)         Form of Common Stock Certificate of Registrant.


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<PAGE>

     10.1(1)        Form of Indemnity Agreement entered into between the Company
                    and its directors and executive officers.*

     10.1 (12)      Agreement  relating  to the  purchase  of the  whole  of the
                    issued  share  capital  of  Javelin  Holdings  International
                    Limited.

     10.1 (13)      Mutual Release and Settlement  Agreement dated a of March 22
                    between the Company and Castle Creek Technology Partners LLC

     10.1 (14)      Secured Convertible Promissory Note Purchase Agreement dated
                    September  12, 2002  entered into by Aspeon,  Inc.,  Richard
                    Stack, Kenneth Kadlec and Horace Hertz.

     10.2 (14)      Security  dated  September  12, 2002 entered into by Aspeon,
                    Inc., Richard Stack, Kenneth Kadlec and Horace Hertz.

     10.2(1)        1996 Stock Incentive Award Plan (the "1996 Plan").*

     10.3 (14)      Form of  Secured  Convertible  Promissory  Note  payable  by
                    Aspeon,  Inc., to each of Richard Stack,  Kenneth Kadlec and
                    Horace Hertz.

     10.3(1)        Form of Director  Non-Qualified Stock Option Agreement under
                    the 1996 Plan.*

     10.4(1)        Form of Employee  Non-Qualified Stock Option Agreement under
                    the 1996 Plan.*

     10.5(6)        1997 Equity Incentive Plan, as amended.*

     10.6(6)        Form of  Incentive  Stock  Option  Agreement  under the 1997
                    Plan.*

     10.7(6)        Form of Nonstatutory  Stock Option  Agreement under the 1997
                    Plan.*

     10.8(1)        Employment  Agreement  dated  August 19, 1996 by and between
                    the Company and Richard P. Stack.*

     10.9(6)        Employment  Agreement  dated  January 1, 1998 by and between
                    CCI Group, Inc. and Robert Nichols.*

     10.10(6)       Standard  Industrial/Commercial  Multi-Tenant Lease-Modified
                    Net dated  January  27,  1998 by and between the Company and
                    BRS-Campo Investment Company LP.

     10.11(1)       Standard  Industrial/Commercial   Single-Tenant  Lease-Gross
                    dated October 19, 1995 by and between the Company and Robert
                    P. Peebles Trust, dated April 11, 1979.

     10.12(2)       Standard Sublease dated September 9, 1997 by and between the
                    Company, D. Howard Lewis and William R. Miller.


                                       70
<PAGE>

     10.13(6)       The Business  Center  Office/Warehouse  Lease dated April 4,
                    1997 by and  between  CCI  Group,  Inc and  Nooney  Krombech
                    Company.

     10.14(2)       Distributor  Agreement  dated  March 14, 1997 by and between
                    the Company and ScanSource, Inc.

     10.15(6)       Loan and Security  Agreement dated June 8, 1998 by and among
                    the Company,  CCI Group,  Inc., Posnet  Computers,  Inc. and
                    Finova Capital  Corporation and related  Secured  Promissory
                    Note,  Pledge  Agreement  and Secured  Continuing  Corporate
                    Guarranty.

     10.16(6)       Form of  Warrant  issued by the  Company  in favor of Finova
                    Capital Corporation.

     10.17(8)       Second and Third  Amendments to Loan and Security  Agreement
                    dated  December 15, 1998 and January 10, 1999,  respectively
                    by and among the Company, CCI Group, Inc., Posnet Computers,
                    Inc. and FINOVA  Capital  Corporation  and related  Security
                    Promissory  Note,  Pledge  Agreement and Secured  Continuing
                    Corporate Guaranty.

     10.18(7)       Stock Purchase Agreement,  dated April 23, 1999 by and among
                    Javelin  Systems,  Inc.,  Dynamic  Technologies,   Inc.,  SB
                    Holdings, Inc., John Biglin, Denise Biglin and John Seitz.

     10.19(9)       1999 Non-Officer Stock Option Plan.*

     10.20(9)       Form of non-qualified  stock option agreement under the 1999
                    Non-Officer Stock Option Plan.*

     10.21(9)       Form of 1999 Plan Stock Option Grant Notice.*

     10.22(10)      Securities Purchase Agreement, dated as of March 7, 2000, by
                    and among the Company,  Aspeon Solutions,  Inc. and Marshall
                    Capital Management, Inc.

     10.23(10)      Warrant to Purchase Common Stock of the Company, dated as of
                    March 8, 2000  issued  by the  Company  in favor of  Marshal
                    Capital Management, Inc.

     10.24(10)      Warrant to Purchase Common Stock of Aspeon  Solutions,  Inc.
                    dated as of March 8, 2000, issued by Aspeon Solutions,  Inc.
                    in favor of Marshall Capital Management, Inc.

     10.25(10)      Registration Rights Agreement,  dated as of March 7, 2000 by
                    and among the Company,  Aspeon  Solutions,  Inc. and Marshal
                    Capital Management, Inc.

     10.26          Sixth  Amendment  and Waiver to Loan and Security  Agreement
                    Between  Aspeon,  Inc.,  CCI Group,  Inc. and Finova Capital
                    Corporation.

     16.1 (11)      Letter from  PricewaterhouseCoopers,  LLP  addressed  to the
                    Securities and Exchange Commission.

     16.1 (16)      Letter from BDO Seidman, LLP addressed to the Securities and
                    Exchange Commission.

     21.1           Subsidiaries

     24.1           Power of Attorney

     27.1           Financial Data Schedule.


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<PAGE>

 (1)      Filed as an exhibit to the  Company's  Registration  Statement on Form
          SB-2,  as  amended  (No.   333-11217),   and  incorporated  herein  by
          reference.

 (2)      Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the  fiscal  year  ended  June 30,  1997 and  incorporated  herein  by
          reference.

 (3)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          December 30, 1997 and incorporated herein by reference.

 (4)      Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K/A
          dated March 4, 1998 and incorporated herein by reference.

 (5)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          January 5, 1998 and incorporated herein by reference.

 (6)      Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the  fiscal  year  ended  June 30,  1998 and  incorporated  herein  by
          reference.

 (7)      Filed as an exhibit to the Company's  Current Report on Form 8-K filed
          May 3, 1999, and incorporated herein by reference.

 (8)      Filed as an exhibit to the Company's  Quarterly  report on Form 10-QSB
          for the quarter  ended  December 31, 1998 and  incorporated  herein by
          reference.

 (9)      Filed as an exhibit to the Company's  Annual Report on Form 10-KSB for
          the  fiscal  year  ended  June 30,  1999 and  incorporated  herein  by
          reference.

 (10)     Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          March 9, 2000 and incorporated herein by reference.

(11)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          January 21, 2001 and incorporated herein by reference

(12)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          April 8, 2002 and incorporated herein by reference

(13)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          May 14, 2002 and incorporated herein by reference

(14)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          September 27, 2002 and incorporated herein by reference

(15)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          February 3, 2003 and incorporated herein by reference.

(16)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          September 15, 2005 and incorporated herein by reference.


                                       72
<PAGE>

(17)      Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K/A
          dated December 9, 2005 and incorporated herein by reference.

(18)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          March 16, 2006 and incorporated herein by reference.

(19)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          March 28, 2006 and incorporated herein by reference

(20)      Filed as an exhibit to the Company's  Current Report on Form 8-K dated
          May 31, 2006 and incorporated herein by reference.

       * Management contract or compensatory plan or arrangement of the Company.

        b.       Reports on Form 8-K.

On August 23, 2001 we filed a report on Form 8-K reporting that we and our Chief
Executive  Officer had filed a six count compliant  against our former auditors,
PricewaterhouseCoopers LLP.

On September  20, 2001 we filed a report on Form 8-K  reporting  that the United
States District Court had dismissed with prejudice the class action suit brought
against us, our Chief Executive Officer and former Chief Financial Officer.

On October 16, 2001 we filed a report on Form 8-K reporting:

        1)     that the  plaintiffs  in the class action suit  previously  filed
               against  us,  our  Chief  Executive   Officer  and  former  Chief
               Financial  Officer,  had  taken an  appeal  from the order of the
               United  States  District  Court  which  dismissed  the suit  with
               prejudice and entered judgment in favor of the registrant and its
               officers, and

        2)     our  unaudited  financial  results for the fiscal year ended June
               30, 2001.

On November 21, 2001 we filed a report on Form 8-K reporting

        1)     our  unaudited  financial  results  for the  three  months  ended
               September 30, 2001, and

        2)     our  appointment  of Robert D. Nichols as our President and Chief
               Executive Officer.

On April 8,  2002 we filed a  report  on Form 8-K  reporting  the sale of our UK
holding company,  Javelin Systems (Europe) Ltd. and its subsidiary  companies to
an investment group which included members of the existing UK management team.

On May 14, 2002 we filed a report on Form 8-K  reporting an  agreement  with the
holder of our  Preferred  Shares to cancel the  Preferred  Shares,  warrants for
shares  of our  common  stock  and  warrants  for  shares  in our  wholly  owned
subsidiary company, Aspeon Solutions, in return for a one time cash payment.

On  September  27,  2002 we filed a report  on Form  8-K  reporting  that we had
entered into a Secured Convertible Promissory Note Purchase Agreement with three
individuals who were directors and officers of us.


                                       73
<PAGE>

On  February  3,  2003 we filed a report on Form 8-K  reporting  the sale of our
Australian  subsidiary  company,  Aspeon Systems (Asia Pacific) Pty. Ltd, to Mr.
Matthew Maley, general manager of that subsidiary.

On May 4, 2005 we filed a report on Form 8-K reporting the  appointment of David
J Cutler as our director, President, Chief Executive Officer and Chief Financial
Officer and the resignation of Richard P Stack from those positions.

On May 11, 2005 we filed a report on Form 8-K reporting  that David J Cutler had
entered into an agreement with Frank G Blundo, Jr. PC, trustee of the assignment
for the benefit of Aspeon and CCI creditors, subject to due diligence, to invest
up to $50,000 cash in us for the benefit of our creditors in return for a number
of our shares to be determined.

On September 15, 2005 we filed a report on Form 8-K appointing  Larry  O'Donnell
CPA PC as our independent accountant.

On December 9, 2005 we filed a report on Form 8-K/A  appointing  Larry O'Donnell
CPA PC as our independent accountant.

On March 16, 2006 we filed a report on Form 8-K appointing  Messrs.  Whiting and
Green as two non-executive directors to our board of directors.

On March 28, 2006 we filed a report on Form 8-K  reporting  that on February 23,
2006 the United  States  Court of Appeals  for the Ninth  Circuit  affirmed  the
dismissal  of the court case brought  against us by certain of our  shareholders
with prejudice.

On March 31, 2006 we filed a report on Form 8-K reporting that Mr.  Cutler,  one
of our directors and our sole officer,  converted $14,243 of his loan to us into
10,536,775 shares of our common stock on the basis of an independent third party
valuation and with the approval of the majority of our independent directors.










                                       74
<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                    ASPEON, INC,
                                    (Registrant)




Date: September 19, 2006            /s/     David J. Cutler
------------------------            ----------------------------------------
                                            David J. Cutler,
                                            Chief Executive Officer
                                            Chief Financial Officer.










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