10KSB 1 ai10k6-05.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2004. [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 000-21477 ASPEON, INC. ------------ (EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER) DELAWARE 52-1945748 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 4704 HARLAN STREET, SUITE 420 DENVER, COLORADO 80212 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (303) 380 9784 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01 PAR VALUE Check whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [] Indicate by check mark whether the Registrant is a shell company (as defin- ed in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The Registrant's revenues for its fiscal year ended June 30, 2004 were $865,000. The aggregate market value of the voting common equity held by non-affiliates of the Registrant on October 20, 2005 was approximately $819 based upon the reported closing sale price of such shares on the Grey Sheets for that date. As of October 20, 2005, there were 9,436,225 shares outstanding of which 8,187,904 shares were held by non-affiliates. Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock of the Company have been excluded because such persons are deemed to be affiliates. Transitional Small Business Disclosure Format. Yes [ ] No [X] 1 ASPEON, INC. 2004 ANNUAL REPORT ON FORM 10-KSB TABLE OF CONTENTS
ITEM DESCRIPTION PAGE Item 1. Description of Business.............................................. 3 Item 2. Description of Properties............................................ 10 Item 3. Legal Proceedings.................................................... 11 Item 4. Submission of Matters to a Vote of Security Holders.................. 12 Item 5. Market for Common Equity and Related Stockholder Matters....... 12 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 13 Item 7. Financial Statements................................................. 25 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................. 25 Item 8a. Controls and Procedures.............................................. 26 Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act.................. 26 Item10. Executive Compensation............................................... 28 Item 11. Security Ownership of Certain Beneficial Owners and Management........................................................... 30 Item 12. Certain Relationships and Related Transactions....................... 32 Item 13. Exhibits and Reports on Form 8-K..................................... 32 Item 14. Principal Accountant Fees and Services............................... 35
2 FORWARD-LOOKING STATEMENTS In addition to historical information, some of the information presented in this Annual Report on Form 10-KSB contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Although Aspeon, Inc. ("Aspeon" or the "Company", which may also be referred to as "we", "us" or "our") believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations: there can be no assurance that actual results will not differ materially from our expectations. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated, including but not limited to, our ability to reach satisfactorily negotiated settlements with our outstanding creditors, win the outstanding 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. Cautionary statements regarding the risks, uncertainties and other factors associated with these forward-looking statements are discussed under "Risk Factors" in this Form 10-KSB. You are urged to carefully consider these factors, as well as other information contained in this Form 10-KSB and in our other periodic reports and documents filed with the SEC. PART I ITEM 1. DESCRIPTION OF BUSINESS INTRODUCTION 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 4704 Harlan Street, Suite 420, Denver, Colorado, 80212 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, winning the outstanding 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. 3 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 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 4 Australia 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 the 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 has once again appealed against the dismissal and the appeal is anticipated to be heard before the end of 2005. 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. 5 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 law suits 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 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 6 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, winning the outstanding 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. During the fiscal year ended June 30, 2005 our 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. Since that date David J Cutler has continued to make further advances to us 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. There is no guarantee that Mr. Cutler will continue to provide 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. On September 12, 2005 we retained Larry O'Donnell, CPA, P.C. (`O'Donnell') as our independent auditing firm. PLANNED OPERATIONS Our plan of operation is to reach satisfactory negotiated settlements with our outstanding creditors, win the outstanding 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. 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. 7 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 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 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 8 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 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. Investment Company Act 1940 ----------------------------------------- Although we will be subject to regulation under the Securities Act of 1933, as amended, and the 1934 Act, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the "1940 Act") insofar as we will not be engaged in the business of investing or trading in securities. In the event we engage in business combinations that result in us holding passive investment interests in a number of entities, we could be subject to regulation under the 9 1940 Act. In such event, we would be required to register as an investment company and incur significant registration and compliance costs. We have obtained no formal determination from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material adverse consequences. We believe that, currently, we are exempt under Regulation 3a-2 of the 1940 Act. INTELLECTUAL PROPERTY We hold no patents or patent applications. EMPLOYEES As of June 30, 2004, we had 1 part-time employee. As of October 20, 2005 we have 1 part-time employee. FACTORS AFFECTING FUTURE PERFORMANCE The factors affecting our future performance changed dramatically as a result of our decision to discontinue the last of our operating businesses effective June 30, 2003 and the transfer of our remaining assets to the trustee for the benefit of the creditors of Aspeon and CCI effective January 1, 2004. Rather than an operating business, our business is to reach satisfactory negotiated settlements with our outstanding creditors, win the outstanding law suit brought against us by certain of our shareholders, bring our financial records and SEC filings up to date, obtain debt and, or, equity finance to fund negotiated settlements with our creditors and to meet our ongoing operating expenses, seek to be listed 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. Although there is no assurance that this series of events will be successfully completed, we believe we can successfully complete an acquisition or merger which will enable us to continue as a going concern. Any acquisition or merger will most likely be dilutive to our existing stockholders. The factors affecting our future performance are listed and explained below under the section "Risk Factors" in Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 2. DESCRIPTION OF PROPERTIES Our mailing address is 4704 Harlan Street, Suite 420, Denver, Colorado, 80212 and we maintain two small storage units in Dana Point, California for our corporate records. Currently, we lease the following facilities, containing, in aggregate, approximately 250 square feet:
PROPERTY YEAR LEASED SQUARE FEET EXPIRATION DATE RENT/MONTH Dana Point, California 2004 150 Month to month $200 Dana Point, California 2005 100 Month to month $149
We believe that our facilities are satisfactory for our purposes and are in good condition. As reported in our 10-K for the financial year ended June 30, 2000: Our executive offices, research and product development, warehousing and distribution facilities for POS Products were housed in a single leased industrial unit comprised of approximately 29,000 square feet located in Irvine, California. Under the terms of the lease, we paid rent of approximately $43,700 per month with predetermined monthly rent increases at annual intervals. The lease expired in 2003. The outstanding liability in respect of this lease is recorded in our balance of accounts payable. CCI leased an industrial unit that comprised of 33,000 square feet located in Earth City, Missouri, which served as a warehousing, staging and deployment facility for the Solutions Services business. This unit also housed sales and administrative staff. CCI paid rent of approximately $17,800 per month with predetermined monthly rent increases at annual intervals. The lease expired in 2003. The outstanding liability in respect of this lease is recorded in our balance of accounts payable. 10 Aspeon Solutions leased office space comprised of 21,350 square feet located in King of Prussia, Pennsylvania, which contained a data center and office space for employees providing ASP Services. This space also housed sales, administrative and professional services staff. We paid rent of approximately $43,200 per month with predetermined monthly rent increases at annual intervals. The lease was due to expire in 2007. The outstanding liability in respect of this lease is recorded in our balance of accounts payable. Aspeon Solutions leased office space comprising approximately 15,000 square feet located in Beverly, Massachusetts that contained space for the build out of an additional data center, if required. This space also housed sales, administrative and professional services staff for the ASP Services business. We paid rent of approximately $20,300 per month with predetermined monthly rent increases at annual intervals. The lease was scheduled to expire in 2005. The outstanding liability in respect of this lease is recorded in our balance of accounts payable. Aspeon Solutions Danvers, Massachusetts facility housed a data center and certain network technicians for the ASP Services business. The company paid rent of approximately $5,200 per month for 2,500 square feet. The lease expired in 2002. There is no outstanding liability in respect of this lease We leased office space comprised of approximately 3,000 square feet in Padworth, Reading UK for Solutions Services which contained a project and sales office for Jade and a sales office for Teneo. We paid rent of approximately $4,600 per month. The lease expired in 2004. We ceased to be responsible for this lease with the sale of RGB in March 2002. We leased warehouse space comprising approximately 10,000 square feet in Middleton, Manchester UK which contained a distribution and warehousing function for the Solutions Services business. We paid rent of approximately $4,900 per month. The lease expired in 2001 and was subsequently further extended although we ceased to be responsible for this lease with the sale of RGB in March 2002. 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 contingent liability in respect of this lease ended in September 2003 with the expiration of the lease. In December 2001, we leased 12,920 square feet of warehouse and office space in Irvine, California. We paid rent of approximately $11,000 per month. The lease was scheduled to expire in December 2004. In July 2003 we assigned this lease to an unconnected third party and since December 2004 have had no liability, contingent or otherwise in respect of this lease. In February 2004 we entered into a month to month lease for a 150 square foot storage unit in Dana Point, California at $ 200 per month to maintain certain of our corporate records. In March 2005 we entered into a three month lease for a 300 square foot executive office suite in Laguna Hills, California at $1,150 per month to facilitate bringing our financial statements and SEC filings up to date . This lease was terminated in September 2005. In June 2005 we entered into a month to month lease for a further 100 square foot storage unit in Dana Point, California at $150 per month to maintain certain of our corporate records returned to us by our attorneys. ITEM 3. 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 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 11 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 has once again appealed against the dismissal and the appeal is anticipated to be heard before the end of 2005. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted by us to a vote of our security holders during our fiscal years ended June 30, 2001 through June 30, 2004 or subsequent to that date. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 12 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. Last Reported Price. On October 20, 2005, the last reported bid price of our shares of common stock reported on the Grey Sheets was $0.0001 per share. Holders. As of October 20, 2005 there were 347 holders of record of shares of our common stock. We believe that we have approximately 2,000 beneficial owners of shares of our common stock. In many instances, a registered stockholder is a broker or other entity holding shares in street name for one or more customers who beneficially own the shares. Our transfer agent is Mountain Share Transfer, Inc., 1625 Abilene Drive, Broomfield, Colorado, 80020. Mountain Share Transfer's telephone number is 303-460-1149. Dividends. We have not paid or declared cash distributions or dividends on our shares of common stock and do not intend to pay cash dividends in the foreseeable future. Future cash dividends will be determined by our board of directors based upon our earnings, financial condition, capital requirements and other relevant factors. Penny Stock Regulation Broker-dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00. Excluded from the penny stock designation are securities registered on certain national securities exchanges or quoted on NASDAQ, provided that current price and volume information with respect to transactions in such securities is provided by the exchange/system or sold to established customers or accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in connection with the transaction, and the monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. As our securities have become subject to the penny stock rules, investors may find it more difficult to sell their securities. Sale of Unregistered Securities -- details concerning the sale of any unregistered securities during the period are set out in Note 11. Stockholders' Deficit of our Financial Statements on page 62 below. Stock Incentive Plans -- details concerning the activities and status of our stock incentive plans during the period are set out in Note 11. Stockholders' Deficit of our Financial Statements on page 62 below. ITEM 6. 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 and notes thereto and the other financial information included elsewhere 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 those set forth under "Risk Factors" and elsewhere in this report. 13 OVERVIEW 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, winning the outstanding 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. 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. 14 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 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 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 the 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, 15 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 has once again appealed against the dismissal and the appeal is anticipated to be heard before the end of 2005. 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. 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 law suits 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 16 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. 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, winning the outstanding 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. During the fiscal year ended June 30, 2005 our 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. Since that date David J Cutler has continued to make further advances to us by way of loan to meet our ongoing 17 operating expenses and fund the costs of bringing our financial statements and SEC reporting up to date as required. There is no guarantee that Mr. Cutler will continue to provide 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. On September 12, 2005 we retained Larry O'Donnell, CPA, P.C. (`O'Donnell') as our independent auditing firm. PLAN OF OPERATION Our plan of operations is to negotiate satisfactory settlements with our outstanding creditors, win the outstanding 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 to fund negotiated settlements with our creditors and to meet our ongoing operating expenses 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 can be no assurance that we will successfully complete this series of transactions. 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. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2004, we had $0 cash on hand, $5,600 of assets, no operating business or other source of income, outstanding liabilities in excess of $7.9 million and an outstanding law suit brought against us by certain of our shareholders. As of June 30, 2005, we had $0 cash on hand, $26,300 of assets, no operating business or other source of income, outstanding liabilities of approximately $ 8.0 million and an outstanding law suit brought against us by certain of our shareholders. 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. If we were to lose the outstanding law suit brought against us by certain of our shareholders it is unlikely that the proceeds from our Directors' and Officers' insurance policy would be sufficient to meet the damages assessed and we would have no alternative but to file for bankruptcy. During the fiscal year ended June 30, 2005, our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There is no assurance that Mr. Cutler will continue to provide us with further funding in the future. It is our current intention to seek to reach satisfactory negotiated settlements with our outstanding creditors, win the outstanding 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. 18 CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies and estimates used in the preparation of their financial statements. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1 to our Financial Statements on page 45 below. These policies were selected because they represent the more significant accounting policies and methods that are broadly applied in the preparation of our financial statements. However, it should be noted that we intend to acquire a new operating business. The critical accounting policies and estimates for such new operations will, in all likelihood, be significantly different from our current policies and estimates. OFF BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS Financial Reporting Release No. 61 requires all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. Details of the arrangements, contractual obligations and commercial commitments are described in Note. 9 to our Financial Statements on page 58 below. FISCAL YEAR ENDED JUNE 30, 2004 On June 30, 2003 we decided to discontinue the operations of our last two operating businesses, Aspeon and CCI. Aspeon ceased operations with 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 form January 1, 2004 we had no assets, no operating business or other sources of income of income. Revenue. Revenue for the fiscal year ended June 30, 2004 was $865,000. Our only operating business during the fiscal year ended June 30, 2004 was CCI as all our other operating businesses had been sold or terminated in prior fiscal periods. $458,000 of our revenue related to products sold by CCI in the period July 1, 2003 through August 3, 2003 when CCI ceased production, and $408,000 to services provided by CCI, the majority though the use of subcontractors, in the period July 1, 2003 through December 31, 2003 when CCI ceased all operations. Cost of Sales Cost of sales for the fiscal year ended June 30, 2004 was $848,000, $709,000 relating to the cost of supplying products and $139,000 to the cost of providing services. Our focus in the period was to generate maximum cash flow for our creditors during the close down of our operations rather than attempting to maximize profits. Consequently we used existing inventory that had already been paid for to manufacture and sell products that generated revenue and cash for our creditors even if such sales were at less than the historic cost of sales. Gross Profit Gross profit for the fiscal year ended June 30, 2004 was $17,000, or 2% of revenue, for the reasons set out above. 19 General and Administrative Expenses. General and administrative expenses for the fiscal year ended June 30, 2004 were $512,000. $356,000 related to the overhead costs of operating CCI prior to the close down of its production operations effective August 3, 2003 and its service operations effective December 31, 2003. The balance of $156,000 related to the costs of Aspeon principally relating Directors' and Officers' insurance ($78,000) and director's and consultants' remuneration ($76,000) incurred in the close down of our operations. Selling and Marketing Expenses Selling and marketing expenses for the fiscal year ended June 30, 2004 were $13,000. These related to expenses incurred by CCI prior to the termination of its operations. Depreciation Depreciation expense for the fiscal year ended June 30, 2004 was $92,000 and related to the equipment used by CCI during the period in which it operated. Gain on Settlement of Litigation 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 Gain on Assignment for the Benefit of Creditors The gain on the establishment of the assignment for the benefit of Aspeon and CCI creditors recorded effective January 1, 2004 was $3,173,000. All the assets of Aspeon and CCI were transferred to the trustee for the assignment for the benefit of Aspeon and CCI creditors effective January 1, 2004. The fair value of the assets transferred was $496,000. Creditors totaling $3,669,000 agreed to be bound by the terms of the assignment for the benefit of Aspeon and CCI creditors resulting in a gain of $3,173,000 on the establishment of the assignment for the benefit of Aspeon and CCI creditors. Profit from Operations. The profit from operations was $3,580,000 for the fiscal year ended June 30, 2004 due to the factors discussed above. Interest and Other Income / (Expense), net Interest and other income / (expense), net for the fiscal year ended June 30, 2004 was an expense of $(4,000) largely relating to the interest expense on notes payable provided to us by certain of our directors and officers Provision for Income Taxes. No provision for income taxes was required in fiscal year ended June 30, 2004 as we had significant tax losses brought forward from prior years. Net Profit and Comprehensive Profit. We reported a net profit of $3,576,000 for the fiscal year ended June 30, 2004 due to the factors outlined above. The comprehensive profit was identical to the net profit for the fiscal year ended June 30, 2004. CASH FLOW INFORMATION For the twelve months ended June 30, 2004, net cash generated in operations was $320,000. Net profit, adjusted for non-cash items, resulted in a negative cash flow of $(489,000) including a $(113,000) transfer of cash to the trustee of the assignment for the benefit of Aspeon and CCI creditors. However, we were able to 20 generate positive cash flow of $809,000 from the movement in our operating assets and liabilities through aggressive collection of accounts receivable ($901,000) and liquidation of our existing inventory ($586,000). $79,000 positive cash flow was generated by our investing activities in the fiscal year ended June 30, 2004 from the sale of fixed assets and proceeds from an investment of ours. The sale of fixed assets was in respect of assets which had already been restated at fair value in prior fiscal periods and consequently generated no gain or loss on sale. Cash flow used in financing activities was $401,000 for the twelve months ended June 30, 2004 relating to the repayment of outstanding notes payable provided to us by certain of our directors and officers. ACCOUNTING PRONOUNCEMENTS 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 SFAS No. 151, "Inventory Costs an amendment of ARB No.43, Chapter 4." This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The initial application of SFAS No. 151 will have no impact on our financial statements. In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This Statement references the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement also states that the guidance for incidental operations and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. The initial application of SFAS No. 152 will have no impact on our financial statements. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - a replacement of APB Opinion No. 20 and FASB Statement No. 3." This Statement eliminates 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 nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect application of SFAS No. 153 to have a material affect on our financial statements. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error - an amendment of APB Opinion No. 29." This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the usual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects of the cumulative effect of the change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect application of SFAS No. 154 to have a material affect on our financial statements. 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 results or financial condition. 21 SUBSEQUENT EVENTS 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, winning the outstanding 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 fund our negotiated settlement 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. 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 shares of our common stock to be determined. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. During the fiscal year ended June 30, 2005 our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There can be no guarantee that Mr. Cutler will continue to provide us with further funding 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. On September 12, 2005 we retained Larry O'Donnell, CPA, P.C. as our independent auditing firm RISK FACTORS You should be aware that there are various risks associated with our business, and us, including the ones discussed below. You should carefully consider these risk factors, as well as the other information contained in this Form 10-KSB, in evaluating us and our business. The factors affecting our future performance changed dramatically as a result of the discontinuance of the last of our operating businesses effective June 30, 2003 and the transfer of all of our assets to a trustee of the assignment for the benefit of Aspeon and CCI creditors effective January 1, 2004. Rather than an operating business, our business is to reach satisfactory negotiated settlements with our outstanding creditors, win the outstanding 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 to fund the settlements with creditors or meet our ongoing operating costs 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 successfully completed. Although there is no assurance, we believe we can successfully complete an acquisition or merger, which will enable us to continue as a going concern. Any acquisition or merger will most likely be dilutive to our existing stockholders. WE HAVE A SUBSTANTIAL BALANCE OF OUTSTANDING LIABILITIES As at June 30, 2004 we had outstanding liabilities in excess of $ 7.9 million due to creditors who were not eligible to be part of the assignment for the benefit of Aspeon and CCI creditors, or who elected not to participate in our assignment for the benefit of Aspeon and CCI creditors. We have no assets, no operating business or our source of income from which to pay these creditors. Accordingly we must attempt to negotiate acceptable settlements with these outstanding creditors and then attempt to raise debt and, or, equity funding to finance the payment of the agreed settlements. There can be no assurance that we shall be able to negotiate acceptable settlements with our outstanding creditors or that we shall be able to raise the necessary debt and, or, equity finance to fund any such agreed settlements. If we are unable to settle these liabilities 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 22 WE ARE SUBJECT TO A LAW SUIT BY CERTAIN OF OUR SHAREHOLDERS 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 has once again appealed against the dismissal and the appeal is anticipated to be heard before the end of 2005. At present we believe that the proceeds from our Directors' and Officers' insurance policy will be sufficient to meet the legal cost incurred in defending the consolidated law suit. However, there is no assurance that the proceeds from our Directors' and Officers' insurance policy will be sufficient to meet the legal cost incurred in defending the consolidated law suit 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 the law suit 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 the law suit has finally be settled on a basis that is satisfactory to us. WE HAVE INCURRED SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES As at June 30, 2004 we had retained deficit in excess $90 million and a stockholders' deficit of approximately $ 7.9 million. Future losses are likely to occur as we have no sources of income to meet our operating expenses. As a result of these, among other factors, we received a report on our consolidated financial statements for the year ended June 30, 2004 from our independent accountants that include an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern. Consistent with our business plan, we plan on reaching satisfactory negotiated settlements with our outstanding creditors, winning the outstanding 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 fund 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. No assurances can be given that we will be successful in acquiring operations, generating revenues or reaching or maintaining profitable operations. OUR EXISTING FINANCIAL RESOURCES ARE INSUFFICIENT TO MEET OUR ONGOING OPERATING EXPENSES We have no sources of income at this time and no existing cash balances to meet our ongoing operating expenses. In the short term, unless we are able to raise additional debt and, or, equity we shall be unable to meet our ongoing operating expenses. On a longer term basis, we plan to acquire an entity with experienced management and the opportunities for growth in exchange for shares of our common stock and are dependent on achieving a successful merger with a profitable company. No assurances can be given that we will be successful in acquiring operations, generating revenues or reaching or maintaining profitable operations. WE INTEND TO PURSUE THE ACQUISITION OF AN OPERATING BUSINESS Our sole strategy is to acquire an operating business. Successful implementation of this strategy depends on our ability to identify a suitable acquisition candidate, acquire such company on acceptable terms and integrate its operations. In pursuing acquisition opportunities, we compete with other companies with similar strategies. Competition for acquisition targets may result in increased prices of acquisition targets and a diminished pool of companies available for acquisition. Acquisitions involve a number of other risks, including risks of acquiring undisclosed or undesired liabilities, acquired in-process technology, stock compensation expense, diversion of 23 management attention, potential disputes with the seller of one or more acquired entities and possible failure to retain key acquired personnel. Any acquired entity or assets may not perform relative to our expectations. Our ability to meet these challenges has not been established. SCARCITY OF, AND COMPEETITION FOR, BUSINESS OPPORTUNITIES AND COMBINATIONS 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. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will also compete in seeking merger or acquisition candidates with numerous other small public companies. 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. WE HAVE NOT EXECUTED ANY FORMAL AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION AND HAVE ESTABLISHED NO STANDARDS FOR BUSINESS COMBINATIONS We have not executed any formal arrangement, agreement or understanding with respect to engaging in a merger with, joint venture with or acquisition of a private or public entity. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. We have not identified any particular industry or specific business within an industry for evaluation. There is no assurance we will be able to negotiate a business combination on terms favorable, if at all. We have not established a specific length of operating history or specified level of earnings, assets, net worth or other criteria which we will require a target business opportunity to have achieved, and without which we would not consider a business combination. Accordingly, we may enter into a business combination with a business opportunity having no significant operating history, losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics. REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING BUSINESS COMBINATION AND DILUTION TO STOCKHOLDERS Our primary plan of operation is based upon a business combination with a private concern which, in all likelihood, would result in us issuing securities to stockholders of such private company. The issuance of previously authorized and unissued shares of our common stock would result in reduction in percentage of shares owned by present and prospective stockholders and may result in a change in control or management. In addition, any merger or acquisition can be expected to have a significant dilutive effect on the percentage of the shares held our stockholders. WE ARE OUT OF COMPLIANCE WITH THE LISTING REQUIREMENTS OF THE NASDAQ MARKET AND HAVE NOT BEEN LISTED ON THE OVER THE COUNTER BULLETIN BOARD In October 2000, the Nasdaq Stock Market ("Nasdaq") suspended trading in the shares of 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 the shares of our common stock would continue to be listed on Nasdaq or if they would be delisted. Effective as of January 4, 2001, the shares of our common stock was delisted from the Nasdaq. As we were in arrears in our filings with the SEC the shares of our common stock was not eligible to be traded on the over the counter bulletin board and consequently commenced trading on the Pink Sheets under the symbol ASPE.PK. Subsequently the shares of our common stock ceased to be traded on the Pink Sheets and are now traded on the Gray Sheets. Failure obtain a listing on the over the counter bulletin board may adversely effective our ability to acquire another entity with experienced management and opportunities for growth in return for shares of our common stock in an attempt to create value for our shareholders. THE SEC HAS INDICATED THAT IT MAY DEREGISTER SHARES OF OUR COMMON STOCK 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. If the SEC were deregister the shares of our common stock 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. 24 IT IS POSSIBLE THAT WE WILL HAVE A MAJORITY STOCKHOLDER WHO WILL HAVE THE ABILITY TO EFFECTIVELY CONTROL SUBSTANTIALLY ALL ACTIONS TAKEN BY STOCKHOLDERS On April 22, 2005 our sole director, David J Cutler 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 shares of our common stock to be determined. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. Also in April 2005 Mr. Cutler entered into an agreement with Mr. Stack to purchase all of Mr. Stack's shares of our common stock. However, it has not been possible to complete this transaction as Mr. Stack has not been able to locate the share certificates for the majority of the shares in question. If both of the above transactions are completed it is probable that Mr. Cutler will own more than 50% of our issued shares of common stock. Accordingly, Mr. Cutler would be able to effectively control substantially all actions taken by our stockholders, including the election of directors. Such concentration of ownership could also have the effect of delaying, deterring or preventing a change in control that might otherwise be beneficial to stockholders and may also discourage acquisition bids for us and limit the amount certain investors may be willing to pay for shares of common stock. THE PRICE OF OUR COMMON STOCK COULD BE HIGHLY VOLATILE Our common shares is currently traded on the Gray Sheets. Our common stock is subject to price volatility, low volumes of trades and large spreads in bid and ask prices quoted by market makers. Due to the low volume of shares traded on any trading day, persons buying or selling in relatively small quantities may easily influence prices of our common stock. This low volume of trades could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. If high spreads between the bid and ask prices of our common stock exist at the time of a purchase, the stock would have to appreciate substantially on a relative percentage basis for an investor to recoup their investment. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our common stock. No assurance can be given that an active market in our common stock will develop or be sustained. If an active market does not develop, holders of our common stock may be unable to readily sell the shares they hold or may not be able to sell their shares at all. WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK We do not anticipate paying any cash dividends on our common stock in the foreseeable future. ITEM 7. FINANCIAL STATEMENTS Due to the dispute with our previous auditors, PWC, and our lack of funds, the last Form 10-K we was filed in respect of our financial year ended June 30, 2000 and the last Form 10-Q we filed was in respect of the three and nine month period ended March 31, 2001.Unaudited extracts from our financial statements for the financial years June 30, 2001 through June 30, 2003 are attached on page 36 below. We do not intend to have these accounts audited as we believe that the cost of completing such audits would exceed any benefit to shareholders. Our audited financial statements for the fiscal year ended June 30, 2004 are included herein commencing on page 39 below. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE In September 2000, at the insistence of our auditors, PWC, we announced that we would restate our first quarter 2000 financial statements as a result of accounting misstatements. 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 25 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. In January 2001 PWC notified us that it was terminating its auditor relationship with us effective immediately. 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. In August 2001, we, together with our Chief Executive Officer, filed a six count complaint against our former auditors, PricewaterhouseCoopers LLP, 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 $2.3 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. As reported in the Form 8-K filed on September 15, 2005, effective September 12, 2005 we appointed O'Donnell as auditors in succession to BDO. We had no disagreements with BDO or O'Donnell. ITEM 8A CONTROLS and PROCEDURES We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls (as defined in Exchange Act Rules 13a-14(c)) ("Controls") as of June 30, 2004 (the "Evaluation Date"). The evaluation was supervised by David J. Cutler, our Chief Executive Officer and Principal Accounting Officer, to test the effectiveness of Controls. Controls are designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report, is recorded, processed, summarized and reported within the time periods as required. Controls are also designed to reasonably assure that such information is accumulated and communicated to our management. Management does not expect that the Controls will prevent all errors. No matter how well designed, Controls cannot provide absolute assurance that the system's objectives will be met. Due to resource constraints, the design of Controls must be considered relative to their costs. No evaluation can provide absolute assurance that all of the Company's control issues will be detected and corrected. Controls can be circumvented by individual acts, by collusion of two or more people or by override of the controls. We have had only limited operations as of the Evaluation Date and the Controls in place at that time may be inadequate for future operations. After evaluating the effectiveness of our Controls, Mr. Cutler concluded that as of the Evaluation Date, our Controls were adequate and effective to ensure that material information relating to the Company would be made known to them by individuals within those entities, particularly during the period in which this Form 10-KSB was being prepared. There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken. However, it should be noted that we intend to acquire another operating business. The Controls necessary for such new operations will, in all likelihood, be significantly different from the current Controls. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT DIRECTORS AND EXECUTIVE OFFICERS During the fiscal year ended June 30, 2004 our sole director and executive officer was: 26 NAME AGE POSITION Richard P Stack 39 President, Chief Executive Officer, Richard P. Stack - had been President, Chief Executive Officer and a director of the Company since the Company's inception in September 1995. Prior to that time, from 1991 through September 1995, Mr. Stack was Managing Director of Hi-Technology Supply, a manufacturer and distributor of personal computers and components located in South Africa, which he founded and grew to approximately $6 million in annual sales and 15 employees prior to its sale to a South Africa-based personal computer and component manufacturing company. From 1988 through 1991, Mr. Stack was employed by Pan American Airlines in technical management positions. Mr. Stack holds a B.A. degree from the University of California at Berkeley. As reported in our form 10-K for our fiscal year ended June 30, 2000 our directors were Richard P Stack, Edmund Brooks, Andrew F Puzder, Jay L Kear and Thomas Nolan. On November 13, 2001 Richard P Stack resigned as our Chairman and Chief Executive Officer but remained as a director. Jay L Kear was appointed Chairman and Robert Nichol was appointed as a director and Chief Executive Officer. Andrew F Puzder resigned as a director on March 25, 2002. Thomas Nolan resigned as a director in July 2002. Horace Hertz was appointed as a director on September 5, 2002. Edmund Brooks resigned as a director in during September, 2002. Robert Nichols resigned as a director of the Company, President and Chief Executive Officer effective September 18, 2002 and Richard P Stack, an existing director was appointed as President and Chief Executive Officer. Jay L Kear and Horace Hertz resigned as directors on June 30, 2003. David Cutler was appointed as a director in April 2005. Richard P Stack resigned as a director in April 2005. Effective April 22, 2005, our sole director was: NAME AGE POSITION David J. Cutler 49 President, Chief Executive Officer, David J. Cutler - President, Chief Executive Officer, Chief Financial Office and Director. Mr. Cutler became our sole director and officer on April 22, 2005.Mr. Cutler has more than 20 years of experience in international finance, accounting and business administration. He held senior positions with multi-national companies such as Reuters Group Plc and the Schlumberger Ltd. and has served as a director for two British previously publicly quoted companies -- Charterhall Plc and Reliant Group Plc. From March 1993 until 1999, Mr. Cutler was a self-employed consultant providing accounting and financial advice to small and medium-sized companies in the United Kingdom and the United States. Mr. Cutler was Chief Financial Officer and subsequently Chief Executive Officer of Multi-Link Telecommunications, Inc., a publicly quoted voice messaging business, from 1999 to 2005. Mr. Cutler has a masters degree from St. Catherine College in Cambridge, England and qualified as a British Chartered Accountant and as Chartered Tax Advisor with Arthur Andersen & Co. in London. He was subsequently admitted as a Fellow of the UK Institute of Chartered Accountants. Since arriving in the United States Mr. Cutler has qualified as a Certified Public Accountant, a Fellow of the AICPA Institute of Corporate Tax Management, a Certified Valuation Analyst of the National Association of Certified Valuation Analysts and obtained an executive MBA from Colorado State University. 27 COMMITTEES OF THE BOARD OF DIRECTORS In the ordinary course of business, the board of directors maintains a compensation committee and an audit committee The primary function of the compensation committee is to review and make recommendations to the board of directors with respect to the compensation, including bonuses, of our officers and to administer the grants under our stock option plan. The functions of the audit committee are to review the scope of the audit procedures employed by our independent auditors, to review with the independent auditors our accounting practices and policies and recommend to whom reports should be submitted, to review with the independent auditors their final audit reports, to review with our internal and independent auditors our overall accounting and financial controls, to be available to the independent auditors during the year for consultation, to approve the audit fee charged by the independent auditors, to report to the board of directors with respect to such matters and to recommend the selection of the independent auditors. However, following the resignation of Messrs. Kear and Hertz on June 30, 2003, we had no directors as members of the compensation or audit committee. In the absence of a separate audit committee our board of directors functions as audit committee and performs some of the same functions of an audit committee, such as recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act requires our Officers and Directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of such reports received, and representations from certain reporting persons, we believe that, during the fiscal year ended June 30, 2004, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were filed in compliance with all applicable requirements with the exception of Richard P Stack, Jay Kear and Horace Hertz who had not filed. CODE OF ETHICS A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote; - Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the SEC and in other public communications made by an issuer; - Compliance with applicable governmental laws, rules and regulations; - The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and - Accountability for adherence to the code. Due to the limited scope of our current operations, we have not adopted a corporate code of ethics that applies to our principal executive officer, principal accounting officer, or persons performing similar functions. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth the compensation paid by us for services rendered during the fiscal year ended June 30, 2004 to Richard P Stack as our Chief Executive Officer and director. We had no other directors and, or, officers during the fiscal year ended June 30, 2004. 28
FISCAL YEAR ENDED ANNUAL COMPENSATION NAME AND PRINCIPAL POSITION JUNE 30, SALARY BONUS -------------------------------------------- ---------------- ----------------- ------------ Richard P Stack............................ 2004 $49,998 -- President, Chief Executive Officer, Chief Financial Officer and Director
In July 2002 Richard P Stack agreed to the cancellation of all his existing stock options and was issued with 250,000 new stock options with an exercise price of $0.07. The options had a five year term and vested immediately. In September 2002 Richard P Stack was issued with 600,000 stock options with an exercise price of $0.06. The options had a ten year term and vested on a straight line basis over 36 months. All Mr. Stack's stock options were cancelled, unexercised, subsequent to his resignation as our sole director and officer on April 22, 2005. EMPLOYMENT AND CONSULTING AGREEMENTS There were no employment contracts or consulting agreements with our directors or officers during the fiscal year ended June 30, 2004. DIRECTOR COMPENSATION The members of the Board received cash compensation of $2,500 plus reimbursement of their expenses incurred in connection with attendance at Board meetings in accordance with Company policy. STOCK OPTION PLAN 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. 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. 29 During the fiscal year ended June 30, 2004, 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 as at June 30, 2004: WEIGHTED AVERAGE OPTIONS EXERCISE PRICE 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 =========== =======
The range of exercise prices for options outstanding and options exercisable at June 30, 2004 were as follows: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ ------------------------------ RANGE OF WEIGHTED AVERAGE WEIGHTED EXERCISE PRICE OUTSTANDING REMAINING LIFE EXERCISABLE EXERCISE PRICE --------------- ----------- ----------------- ----------- ---------------- $0.07.............. 250,000 3.0 250,000 $ 0.07 $0.06............. 600,000 8.8 366,667 0.06 --------- --- ------- ------- 850,000 7.0 616,667 $ 0.063 ========= === ======= =======
All the above options were cancelled during the fiscal year ended June 30, 2005 following the resignation of Richard P Stack as our director and Chief Executive Officer in April 2005. Pro Forma Stock-Based Compensation Disclosures -- We apply APB Opinion 25 and related interpretations in accounting for our stock options that are granted to employees. Accordingly, no compensation cost has been recognized for grants of options to employees since the exercise prices were not less than the quoted value of our common stock on the grant dates. Had compensation cost been determined based on the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, our net income (loss) and earnings (loss) per share would have been unchanged as all expenses in respect of issued stock options were immaterial. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth certain information regarding beneficial ownership of our common stock, as of June 30, 2004 and October 20, 2005, by: 30 o each person who is known by us to own beneficially more than 5% of our outstanding common stock, o each of our named executive officers and directors, and o all executive officers and directors as a group. Shares of common stock not outstanding but deemed beneficially owned by virtue of the right of an individual to acquire the shares of common stock within 60 days are treated as outstanding only when determining the amount and percentage of common stock owned by such individual. Except as noted below the table, each person has sole voting and investment power with respect to the shares of common stock shown. As at June 30, 2004: NUMBER OF PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OUTSTANDING Richard P Stack (1) 1,379,700 13.61% ------------ ------------ All executive officers and directors as a group. 1,379,700 13.61% L. Bruce Madsen (2) 568,621 6.03% As at October 20, 2005:.... NUMBER OF PERCENT OF David J. Cutler (3) -- --% ------------ ---------- All executive officers and directors as a group. -- --% Richard P Stack (1) (4) 679,700 7.20% L. Bruce Madsen (2) 568,621 6.03% (1) Mr. Stack's address is c/o Aspeon, Inc. 4704 Harlan Street, Suite 420, Denver, Colorado, 80212. Includes 700,000 shares issuable upon exercise of options to purchase common stock within 60 days of September 30, 2004 and 9,700 shares owned by Mr. Stack's children. (2) Mr Madsen's address is 16 Prospect Drive, Great Falls, MT, 59405 (3) Mr. Cutler's address is c/o Aspeon, Inc. 4704 Harlan Street, Suite 420, Denver, Colorado, 80212 In April 2005 Mr. Cutler entered into an agreement with Mr. Stack to purchase all of Mr. Stack's shares of our common stock. However, it has not been possible to complete this transaction as Mr. Stack has not been able to locate the share certificates for the majority of the shares in question. 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. (4) Mr Stack's ownership includes 9,700 shares owned by Mr. Stack's children but no longer includes shares issuable upon exercise of options to purchase common 31 stock as Mr. Stack's options were cancelled subsequent to his resignation in April 2005. As reported above, in April 2005 Mr. Cutler entered into an agreement with Mr. Stack to purchase all of Mr. Stack's shares of our common stock. However, it has not been possible to complete this transaction as Mr. Stack has not been able to locate the share certificates for the majority of the shares in question. Information concerning stock options and warrants issued by us is set out in Note 11 Stockholders Deficit of our Financial Statements on page 62 below. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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. 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 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet During the fiscal year ended June 30, 2005, our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There can be no assurance that we shall continue to receive further funding from Mr. Cutler in the future. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 32 EXHIBIT NUMBER DESCRIPTION AND METHOD OF FILING 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. 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. 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. 33 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 (included on page 54 of this 10-K) 27.1 Financial Data Schedule. (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. 34 (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. * Management contract or compensatory plan or arrangement of the Company. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees. We incurred no aggregate fees and expenses to our former auditors, BDO, or our current auditors, O'Donnell, in the fiscal year ended June 30, 2004. No audit or review fees were incurred in fiscal 2004 to conserve cash resources. Tax Fees. We did not incur any tax fees to our former auditor, BDO, or our current auditors, O'Donnell, in the fiscal year ended June 30, 2004 for professional services rendered for tax compliance, tax advice, and tax planning.. No tax fees were incurred in fiscal 2004 to conserve cash resources. 35 All Other Fees. We did not incur any other professional fees to our former auditor, BDO, or our current auditors, O'Donnell, in the fiscal year ended June 30, 2004 to conserve cash resources. It is the role of the Audit Committee, or in the absence of an audit committee, the Board of Directors, to consider whether, and determine that, the auditor's provision of non-audit services would be compatible with maintaining the auditor's independence. Any services described above for fiscal year ended June 30, 2004 would have had to be approved by the Audit Committee or the Board of Directors pursuant to its policies and procedures. As reported in the Form 8-K filed on September 15, 2005, effective September 12, 2004 we appointed O'Donnell as auditors in succession to BDO. 36 INDEX TO FINANCIAL STATEMENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................... 38 CONSOLIDATED BALANCE SHEET - As at June 30, 2004 and 2003................... 39 CONSOLIDATED STATEMENTS OF OPERATIONS -- For the Year Ended June 30, 2004... 40 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT For the Year Ended June 30, 2004............................................ 41 CONSOLIDATED STATEMENTS OF CASH FLOWS -- For the Year Ended June 30, 2004... 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 43 37 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors Aspeon, Inc. Denver, Colorado I have audited the accompanying balance sheet of Aspeon, Inc. as of June 30, 2004 and 2003, and the related statements of operations, stockholders' deficit, and cash flows for the year ended June 30, 2004. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with standards of the Public Company Accounting Oversight Board (United States) . Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aspeon, Inc. as of June 30, 2004 and 2003, and the results of its operations and cash flows for the year ended June 30, 2004 in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company had suffered significant losses, had a working capital deficit as of June 30, 2004 and no ongoing source of income. Management's plans to address these matters are also included in Note 2 to the financial statements. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty /s/ Larry O'Donnell CPA, P.C. Larry O'Donnell CPA, P.C. Aurora, Colorado October 7, 2005 38
ASPEON, INC. CONSOLIDATED BALANCE SHEET JUNE 30, 2004 2003 ---------------------------------- ASSETS CURRENT ASSETS Cash & Cash Equivalents $ 0 $ 1,531 Accounts Receivable 0 986,823 Other Receivables 5,637 22,038 Inventory 0 586,426 Prepaid Expenses 0 211,409 ---------------------------------- Total Current Assets 5,637 1,808,227 FIXED ASSETS 0 473,239 OTHER ASSETS 0 5,164 ---------------------------------- TOTAL ASSETS $ 5,637 $ 2,286,630 ================================== LIABILITIES & STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts Payable $ 6,763,028 $ 10,780,772 Unearned Income & Customer Deposits 236,128 442,458 Accrued Expenses 568,884 803,303 Notes Payable 128,000 610,431 Deferred Earnouts 208,195 1,123,868 ---------------------------------- Total Current Liabilities 7,904,235 13,760,832 COMMITMENTS AND CONTINGENCIES (Note. 9) STOCKHOLDERS' DEFICIT Preferred Stock, $0.01 par value: 990,000 shares authorized (1,000,000 0 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 94,361 94,361 shares issued and outstanding. Additional Paid In Capital 84,938,361 84,938,361 Treasury Stock (60,000) (60,000) Accumulated Deficit (92,871,320) (96,446,924) ---------------------------------- Total Stockholders' Deficit (7,898,598) (11,474,202) ---------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,637 $ 2,286,630 ==================================
See accompanying Notes to Consolidated Financial Statements. 39 ASPEON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2004 ---------------- REVENUE Products $ 457,754 Services 407,705 ---------------- Total Revenue 865,459 COST OF SALES Products 708,718 Services 139,325 ---------------- Total Cost of Sales 848,043 ---------------- GROSS PROFIT / (LOSS) 17,416 OPERATING EXPENSES / (INCOME) General & Administrative Expenses 512,575 Selling & Marketing Expenses 13,428 Depreciation 92,082 Gain on Settlement of Litigation (1,007,211) Gain on Assignment for the Benefit of Creditors (3,173,150) ---------------- Total Operating Expenses / (Income) 3,562,275 OPERATING PROFIT / (LOSS) 3,579,691 Interest and Other Income / (Expenses) Net (4,087) ---------------- Profit / (Loss) before Income Taxes 3,575,604 Provision for Income Taxes - ---------------- NET PROFIT / (LOSS) $ 3,575,604 ================ NET PROFIT / (LOSS) PER COMMON SHARE Basic & Diluted $0.38 ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic & Diluted 9,436,225 ================ See accompanying Notes to Consolidated Financial Statements. 40
APEON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED JUNE 30, 2004 Common Stock Treasury Stock Additional Accumulated Paid - in Accumulated Comprehensive Comprehensive Shares Amount Shares Amount Capital Deficit Profit / (Loss) Profit/(Loss) Total # $ # $ $ $ $ $ Balance, June 30 2003 9,436,225 94,361 (200,000) (60,000) 84,938,361 (96,518,791) 71,867 (11,474,202) Comprehensive Profit 3,575,604 3,575,604 3,575,604 ----------- -------- --------- --------- ----------- ------------- ------------- ------------ ------------- Balance, June 30 2004 9,436,225 $94,361 (200,000) $(60,000) $84,938,361 $(92,943,187) $71,867 $ (7,898,598) =========== ======== ========= ========= =========== ============= ============= ============ =============
See accompanying Notes to Consolidated Financial Statements. 41
ASPEON, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2004 --------------- CASH FLOW PROVIDED BY / (USED IN) OPERATING ACTIVITIES NET PROFIT / (LOSS) $ 3,575,604 ADJUSTMENTS TO RECONCILE NET PROFIT / (LOSS) TO NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES Depreciation 92,082 Gain on Settlement of Litigation (1,007,211) Net Cash Received on Settlement of Litigation 136,000 Gain on Assignment for Benefit of Creditors (3,173,150) Cash transfered to Assignment for Benefit of Creditors (112,515) CHANGES IN OPERATING ASSETS & LIABILITIES (Increase)/Decrease in Accounts Receivable 900,738 (Increase)/Decrease in Other Receivables 15,020 (Increase)/Decrease in Inventory 585,677 (Increase)/Decrease in Prepaid Expenses 177,830 Increase/(Decrease) in Accounts Payable (481,065) Increase/(Decrease) in Unearned Income & Customer Deposits (199,247) Increase/(Decrease) in Accrued Expenses (189,328) --------------- Total Cash Flow provided by / (used in) Operating Activities 320,437 CASH FLOW FROM INVESTING ACTIVITIES Decrease in Other Assets 1,992 Purchase of Fixed Assets (891) Proceeds from Sale of Fixed Assets 78,361 --------------- Total Cash Flow provided by / (used in) Investing Activities 79,462 CASH FLOW FROM FINANCING ACTIVITIES Repayment of Notes Payable (401,430) --------------- Total Cash Flow provided by / (used in) Financing Activities (401,430) INCREASE / (DECREASE) IN CASH & CASH EQUIVALENTS $ (1,531) =============== Cash and Cash Equivalents at the beginning of the period $ 1,531 =============== Cash and Cash Equivalents at the end of the period $ 0 =============== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid for interest $ 3,129 --------------- Cash paid for income tax $ 0 --------------- Assets transferred to assignment for the benefit of creditors $ 383,558 --------------- Liabilities transferred to assignment for the benefit of creditors $ 3,669,223 ---------------
See accompanying Notes to Consolidated Financial Statements. 42 MULTI-LINK TELECOMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Operations -- 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, winning the outstanding 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. 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 43 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 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 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 the 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 44 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 has once again appealed against the dismissal and the appeal is anticipated to be heard before the end of 2005. 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. 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 45 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 law suits 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 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 46 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, winning the outstanding 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. During the fiscal year ended June 30, 2005 our 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. Since that date David J Cutler has continued to make further advances to us 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. There is no guarantee that Mr. Cutler will continue to provide 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. On September 12, 2005 we retained Larry O'Donnell, CPA, P.C. (`O'Donnell') as our independent auditing firm. Principles 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. 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 June 30, 2003 consisted primarily of point of sale computer hardware and components and were stated at the lower of cost (first-in first-out) or market. 47 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 was compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value was required. 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. 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. 48 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. 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. During fiscal 2004 our net income / (loss) was identical to our comprehensive income / (loss). 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 fiscal 2004 as our share price was less than the exercise price of all outstanding stock options and there were no warrants outstanding. 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. Recently Issued Accounting Pronouncements -- 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 SFAS No. 151, "Inventory Costs an amendment of ARB No.43, Chapter 4." This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The initial application of SFAS No. 151 will have no impact on our financial statements. In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and 67." This Statement references the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-2, "Accounting for Real Estate Time-Sharing Transactions." This Statement also states that the guidance for incidental operations and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. The initial application of SFAS No. 152 will have no impact on our financial statements. 49 In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - a replacement of APB Opinion No. 20 and FASB Statement No. 3." This Statement eliminates 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 nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. We do not expect application of SFAS No. 153 to have a material affect on our financial statements. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error - an amendment of APB Opinion No. 29." This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the usual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Opinion 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects of the cumulative effect of the change. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect application of SFAS No. 154 to have a material affect on our financial statements. 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. Management believes that following our decision to terminate the last of our operating businesses effective June 30, 2003, that our activities during the fiscal year ended June 30, 2004 comprised only one segment and as such, adoption of SFAS No. 131 does not impact the disclosures made in our financial statements. 2. GOING CONCERN AND LIQUIDITY: As of June 30, 2004, we had $0 cash on hand, $5,600 of assets, no operating business or other source of income, outstanding liabilities in excess of $7.9 million and an outstanding law suit brought against us by certain of our shareholders. As of June 30, 2005, we had $0 cash on hand, $26,300 of assets, no operating business or other source of income, outstanding liabilities of approximately $8 million and an outstanding law suit brought against us by certain of our shareholders. Consequently we are now dependent on raising additional equity and, or, debt to fund our ongoing operating expenses and to fund negotiated settlements with our outstanding creditors. There is no assurance that we will be able to negotiate acceptable settlements with our outstanding creditors or to raise the necessary equity and, or, debt to fund the negotiated settlements with our creditors or meet our ongoing operating expenses. If we were to lose the outstanding law suit brought against us by certain of our shareholders it is unlikely that the proceeds from our Directors' and Officers' insurance policy would be sufficient to meet the damages assessed and we would have no alternative but to file for bankruptcy. During the fiscal year ended June 30, 2005, our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There can be no assurance Mr. Cutler will continue to provide us with funding in the future. 50
3. 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: 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. CCI Group, Inc. acquired December 1997. ceased manufacturing in August 2003. ceased providing services December 2003. assets transferred to trustee for the assignment for the benefit of Aspeon and CCI creditors January 2004. Posnet Computers, Inc. acquired December 1997. merged into CCI Group, Inc. January 1999. Javelin Systems Europe, Ltd. established March 1998. sold March 2002. Javelin Systems International Pte 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 established March 2000. sold March 2001. Monument Software Corporation acquired March 2000. merged with RCS in fiscal 2001.
51 4. 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. 5. FIXED ASSETS As at June 30, 2003 our fixed assets comprised: Leasehold improvements $ 126,512 Office furniture and equipment 116,502 Computer equipment 599,032 Equipment on lease 362,285 Warehouse equipment 26,760 Test equipment 37,088 Depot spares 323,910 Less: accumulated depreciation (1,118,850) --------------- Net book value 473,239 =============== Effective January 1, 2004 all fixed assets were transferred to the trustee of the assignment for the benefit of the Aspeon and CCI creditors. Depreciation expense was $92,083 in the fiscal year ended June 30, 2004. 6. 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, 2004 and 2003 our total liabilities also included certain liabilities in respect of Javelin Asia and RCS that remained outstanding following the termination of their operations. 52 7. 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% 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% 53 (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 $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. Aspeon did not guarantee this line of credit which ceased to be a liability of the group 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 2001at 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. Aspeon did not guarantee this line of credit which ceased to be a liability of the group 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. 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. 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 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 June 30, 2004, the balance of notes payable represented a note payable 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 this note payable as at June 30, 2004 which remains an outstanding liability of ours. During the fiscal year ended June 30, 2005, our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There can be no assurance that Mr. Cutler will provide us with further funding in the future. 8. 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: 54 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 (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: 55
Three months Nine months Ended Ended ---------------- ------------------ March 31, 2001 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 ================== ==================
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 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. 56 9.COMMITMENTS: Leases As reported in our Form 10K for the fiscal year ended June 30, 2000: We leased our facilities and certain equipment under non-cancelable operating leases subject to scheduled rent increases. The leases were scheduled to expire at various dates through December 2007. We leased certain computer and office equipment under capital leases with three to five-year terms and interest rates ranging from 9.5% to 15%. The cost of assets acquired under capital leases during the year ended June 30, 2000 was $551,800 with accumulated amortization of $75,700 as of June 30, 2000. Minimum lease commitments at June 30, 2000 are as follows: YEAR ENDING JUNE 30 CAPITAL OPERATING ------------------- --------- ---------- 2001..................................... $ 151,400 $1,842,300 2002..................................... 111,800 1,734,300 2003..................................... 105,500 1,519,300 2004..................................... 71,900 929,100 2005..................................... 53,900 769,500 Thereafter............................... -- 1,461,100 ---------- ---------- Total minimum lease payments............. 494,500 $8,255,600 ========== Less amount representing interest........ (51,700) ---------- Present value of minimum obligations..... 442,800 Current portion.......................... (137,600) ---------- Long-term portion........................ $ 305,200 ========== We had borrowing under capital equipment leases with principal balances outstanding at September 30, 2000 totaling $711,200. We had borrowing under capital equipment leases with principal balances outstanding at December 31, 2000 totaling $1,080,400. We had borrowing under capital equipment leases with principal balances outstanding at March 31, 2001 totaling $999,200. As at June 30, 2003 and 2004 we were in default on all of our outstanding capital and operating leases and the full amount of our liability under theses lease is recorded as current liabilities included in our balance of accounts payable. Rent expense under operating lease agreements aggregated approximately $ 6,000 for the year ended June 30, 2004 and was included in general and administrative expenses in our consolidated statements of operations. 57 Employment Agreements We had employment agreements with our key employees, which expired at various dates through June 2003. Certain agreements provided for incentive bonuses which are payable if specified management goals are attained. Future annual minimum payments under the employment agreements as of June 30, 2000 were as follows: EMPLOYMENT YEAR ENDING JUNE 30 AGREEMENT ------------------- ---------- 2001............................ $2,118,000 2002............................ 1,830,000 2003............................ 1,491,000 ---------- Total........................... $5,439,000 ========== Effective June 30, 2003 the 11 individuals covered by these employment agreements had resigned of their own volition or left us on the basis of negotiated settlements that had been paid in full. 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 have 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 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 has once again the dismissal and the appeal is anticipated to be heard before the end of 2005. At present we believe that the proceeds from our Directors' and Officers' insurance policy will be sufficient to meet the legal cost incurred in defending the consolidated law suit. However, there is no assurance that the proceeds from our Directors' and Officers' insurance policy will be sufficient to meet the legal cost incurred in defending the consolidated law suit 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 the law suit 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 58 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 alleges 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. 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 contingent liability in respect of this lease ended in September 2003 with the expiration of the lease. 10. 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 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. 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 amount of the loans was due on the first anniversary of the loans. Repayment of the loans was 59 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. During the fiscal year ended June 30, 2005, our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There is no assurance that Mr. Cutler will continue to provide us with further funding in the future. 11. STOCKHOLDERS' DEFICIT: Preferred Stock -- We have the authority to issue 1,000,000 shares of preferred stock of which 10,000 was subsequently designated as mandatorily redeemable stock. The Board of Directors has the authority to issue such preferred stock in series and determine the rights and preferences of the shares. Common Stock - Since our Form 10K issued in respect of the fiscal year ended June 30, 2000 the following issues of common stock have taken place: In August 2000, 150 shares of Preferred Stock plus accrued and unpaid dividends were converted into 53,054 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. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. 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. 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 7, 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 60 Solutions, Inc., at an exercise price of $5.00 per share in connection with its issuance of our Preferred Stock (Note 8). 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 June 30, 2003 and 2004, no warrants were outstanding. 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. 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 year ended June 30, 2004, 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: YEAR ENDED JUNE 30, 2004 ------------- WEIGHTED AVERAGE OPTIONS EXERCISE PRICE 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 =========== ======= 61
The range of exercise prices for options outstanding and options exercisable at June 30, 2004 were as follows: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------ ------------------------------ RANGE OF WEIGHTED AVERAGE WEIGHTED EXERCISE PRICE OUTSTANDING REMAINING LIFE EXERCISABLE EXERCISE PRICE --------------- ----------- ----------------- ----------- ---------------- $0.07.............. 250,000 3.0 250,000 $ 0.07 $0.06............. 600,000 8.8 366,667 0.06 --------- --- ------- ------- 850,000 7.0 616,667 $ 0.063 ========= === ======= =======
All the above options were cancelled during the fiscal year ended June 30, 2005 with the resignation of Richard P Stack in April 2005. Pro Forma Stock-Based Compensation Disclosures -- We apply APB Opinion 25 and related interpretations in accounting for our stock options that are granted to employees. Accordingly, no compensation cost has been recognized for grants of options to employees since the exercise prices were not less than the quoted value of our common stock on the grant dates. Had compensation cost been determined based on the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, our net income (loss) and earnings (loss) per share would have been unchanged as all expenses in respect of issued stock options were immaterial . 12. INCOME TAXES: We currently have very substantial net operating losses carried forward for Federal and State tax purposes which, unless utilized, expire from 2012 through 2024. However, it is likely that if we are successful in our attempt to merge with another entity, our ability to use these losses will be substantially restricted by the impact of section 382 of the Internal Revenue Code following such a merger. 13. SUBSEQUENT EVENTS: 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, winning the outstanding law suit brought against us by certain of our shareholders, bringing our financial records and SEC filings up to date, seeking re-listing on the over the counter bulletin board, raising additional debt and, or, equity to fund our negotiated settlement 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 can be successfully completed. On April 22, 2005 our sole director, David J Cutler 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 shares of our common stock to be determined. The due diligence process is yet to be finalized and no shares of our common stock have been issued in respect of this agreement as yet. 62 During the fiscal year ended June 30, 2005 our 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. Since that date Mr. Cutler has continued to make further advances to us 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. There can be no guarantee that Mr. Cutler will continue to provide us with further funding 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. We have had no response to our fax to the SEC and there can be no assurance that we will not be deregistered by the SEC in due course. On September 12, 2005 we retained Larry O'Donnell, CPA, P.C. as our independent auditing firm 63 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASPEON, INC. Date: October 31, 2005 By: /s/ DAVID J. CUTLER -------------------- David J Cutler Chief Executive Officer, & Chief Financial Officer In accordance with the Securities Exchange Act of 1924, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ DAVID J. CUTLER Chief Executive Officer October 31, 2005 ------------------------ David J. Cutler & Chief Financial Officer (Principal Financial and Accounting Officer) 64 UNAUDITED EXTRACTS FROM 2001 - 2003 FINANCIAL STATEMENTS
ASPEON, INC. CONSOLIDATED BALANCE SHEET AS AT JUNE 30 2000 2001 2002 2003 Audited Unaudited Unaudited Unaudited ASSETS Current assets Cash and cash equivalents $ 8,853,200 $ 1,179,100 234,900 $ 1,500 Investments 1,025,200 0 0 0 Accounts receivable 12,856,000 6,502,900 1,762,800 986,800 Inventories 20,666,300 7,184,600 441,800 586,400 Income tax receivable 2,713,700 0 0 0 Prepaid expenses and other current assets 1,955,600 1,073,500 407,300 233,500 ----------- ----------- ----------- ----------- Total current assets 48,070,000 15,940,100 2,846,800 1,808,200 Property and equipment, net 5,525,900 3,136,600 577,700 473,200 Goodwill 36,627,700 11,224,900 500,000 0 Other intangible assets 782,200 0 0 0 Other assets, net 777,700 330,900 106,600 5,200 ----------- ----------- ----------- ----------- Total assets $ 91,783,500 $ 30,632,500 4,031,100 $ 2,286,600 =========== =========== =========== =========== LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND SOCKHOLDERS' EQUITY / (DEFICIT) Current liabilities Line of credit $ 3,189,000 $ 967,700 0 $ 0 Manditorily redeemable preferred stock (in default) 0 13,969,200 0 0 Accounts payable 10,598,600 8,824,200 5,565,700 10,780,800 Accrued expenses 7,249,200 2,960,400 1,289,400 803,300 Current maturities of long-term debt 1,037,600 590,100 827,100 610,400 Purchase price payable for acquisitions 0 2,126,400 1,123,900 1,123,900 Customer deposits and unearned income 2,772,800 2,062,700 786,000 442,400 Income taxes payable 0 199,100 9,100 0 ----------- ----------- ----------- ---------- Total current liabilities 24,847,200 31,699,800 9,601,200 13,760,800 Long-term debt, net of current portion 305,200 857,300 1,690,900 0 Purchase price payable for acquisitions 1,868,200 0 0 0 Other 277,400 35,300 0 0 ----------- ----------- ----------- ---------- Total liabilities 27,298,000 32,592,400 11,292,100 13,760,800 Manditorily redeemable Series A preferred stock $0.01 par value, 10,000 issued and outstanding 6,042,100 0 0 0 Manditorily redeemable warrants 3,426,600 3,426,600 0 0 Manditorily redeemable minority interest warrants 867,300 0 0 0 Stockholders' equity / (deficit) Preferred stock, $0.01 par value, 990,000 shares authorized (1,000,000 authotized net of 10,000 designated as mandatorily redeemable stock); no shares issued and outstanding 0 0 0 0 Common Stock, $0.01 par value, 20,000,000 shares authorized 9,436,215 (2000 - 9,383,161) and issued and outstanding 93,800 94,400 94,400 94,400 Additional paid in capital 65,049,500 65,143,600 84,938,400 84,938,400 Treasury stock 0 (60,000) (60,000) (60,000) Accumulated deficit (10,025,900) (68,962,100) (92,618,900) (96,518,900) Accumulated other comprehensive (loss) / profit (967,900) (1,602,400) 385,100 71,900 ----------- ----------- ----------- ---------- Total stockholders' equity / (deficit) 54,149,500 (5,386,500) (7,261,000) (11,474,200) Total liabilities, mandatorily redeem- able securities, and stockholders' ----------- ----------- ----------- ---------- equity / (deficit) $ 91,783,500 $ 30,632,500 4,031,100 $ 2,286,600 =========== =========== =========== ==========
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ASPEON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30 2000 2001 2002 2003 Audited Unaudited Unaudited Unaudited Revenues Products $ 54,902,300 $ 40,883,600 $ 22,131,700 $ 10,749,100 Services 26,142,900 20,227,000 10,406,600 2,476,000 ------------ ------------ ------------ ------------ Total revenues 81,045,200 61,110,600 32,538,300 13,225,100 Cost of revenues Products 40,973,800 38,811,400 19,173,100 8,345,500 Services 20,300,100 16,550,900 9,622,200 1,331,400 ------------ ------------ ------------ ------------ Total cost of revenues 61,273,900 55,362,300 28,795,300 9,676,900 ------------ ------------ ------------ ------------ Gross profit 19,771,300 5,748,300 3,743,000 3,548,200 Operating expenses Research and development 1,968,000 1,285,200 779,300 503,200 Selling and marketing 8,396,900 6,622,700 2,550,300 789,300 General and administrative 19,189,800 25,703,100 9,704,800 4,412,700 Impairment charge 0 23,531,000 12,874,100 1,850,900 Gain on settlement of litigation 0 0 0 0 Gain on assignment for the benefit of creditors 0 0 0 0 ------------ ------------ ------------ ------------ Total operating expenses 29,554,700 57,142,000 25,908,500 7,556,100 Income / (loss) from operations (9,783,400) (51,393,700) (22,165,500) (4,007,900) Interest expense (807,800) (2,395,800) (1,731,700) (58,000) Interest income 422,800 360,600 21,100 4,300 Other income (expense), net (82,300) 1,026,300 661,900 161,500 ------------ ------------ ------------ ------------ Income (loss) before income tax and (10,250,700) (52,402,600) (23,214,200) (3,900,100) cumulative effect of accounting change Income tax (expense) / benefit 949,500 (159,200) (1,800) 100 ------------ ------------ ------------ ------------ Income (loss) before cumulative effect of (9,301,200) (52,561,800) (23,216,000) (3,900,000) accounting change Cumulative effect of accounting change 0 817,600 0 0 ------------ ------------ ------------ ------------ Net income / (loss) (9,301,200) (51,744,200) (23,216,000) (3,900,000) Accretion of mandatorily redeemable (6,090,500) (7,192,057) 0 0 Series A Preferred stock discounts and dividends ------------ ------------ ------------ ------------ Net income (loss) available to common stockholders $(15,391,700) $ (58,936,257) $ (23,216,000) $ (3,900,000) ============ ============ ============ ============ Basic and Dilured income (loss) per share: Before cumulative effect of accounting change $ (1.67) $ (6.35) $ (2.46) $ (0.41) Cumulative effect of accounting change 0.00 0.09 0.00 0.00 ------------ ------------ ------------ ------------ Net income (loss) $ (1.67) $ (6.26) $ (2.46) $ (0.41) ============ ============ ============ ============ Shares used in computing income (loss) per common share: Basic and Diluted 9,243,079 9,411,345 9,436,215 9,436,215 ============ ============ ============ ============
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APEON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / (DEFICIT) Common Stock Additional Deferred Accumulated Paid - in Stock-based Treasury Accumulated Comprehensive Shares Amount Capital Compensation Stock Deficit Loss Total # $ $ $ $ $ $ $ Balance, June 30, 1999 - audited 8,887,203 $ 88,900 $55,800,700 $(6,700) $ 0 $ 3,799,700 $ (72,200) $59,610,400 Shares issued in connection with 104,802 1,000 2,059,700 - - - - 2,060,700 the acquisition of Monument Shares issued in connection with 271,256 2,700 2,565,300 - - - - 2,568,000 the earnout provisions of the RGB and Jade acquisition Manditorily redeemable preferred - - 3,708,400 - - (3,708,400) - - stock beneficial conversion feature Accretion of manditory - - - - - (816,000) - (816,000) redeemable stock discount and dividends Amortization of deferred stock- - - - 6,700 - - - 6,700 based compensation Exercise of stock options 119,900 1,200 915,400 - - - - 916,600 Comprehensive loss - - - - - (9,301,200) (895,700) (10,196,900) --------- --------- ----------- --------- ---------- ------------ ------------ ----------- Balance, June 30, 2000 - audited 9,383,161 93,800 65,049,500 0 0 (10,025,900) (967,900) 54,149,500 Conversion of manditorily 53,054 600 94,100 94,700 redeemable preferred stock Accretion of manditory (7,192,000) (7,192,000) redeemable stock discount and dividends Purchase of Treasury Stock (60,000) (60,000) Comprenensive loss (51,744,200) (634,500) (52,378,700) --------- --------- ----------- --------- ---------- ------------ ------------ ----------- Balance, June 30, 2001 - unaudited 9,436,215 94,400 65,143,600 0 (60,000) (68,962,100) (1,602,400) (5,386,500) Accretion of manditory redeemable (440,800) (440,800) stock discount and dividends Comprehensive loss (23,216,000) 1,987,500 (21,228,500) Forgiveness of Deferred Earnouts 741,000 741,000 Cancellation of Preferred Stock 15,627,200 15,627,200 Cancellation of Warrants 3,426,600 3,426,600 --------- --------- ----------- --------- ---------- ------------ ------------ ----------- Balance, June 30 2002 - unaudited 9,436,215 94,400 84,938,400 0 (60,000) (92,618,900) 385,100 (7,261,000) Comprehensive Loss (3,900,000) (313,200) (4,213,200) --------- --------- ----------- --------- ---------- ------------ ------------ ----------- Balance, June 30 2003 - Unaudited 9,436,215 $ 94,400 $84,938,400 $ 0 $ (60,000) $(96,518,900 $ 71,900 $(11,474,200) ========= ========= =========== ========= ========== ============ ============ ===========
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