<PAGE>

                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
                                          
                                     FORM 10-Q
                                          
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
                                          
                                         OR
                                          
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934
                                          
                         COMMISSION FILE NUMBER: 001-14001


                            CUMETRIX DATA SYSTEMS CORP.
               (Exact Name of Registrant as Specified in its Charter)


        California                                         95-4574138
(State or Other Jurisdiction of                         (I.R.S. Employer
Incorporation or Organization)                         Identification No.)
         
                  957 Lawson Street, Industry, California 91748
                  ---------------------------------------------
                     (Address of Principal Executive Offices)

        Registrant's Telephone Number, Including Area Code: (626) 965-6899

                                        NONE
        -------------------------------------------------------------------
        (Former name, address and fiscal year if changed since last report)


   Indicate by check mark whether the registrant: (1) has filed all reports

<PAGE>

required to be filed by Section 13 or 15(d) of the Security 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 last 90 days. Yes /X/ No/ /

     Indicate the number of shares outstanding of each of the issuer's 
classes of stock as of the latest practicable date: 7,452,500 shares of 
Common Stock, without par value, as of August 14, 1998.

                                       1

<PAGE>


                            CUMETRIX DATA SYSTEMS CORP.
                                       INDEX

<TABLE>
<CAPTION>

                                          
PART I.   FINANCIAL INFORMATION
                                          
     ITEM 1.   FINANCIAL STATEMENTS

                                                                             Page
                                                                             ----
<S>                                                                         <C>
          1.   Condensed Balance Sheets - June 30, 1998 (unaudited) and  
               March 31, 1998                                                  3
          2.   Condensed Statements of Operations - Three Months Ended 
               June 30, 1998 and 1997 (unaudited)                              4
          3.   Condensed Statements of Cash Flows - Three Months Ended 
               June 30, 1998 and 1997 (unaudited)                              5
          4.   Notes to Financial Statements  (unaudited)                      6
                                          
     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
               AND RESULTS OF OPERATIONS.                                      7
                                            
PART II.  OTHER INFORMATION
                                          
     ITEM 1.   LEGAL PROCEEDINGS                                              24
                                          
     ITEM 2.   CHANGES IN SECURITIES                                          24
                                          
     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                27
                                          
     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS          27
                                          
     ITEM 5.   OTHER INFORMATION                                              27
                                          
     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                               27
                                          
     SIGNATURES                                                               27
</TABLE>
                                       2

<PAGE>


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                         CUMETRIX DATA SYSTEMS CORP.
                               BALANCE SHEETS


<TABLE>
<CAPTION>
  ASSETS                                                    June 30,             March 31,
                                                              1998                 1998
                                                           -----------          -----------
                                                           (unaudited)
<S>                                                        <C>                  <C>
  CURRENT ASSETS:
      Cash and cash equivalents. . . . . . . . . . . .     $12,129,318          $ 4,415,690
      Trade receivables, net of allowance for 
        doubtful accounts of $84,000 and $57,000 
        at June 30, 1998 and March 31, 1998, respectively    4,759,814            3,885,803
      Inventories. . . . . . . . . . . . . . . . . . .       4,407,368            2,001,597
      Deferred taxes . . . . . . . . . . . . . . . . .          65,297              133,647
      Prepaid expenses . . . . . . . . . . . . . . . .         196,466               45,983
                                                           -----------          -----------
                Total current assets . . . . . . . . .      21,558,263           10,482,720
                                                           -----------          -----------
  FIXED ASSETS, net. . . . . . . . . . . . . . . . . .         135,614               87,538
  DEFERRED OFFERING COSTS. . . . . . . . . . . . . . .          -                   514,927
  CAPITALIZED PURCHASED SOFTWARE COSTS . . . . . . . .       1,100,000            1,100,000
                                                           -----------          -----------
                Total Assets . . . . . . . . . . . . .     $22,793,877          $12,185,185
                                                           -----------          -----------
                                                           -----------          -----------

  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  CURRENT LIABILITIES:
      Accounts payable . . . . . . . . . . . . . . . .     $ 9,559,228          $ 7,822,652
      Accrued expenses . . . . . . . . . . . . . . . .         172,397              641,844
      Income taxes payable . . . . . . . . . . . . . .          -                   717,013
      Current portion of long-term debt. . . . . . . .           3,790            1,203,707
                                                           -----------          -----------
         Total current liabilities . . . . . . . . . .       9,735,415           10,385,216
                                                           -----------          -----------
  LONG-TERM DEBT, net of current portion . . . . . . .           7,885                8,864
                                                           -----------          -----------
  COMMITMENTS AND CONTINGENCIES
  SHAREHOLDERS' EQUITY:
    Preferred stock, no par value: Authorized, 2,000,000
      shares; issued and outstanding, none . . . . .             -                    -
    Common stock, no par value: Authorized, 20,000,000
      shares; issued and outstanding, 7,452,500 and
      4,750,000 at June 30, 1998 and March 31, 1998,
      respectively . . . . . . . . . . . . . . . . . .      12,273,412            1,042,589
    Retained earnings. . . . . . . . . . . . . . . . .         777,165              748,516
                                                           -----------          -----------
         Total shareholders' equity. . . . . . . . . .      13,050,577            1,791,105
                                                           -----------          -----------
         Total liabilities and shareholders' equity. .     $22,793,877          $12,185,185
                                                           -----------          -----------
                                                           -----------          -----------
</TABLE>

     The accompanying notes are an integral part of these balance sheets.

                                       3

<PAGE>


                         CUMETRIX DATA SYSTEMS CORP.
                          STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                            June 30,
                                                       1998           1997
                                                   -----------     -----------
                                                           (unaudited)
<S>                                                <C>             <C>
 NET SALES. . . . . . . . . . . . . . . . . . .    $18,414,526     $10,847,145
 COST OF PRODUCTS . . . . . . . . . . . . . . .     17,982,616      10,423,376
                                                   -----------     -----------
     Gross profit . . . . . . . . . . . . . . .        431,910         423,769
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .        528,852         312,244
                                                   -----------     -----------
     Income (Loss) from operations. . . . . . .        (96,942)        111,525
 INTEREST EXPENSE . . . . . . . . . . . . . . .         (1,880)         (1,027)
 INTEREST INCOME  . . . . . . . . . . . . . . .        147,971             550
                                                   -----------     -----------
     Income before provision for income taxes .         49,149         111,048
 PROVISION FOR INCOME TAXES . . . . . . . . . .         20,500          44,500
                                                   -----------     -----------
 NET INCOME . . . . . . . . . . . . . . . . . .         28,649          66,548
                                                   -----------     -----------
 BASIC AND DILUTED EARNINGS PER SHARE . . . . .    $      0.00     $      0.01
                                                   -----------     -----------
                                                   -----------     -----------
</TABLE>

     The accompanying notes are an integral part of these statements.

                                       4

<PAGE>


                         CUMETRIX DATA SYSTEMS CORP.
                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                                         June 30,
                                                                    1998          1997
                                                                -----------     ---------
                                                                        (unaudited)
<S>                                                             <C>            <C>
  CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income . . . . . . . . . . . . . . . . . . . . . .        $   28,649    $   66,548
    Adjustments to reconcile net income to net cash 
      and cash equivalents used in operating activities: 
                Depreciation and amortization . . . . . .             2,250           950
                Provision for doubtful accounts . . . . .            27,000        15,000
                Loss on receivable from director  . . . .             -           100,000
          Changes in assets and liabilities:
                Trade receivables . . . . . . . . . . . .          (901,011)   (1,958,044)
                Inventories . . . . . . . . . . . . . . .        (2,405,771)     (409,161)
                Deferred taxes. . . . . . . . . . . . . .            68,350         -
                Prepaid expenses. . . . . . . . . . . . .          (150,483)       (5,021)
                Accounts payable. . . . . . . . . . . . .         1,736,576     1,966,047
                Accrued expenses. . . . . . . . . . . . .          (469,447)       (4,901)
                Income taxes payable. . . . . . . . . . .          (717,013)        -
                                                                -----------     ---------
                Net cash (used) by operating 
                    activities  . . . . . . . . . . . . .        (2,780,900)     (228,582)
                                                                -----------     ---------
  CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of fixed assets . . . . . . . . . . . . . . .          (50,326)       (4,101)
   Receivables from related parties. . . . . . . . . . . .            -            39,700
                                                                -----------     ---------
                Net cash provided (used) in 
                    investing activities . . . . . . . . .          (50,326)       35,599
                                                                -----------     ---------
  CASH FLOWS FROM FINANCING ACTIVITIES: 
   Proceeds from initial public offering, net  . . . . . .       11,230,823         -
   Payments on bank borrowings . . . . . . . . . . . . . .           -              (821)
   Payments on long-term debt  . . . . . . . . . . . . . .       (1,200,896)        -
   Proceeds from stock issuance  . . . . . . . . . . . . .            -           300,000
   Deferred offering costs   . . . . . . . . . . . . . . .          514,927        -
                                                                -----------     ---------
                Net cash provided by 
                   financing activities  . . . . . . . . .       10,544,854       299,179
                                                                -----------     ---------
 NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . .       7,713,628       106,196
 CASH AND CASH EQUIVALENTS, beginning of period . . . . . .       4,415,690       479,796
                                                                -----------     ---------
 CASH AND CASH EQUIVALENTS, end of period . . . . . . . . .     $12,129,318     $ 585,992
                                                                -----------     ---------
                                                                -----------     ---------
</TABLE>

     The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                         CUMETRIX DATA SYSTEMS CORP.
                        NOTES TO FINANCIAL STATEMENTS
                                June 30, 1998
                                 (Unaudited)



1.   Basis of Presentation

     The accompanying unaudited financial statements have been prepared in 
conformity with generally accepted accounting principles. However, certain 
information and footnote disclosures normally included in financial 
statements prepared in conformity with generally accepted accounting 
principles have been omitted or condensed pursuant to the rules and 
regulations of the Securities and Exchanges Commission (SEC). These 
statements should be read in conjunction with the Company's March 31, 1998 
audited financial statements and notes thereto included in the Company's Form 
10-K dated June 5, 1998, including all amendments thereto. In the opinion of 
management, these interim financial statements reflect all adjustments 
(consisting of normal recurring adjustments) necessary for a fair 
presentation of the financial position and results of operations for each of 
the periods presented. The results of operations and cash flows for such 
periods are not necessarily indicative of results to be expected for the full 
year.

2. Earnings Per Common Share

     Earnings per share calculations are in accordance with SFAS No. 128, 
"Earnings per Share" (SFAS 128). Accordingly, "basic" earnings per share is 
computed by dividing net income by the weighted average number of shares 
outstanding for the year. "Diluted" earnings per share is computed by 
dividing net income by the total of the weighted average number of shares 
outstanding plus the dilutive effect of outstanding stock options (applying 
the treasury stock method). Earnings per share amounts for 1997 have been 
restated to reflect the adoption of SFAS No. 128.

     A reconciliation of the basic weighted average number of shares 
outstanding and the diluted weighted average number of shares outstanding for 
each of the three month periods ended June 30, follows:

<TABLE>
<CAPTION>

                                                       1998         1997
                                                    ---------    ---------
<S>                                                <C>          <C>
  Weighted average number of common shares
     outstanding-Basic                              7,196,271    4,494,329
  Dilutive effect of outstanding stock options        252,021       -
                                                    ---------    ---------
  Weighted average number of common shares
      outstanding-Diluted                           7,448,292    4,494,329
                                                    ---------    ---------
                                                    ---------    ---------
</TABLE>

                                       6

<PAGE>


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

     THIS DISCUSSION SUMMARIZES THE SIGNIFICANT FACTORS AFFECTING THE 
OPERATING RESULTS, FINANCIAL CONDITION AND LIQUIDITY/CASH FLOWS OF THE 
COMPANY FOR THE QUARTERS ENDED JUNE 30, 1998 AND 1997. EXCEPT FOR THE 
HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND 
UNCERTAINTIES AND ARE BASED UPON JUDGMENTS CONCERNING VARIOUS FACTORS THAT 
ARE BEYOND THE COMPANY'S CONTROL.  ACTUAL RESULTS COULD DIFFER MATERIALLY 
FROM THOSE PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF, AMONG 
OTHER FACTORS, THE FACTORS SET FORTH UNDER THE CAPTION "CAUTIONARY STATEMENTS 
AND RISK FACTORS" BELOW.

Overview

     The Company was founded in April 1996, and until December of 1996 
operated entirely as a distributor and value added reseller of computer 
equipment and related hardware components and software peripherals ("Computer 
Products"). In December of 1996, the Company entered the system configuration 
business. This process required certain organizational and operational 
changes to effectively position the Company as a provider of configuration 
and integration solutions to various levels within the distribution, 
integration and end-user markets. 

     In order to enhance its competitive advantage in the systems integration 
market, the Company has entered into a perpetual non-exclusive licensing 
agreement with Computer Aided Software Integration, Inc. ("CASI") to license 
CASI's Configurator software for use in the development and commercialization 
of the Company's Automated Custom System Assembly Solution (the "ACSA 
Solution"). The Company paid CASI a one-time license fee of $1.1 million. The 
license fee was paid (i) by delivering to CASI a non-interest bearing 
promissory note in the principal amount of $950,000 (the "CASI Note"), and 
(ii) a cash payment of $150,000 advanced by an officer of Datatec Systems, 
Inc. ("Datatec"), CASI's parent, and evidenced by a promissory note (the 
"Datatec Note") of the Company in favor of such officer of Datatec. The 
payments under the CASI Note were capitalized and will be amortized starting 
when the configurator software is placed in service over the useful life of 
the software, which, for accounting purposes, is currently estimated to be 
between three and five years. 

     Competitive factors in the Computer Products market include price, 
service and support, the variety of products offered, and marketing and sales 
capabilities.  While the Company believes that it competes successfully with 
respect to most, if not all of these factors, there can be no assurance that 
it will continue to do so in the future. The industry has come to be 
characterized by aggressive price cutting which intensified in the first 
quarter of fiscal 1999 as a result of industry wide pricing pressures 
resulting from excess supplies from major manufacturers and reduced demand in 
the overall personal computer industry. These factors can in part be traced 
to the economic slow-down in Asia and excess worldwide build up of personal 
computers in the first calendar quarter of 1998. The Company expects that 
these factors will continue to sustain pricing pressures at least until fall 
of 1998 and possibly longer. As a result of these pricing pressures, the 
Company's margins have been pressured and the Company has declined to compete 
for certain lower margin business. However, the Company will need to 
continually provide competitive prices, superior product selection and 
delivery response time in order to remain competitive. If the Company were to 

                                       7
<PAGE>


fail to compete favorably with respect to any of these factors, the Company's 
business and operating results may be adversely affected.

     Also, the Company's business is subject to certain quarterly influences. 
Net Sales and operating profits are generally higher in the third fiscal 
quarter due to the purchasing patterns of personal computer integrators and 
resellers and are generally lower in the first and second fiscal quarters due 
primarily to lower industry shipments.

     This discussion summarizes the significant factors affecting the 
operating results, financial condition and liquidity/cash flows of the 
Company for the quarters ended June 30, 1998 and 1997. The Company has a 
limited history of operations. 

Results of Operations

THREE MONTHS ENDED JUNE 30, 1998 AND 1997.

 NET SALES. Net sales for the quarter ended June 30, 1998 were $18,414,526 
compared to $10,847,145 in the previous year. This increase of $7,567,381 or 
69.8% in net sales is attributable to growth of the Company's sales force 
from 6 to 9 individuals at the end of 1997 and 1998, respectively, and an 
increase in the Company's available combined purchasing credit (including its 
vendor credit and a line of credit from Finova Capital Corporation (the 
"Finova Line"), from $3.2 million to $16.5 million (as a 90 day average 
available credit for the respective periods) which allowed the Company to 
increase its ability to purchase product to fulfill more sales orders. 
However, as a result of sustained industry oversupply, resulting pricing 
pressures and the Company's determination to attempt to defend margins rather 
than pursue sales growth through low margin sales, the Company expects that 
its historical annual growth rate for net sales will not be sustained in 
fiscal 1999 and that these pricing pressures will continue to affect gross 
profit.

 COST OF PRODUCTS.  Cost of products increased $7,559,240 from $10,423,376 to 
$17,982,616 for the quarter ended June 30, 1997 and 1998, respectively. This 
increase is mainly attributable to the increase in net sales.

 GROSS PROFIT.  Gross profit for the quarter ended June 30, 1998 was $431,910 
compared to $423,769 in the quarter ended June 30, 1997. Gross profit as a 
percentage of net sales was 2.3% for the quarter ended June 30, 1998 compared 
to 3.9% for the quarter ended June 30, 1997. This represents a 40% decrease 
in gross profit, and is mainly attributable to industry oversupply and the 
resulting pricing pressures facing the industry as a whole.

                                       8
<PAGE>


 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative expenses for quarter ended June 30, 1998 were $528,852 
compared to $312,244 for the quarter ended  June 30, 1997. 

     The major components of selling, general and administrative expenses for 
the periods include the following:

<TABLE>
<CAPTION>
                                                       Three Months Ended
                                                           June 30,
                                                       1998          1997
                                                    ----------    ---------
<S>                                                <C>           <C>
 Payroll                                            $  270,354    $ 147,708
 Commissions                                            48,113       23,402
 Write-off of related party receivable                       -      100,000
 Bad debt                                               27,000       15,000
 Rent                                                   37,675       11,904
 Other (under 5%)                                      145,710       14,230
                                                    ----------    ---------
    Total                                           $  528,852    $ 312,244
                                                    ----------    ---------
                                                    ----------    ---------
</TABLE>

     The increase of $216,608 in selling, general and administrative expenses 
is attributable to increased staff and overhead to support the higher levels 
of sales and marketing activity. The Company's salaries of its executive 
officers are at levels the Company believes to be commensurate with current 
market value compared to the quarter ended June 30, 1997. In addition, the 
Company hired additional personnel in finance and administration to 
facilitate growth of the Company's infrastructure and revenue expansion. 
Other SG&A costs in the quarter included rent in a larger facility, legal and 
accounting costs, and costs related to the development of the automated 
custom systems assembly solution. 

Interest Income

     Interest income of $147,971 for the quarter ended June 30, 1998 is 
primarily due to interest income earned on the investment of proceeds from 
the Bridge Financing and proceeds from the initial public offering.

Net Income

     Net income for the quarter ended June 30, 1998 was $28,649 compared to 
$66,548 for the quarter ended June 30, 1997. The decrease of $37,899 is 
mainly attributable to the decrease in gross profit, higher selling, general 
and administrative expenses, offset by interest income. 

Impact of Year 2000

     The Company's present accounting software is not Year 2000 Compliant. 
However, the Company has selected and begun the implementation of a new 
accounting system that will be Year 2000 Compliant. The Company does not 
believe that the costs associated with the new accounting system will be 
material.

     The Company has not yet performed an assessment of computer systems 

                                       9
<PAGE>


belonging to customers, vendors, and other outside parties with whom the 
Company does business. Such an assessment of significant relationships will 
be performed during fiscal 1999. It is not anticipated that such an 
assessment will reveal significant potential problems or will require the 
Company to incur substantial costs.

Liquidity and Capital Resources

     The Company has historically met its working capital and capital 
expenditure requirements through a combination of cash flows from operations, 
bank financing, vendor credit lines, the sale of equity and the Bridge 
Financing (as defined below). 

     On April 8, 1998, the Company's initial public offering (the "Initial 
Public Offering") of 2,702,500 shares of Common Stock at $5 per share 
including overallotment of 352,500 shares provided net proceeds (after 
deducting issuance costs) of $11,200,000.

     In the third quarter of fiscal year 1998, the Company completed a 
financing (the "Bridge Financing") consisting of the sale of 20 units 
generating gross proceeds of $1 million (net proceeds of approximately 
$678,000). Each unit was comprised of : (i) an unsecured promissory note (the 
"Bridge Notes") of the Company in the principal amount of $20,000 (ii) 15,000 
shares of Common Stock of the Company, and (iii) 5,000 Bridge Warrants of the 
Company, at an initial exercise price of $3.00 per share, subject to 
adjustment, during the 36-month period commencing one year from the date the 
Bridge Warrants were issued. The Company repaid $250,000 of the principal 
amount of the CASI Note and $50,000 of the Datatec Note out of the proceeds 
of the Bridge Financing. The Company paid the remainder of its indebtedness 
under the CASI note, the Datatec Note and the Bridge Notes from proceeds of 
the Initial Public Offering.

     In June 1997, the Company obtained credit for inventory purchases 
through Finova Capital Corporation. Purchases are collateralized by inventory 
and accounts receivable. Unless the Company fails to pay Finova within the 
agreed upon period, all finance costs associated with this line are charged 
by Finova to the Company's vendors. This arrangement is personally guaranteed 
by two officers of the Company. At June 30, 1998, the Company's Finova line 
was $7.5 million and the Company had a payable to Finova Capital Corporation 
of approximately $7,013,999 included in accounts payable.

     Net cash used by operating activities during the quarter ended June 30, 
1998 was primarily attributable to an increase in trade receivables, 
inventories and decreases in accrued expenses and income taxes payable offset 
by an increase in accounts payable. Net cash provided by financing activities 
in the quarter ended June 30, 1998 was due primarily to proceeds from the 
Company's initial public offering, offset by payments on notes and deferred 
offering costs.

     The Company believes that current funds and cash generated from 
operations will be sufficient to meet its anticipated cash needs for working 
capital and capital expenditures for at least the next year. The Company 
plans to spend approximately $1,800,000 for its implementation of its 
Automated Custom System Assembly Solutions for marketing, salaries and 
capital expenditures over the next 12 months. The Company is dependent on the 
availability of accounts receivable financing on reasonable terms and at 
levels that are high 

                                      10
<PAGE>


relative to its equity base in order to maintain and increase its sales. No 
assurance can be given that additional financing will be available or that, 
if available, it can be obtained on terms favorable to the Company and its 
stockholders.

Income Taxes

     The Company provides for income taxes using the liability method in 
accordance with the Statement of Financial Accounting Standards No. 109 
entitled "Accounting for Income Taxes." The Company provides for federal and 
state income taxes based on statutory rates. The provision for income taxes 
differ from the amounts computed by applying the statutory federal income tax 
rate to income before taxes primarily due to the effect of state income taxes 
net of the related federal tax benefit. 

     Deferred income taxes are provided for income/expense items reported in 
different periods for income tax and financial statement purposes. Deferred 
income taxes are primarily attributable to temporary differences resulting 
from depreciation, state income taxes and various accrued expenses. The 
Company has no "tax loss carry forwards." 

Inflation

     The Company does not believe that inflation has had a material effect on 
its results of operations. There can be no assurance, however, that the 
Company's business will not be affected by inflation in the future. 

Cautionary Statements and Risk Factors

    LIMITED OPERATING HISTORY.  The Company commenced operations in April 
1996; therefore, there is only limited financial information in existence 
upon which an investment decision may be based. Although the Company has 
achieved profitability, the ability of the Company to sustain profitability 
will depend in part upon the successful and timely introduction and operation 
of its ACSA Centers, continuation of the Company's close relationships with 
its vendors and customers, successful marketing of existing products and the 
Company's ability to finance inventories and growth and to collect trade 
receivables in a timely manner. The likelihood of the success of the Company 
in implementing its ACSA Centers must be considered in light of the 
difficulties and risks inherent in a new business. There can be no assurance 
that revenues will increase significantly in the future or that the Company 
will ever achieve profitable operations for the ACSA Center business. There 
can be no assurance that the Company will be able to generate and sustain 
profitability in the future.

    DEPENDENCE UPON KEY PERSONNEL.  The Company is highly dependent upon the 
services of Max Toghraie and James Ung, its Chief Executive Officer and 
President, respectively. Both James Ung and Max Toghraie are employed 
pursuant to five year employment agreements. The success of the Company to 
date has been in part dependent upon their efforts and abilities, and the 
loss of the services of either of them for any reason could have a material 
adverse effect upon the Company. In addition, the Company's work force 
includes executives and employees with significant knowledge and experience 
in the Computer Products distribution industry. The Company's future success 
will be strongly influenced 

                                      11
<PAGE>

by its ability to continue to recruit, train and retain a skilled work force. 
While the Company believes that it would be able to locate suitable 
replacements for its executives or other personnel if their services were 
lost to the Company, there can be no assurance that the Company would be able 
to do so on terms acceptable to the Company. In particular, the location and 
hiring of suitable replacements for Mr. Toghraie and Mr. Ung could be very 
difficult. The Company maintains a key-man life insurance policy on the lives 
of Messrs. Toghraie and Ung with benefits of $1,000,000 each, payable to the 
Company in the event of their death. The benefits received under these 
policies would not be sufficient to compensate the Company for the loss of 
the services of Mr. Toghraie or Mr. Ung should suitable replacements not be 
employed. 

    PRODUCT MIX; RISK OF DECLINING PRODUCT MARGINS.  The Company's gross 
profit margins have increased from 3.1% to 4.2% in the years ending March 31, 
1997 and 1998, respectively, due to a number of factors, including strong 
product demand, the ability of the Company to obtain favorable pricing, and a 
sales mix of products with higher profit margins. However, as a result of 
sustained industry oversupply and resulting pricing pressures, the Company's 
gross profit percentage decreased from 3.9% for the three months ended June 
30, 1997 to 2.3% for the three months ended June 30, 1998. Given the 
significant levels of competition that characterize the Computer Products 
market, especially desktop hard drive market, and recent pricing pressures and 
oversupply conditions, there can be no assurance that the Company will 
maintain the current gross profit margins or be able to achieve further 
increases in profit margins. From time to time, product margins will also be 
reduced as a result of marketing strategies implemented by the Company. For 
instance, introductory pricing implemented by the Company to develop market 
awareness of product lines, particularly disk drives, of vendors new to the 
Company will have an adverse effect upon gross profit margins and, 
potentially, earnings during the period promotional pricing is offered. 
Moreover, in order to attract and retain many of its larger customers, the 
Company frequently must agree to volume discounts and maximum allowable 
mark-ups that serve to limit the profitability of sales to such customers. 
Accordingly, to the extent that the Company's sales to such customers 
increase, the Company's gross profit margins may be reduced, and therefore 
any future increases in net income will have to be derived from continued 
sales growth or effective expansion into higher margin business segments, 
neither of which can be assured. Furthermore, low margins increase the 
sensitivity of the business to increases in costs of financing, because 
financing costs to carry a receivable can be very high compared to the low 
amount of gross profit on the sale underlying the receivable itself. Any 
failure by the Company to maintain or increase its profit margins and sales 
levels could have a material adverse effect on the Company's results of 
operations and prospects for future growth.

    INDUSTRY EVOLUTION AND PRICE REDUCTIONS; CHANGING METHODS OF 
DISTRIBUTION. The personal computer industry is undergoing significant 
change. The industry has become more accepting of large volume, 
cost-effective channels of distribution such as computer superstores, 
consumer electronics and office supply superstores, national direct marketers 
and mass merchants. In addition, many traditional computer resellers are 
consolidating operations and acquiring or merging with other resellers to 
increase efficiency. This current industry reconfiguration has resulted in 
increased pricing pressures. Decreasing prices of Computer Products require 
the Company to sell a greater number of products to achieve the same level of 
net sales and gross profit. The continuation of such trend would make it more 
difficult for the Company to maintain or to increase its net sales and net 
income. In addition, it is possible that the historically high rate of growth 
of the personal computer industry may slow at some point in the future. If 
the growth rate of the personal computer industry were to decrease, the 
Company's financial position, operating results, and cash flows could be 
materially adversely affected. Furthermore, new methods of distribution and 
sales of Computer Products, such as on-line shopping services and catalogs 
published on CD-ROM, may emerge in the future. Computer Products and software 
manufacturers have sold, and may in the future intensify their efforts to 
sell, their products directly to end users. From time to time, certain 
vendors have instituted programs for the direct sale of large orders of 
Computer Products and software to certain major corporate accounts. These 
types of programs may continue to be developed and used by various vendors. 
While the Company attempts to anticipate future distribution trends, any of 
these distribution methods or competitive programs, if expanded, could have a 
material adverse effect on the Company's financial position, operating 
results, and cash flows. 

                                     12
<PAGE>

    FLUCTUATIONS IN QUARTERLY EARNINGS.  The Company's business is subject to 
certain quarterly influences. Net sales and operating profits are generally 
higher in the fiscal third quarter due to the purchasing patterns of personal 
computer integrators and resellers and are generally lower in the first and 
second fiscal quarter due primarily to lower industry shipments. Quarterly 
results may also be adversely affected by a variety of other factors, 
including the timing of acquisitions and related costs, the release of new 
products, promotions, and component pricing and availability. 

    ASIAN MARKET INSTABILITY.  Economies and financial markets in Asia have 
recently experienced significant turmoil. A non-material portion of the 
Company's revenues are derived from sales to businesses which primarily 
export Computer Products to Asian customers, and certain of the Company's 
vendors are based in Korea, Japan and other Asian countries. The recent turmoil
in the Asian financial markets has not had a material impact on the Company's
sales orders or the Company's ability to obtain products from its Asian 
vendors. The financial instability in these regions has had an adverse impact 
on the financial position of end-users in the region which has been a 
contributing factor to the oversupply condition and pricing pressures 
currently impacting the Company (because Asian vendors have channeled excess 
inventory into the North American market at reduced prices and have reduced 
component demand from domestic manufacturers who export to Asia) and could 
also  impact future orders from the Company's customers and/or the ability of 
such end users to pay the Company's customers, which could also impact the 
ability of such customers to pay the Company. If the Company's customers who 
export into Asia are unable to maintain export sales or current margins on 
such export sales, the Company's sales and/or sales margins may be adversely 
affected. Additionally, if the Company's vendors in these regions are unable 
to continue to supply the Company, the Company may be adversely impacted. 

    DEPENDENCE UPON RELATIONSHIPS WITH VENDORS.  A key element of the 
Company's past success and future business strategy involves the 
establishment of relationships with certain major distributors and Computer 
Product manufacturers. Purchases from these vendors account for the majority 
of the Company's aggregate purchases for fiscal 1997, for the year ended 
March 31, 1998 and the present quarter ended June 30, 1998. For the year 
ended March 31, 1998, DSS Technology Distribution Partners, Inc. ("DSS"), a 
master distributor of hard drives to the Company, accounted for 64% of the 
Company's purchases. Certain of these vendors provide the Company with 
substantial incentives in the form of rebates passed through from the 
manufacturer, discounts, credits and cooperative advertising. There can be no 
assurance that the Company will continue to receive such incentives in the 
future. Other than ordinary purchase orders, the Company does not have 
written supply, distribution or franchise agreements with any of its Computer 
Product vendors. Although the Company believes that it has established close 
working relationships with its principal vendors, the Company's success will 
depend, in large part, on maintaining these relationships and developing new 
vendor relationships for its existing and future product and service lines. 
Because the Company does not have written contracts with any of its vendors, 
there can be no assurance that the Company will be able to maintain these 
relationships. Periodically, Computer Product suppliers consolidate their 
distribution networks and otherwise restructure or limit their distribution 
channels. There can be no assurance that the Company will continue to be 
selected to resell products by its principal vendors. Termination or 
interruption of such relationships or modification of the terms the Company 
receives from these vendors would materially adversely affect the Company's 
financial position, operating results, and cash flows. 

                                     13
<PAGE>

     Certain of the products offered by the Company are subject to 
manufacturer allocations, which limit the number of units of such products 
available to the Company's vendors, which in turn may limit the number of 
units available to the Company. In order to offer the products of most 
manufacturers, the Company is required to obtain authorizations from the 
manufacturers to act as a reseller of such products, which authorizations may 
be terminated at the discretion of the manufacturers at any time. There can 
be no assurance that the Company will be able to obtain or maintain 
authorizations to offer products, directly or indirectly, from new or 
existing manufacturers. Termination of the Company's rights to act as a 
reseller of the products of one or more significant manufacturers would have 
a material adverse effect on the Company's financial position, operating 
results, and cash flows. 

    POSSIBLE ADDITIONAL FINANCING REQUIRED.  The Company's business is capital 
intensive in that the Company is required to finance the purchase of Computer
Products in order to fill sales orders. In order to obtain necessary capital, 
the Company relies primarily on unsecured vendor credit lines and the Finova 
Line provided by Finova Capital Corporation ("Finova") that is collateralized 
by accounts receivable and inventory. As a result, the amount of credit 
available to the Company may be adversely affected by factors such as delays 
in collection or deterioration in the quality of the Company's accounts 
receivable, economic trends in the computer industry, interest rate 
fluctuations and the lending or credit policies of the Company's lenders and 
vendors. Many of these factors are beyond the Company's control. Further, the 
Company must obtain Finova's written permission prior to arranging other 
financing, and Finova may require certain acknowledgments and undertakings 
from other lenders. There can be no assurance that Finova will permit 
additional financing or that other lenders will provide the acknowledgments 
and undertakings Finova may require. Any decrease or material limitation on 
the amount of capital available to the Company under its financing 
arrangements or vendor credit lines will limit the ability of the Company to 
fill existing sales orders or expand its sales levels and, therefore, would 
have a material adverse effect on the Company's financial position, operating 
results, and cash flows. In addition, while the Company does not have 
significant exposure to interest rate fluctuations under its current 
financing, any significant increases in interest rates will increase the cost 
of possible future financing to the Company which would have a material 
adverse effect on the Company's financial position, operating results, and 
cash flows. The Company is dependent on the availability of accounts 
receivable financing on reasonable terms and at levels that are high relative 
to its equity base in order to maintain and increase its sales. There can be 
no assurance that such financing will be available to the Company in the 
future. The inability of the Company to have continuous access to such 
financing at reasonable costs would severely and adversely impact the 
Company's financial position, operating results, and cash flows.

    RISK OF PRODUCT RETURNS.  As is typical of the computer industry, the 
Company incurs expenses as a result of the return of products by customers. 
Such returns may result from defective goods, inadequate performance relative 
to customer expectations, distributor shipping errors and other causes which 
are outside the Company's control. Although the Company's distributors and 
manufacturers have specific return policies that enable the Company to return 
certain types of goods for credit, to the extent that the Company's customers 
return products which are not accepted for return by the distributor or 
manufacturer of such products, the Company will be forced to bear the cost of 
such returns. Any significant increase in the rate of product returns coupled 
with the unwillingness by the Company's distributors or manufacturers to 
accept goods for return could have a material adverse effect on the Company's 
financial position, operating results, and cash flows.

                                      14
<PAGE>

    UNCERTAINTY OF COMMERCIALIZATION OF THE ACSA SOLUTION; IMPORTANCE OF ACSA 
TO GROWTH.  The Company's ability to successfully implement, market and 
introduce the ACSA Solution services on a timely basis will be a significant 
factor in the Company's ability to improve its operating margins and remain 
competitive. The Company's ability to market the ACSA Solution successfully 
will depend on the Company convincing potential customers of the benefits of 
the ACSA Solution. The Company has only recently commenced marketing the ACSA 
Solution. The Company is currently constructing its first ACSA Center located 
in Industry, California. No ACSA Center is currently in operation and the 
Company currently has no sales revenue attributable to the ACSA Solution or 
an ACSA Center. Although the Company is engaged in negotiations and 
discussions with a number of potential customers, there can be no assurance 
that any such discussions will lead to significant sales of the ACSA 
Solution, or that the ACSA Solution will attain market acceptance. Although 
the Company will devote a substantial portion of the proceeds of the 
Company's April 1998 initial public offering to the implementation and 
marketing of ACSA Solution services, there can be no assurance that the 
commitment and use of such funds will result in successful implementation, 
marketing and sales of ACSA Solution services. Any failure by the Company to 
anticipate or respond in a cost-effective and timely manner to market trends 
or customer requirements, or any significant delays in introduction of ACSA 
services, could have a material adverse effect on the Company's business, 
operating results and financial condition. 

    LENGTHY SALES AND IMPLEMENTATION CYCLES FOR ACSA.  The Company believes 
that the purchase of the Company's ACSA Solution services will entail an 
enterprise-wide decision by prospective customers and require the Company to 
engage in a lengthy sales cycle, estimated at between three and twelve 
months, as the Company will be required to provide a significant level of 
education to prospective customers regarding the use and benefits of the 
Company's ACSA Solution services and products. Also, the purchase of ACSA 
Solution services will often depend upon the successful coordination of 
marketing, system design 

                                      15
<PAGE>


and installation efforts by the Company, end-user customers and others with 
influence over the purchase decisions of the Company's customers such as 
consultants, Value Added Resellers ("VARs") and System Integrators ("SIs"). 
Purchase decisions will generally occur only after significant internal 
analysis by each customer and will be subject to competition with other 
capital spending priorities of certain customers. As a result, the sales and 
customer implementation cycles will be subject to a number of significant 
delays over which the Company has little or no control. Delay in the sale or 
customer implementation of a limited number of transactions could have a 
material adverse effect on the Company's business and results of operations 
and could cause the Company's operating results to vary significantly from 
quarter to quarter. 

    DEPENDENCE ON CASI FOR DEVELOPMENT AND ENHANCEMENT OF CONFIGURATION 
SOFTWARE.  Under the Company's non-exclusive license and reseller agreements 
with Computer-Aided Software Integration, Inc. ("CASI"), CASI retains the 
source code of the Configurator software required to operate the automated 
software configuration functions of the Company's planned ACSA Solution and 
ACSA Centers, and retains all rights to modify and enhance the 
Configurator-TM- software. CASI has agreed to provide the Company with all 
enhancements and upgrades to the Configurator software used internally or 
distributed by CASI to its customers, and to develop additional enhancements 
requested by the Company at the Company's sole expense. Any enhancements 
requested by the Company and implemented by CASI at CASI's expense may be 
incorporated in the generally distributed version of CASI's software. If CASI 
determines not to fund development of an enhancement then CASI must prepare 
the enhancement at pre-agreed rates and ownership of the requested 
enhancement will belong to the Company. Failure by CASI to promptly and 
adequately perform its obligations under its license agreement with the 
Company would have a material adverse effect on the Company. Furthermore, 
there can be no assurance that CASI will fully comply with its contractual 
obligations to the Company, that CASI will dedicate sufficient software 
development capacity to satisfy the Company's requirements, or that the 
Company's remedies in the event CASI does not perform its obligations will be 
adequate. The Company has no capability to internally develop any 
enhancements or upgrades. Failure or delay by CASI to fulfill the Company's 
anticipated needs for enhancement and upgrading of the Configurator software 
would adversely affect the Company's ability to market ACSA services and to 
become and remain competitive in the software configuration market. In the 
event that CASI fails to meet its obligations under the license, the Company 
has, among other rights, the contractual right to the source code underlying 
the software, but there can be no assurance that the Company will be able to 
obtain the source code in a timely manner, if at all, because CASI is in 
possession of the only copies of the source code. Even if the Company is able 
to obtain the source code under such circumstances, internal maintenance and 
enhancement of the source code could place a significant financial burden on 
the Company.

    LIMITED MARKETING CAPABILITIES.  The Company's operating results will 
depend to a large extent on its ability to successfully market the ACSA 
Solution services to personal computer manufacturers and multi-user system 
buyers. The Company currently has limited marketing capability. The Company 
has used and intends to use a portion of the proceeds of its April 1998 
initial public offering to hire additional sales and marketing personnel and 
outside consultants to market the ACSA Solution. There can be no assurance 
that any marketing efforts undertaken by 

                                      16
<PAGE>


the Company will be successful or will result in any significant sales of the 
ACSA Solution.

    MANAGEMENT OF GROWTH.  The Company has grown rapidly since inception in 
April 1996, with net sales reaching $25,940,203 in the Company's first fiscal 
year and reaching $72,495,474 for the year ended March 31, 1998, and 
employees increasing from 3 at inception to 33 at June 30, 1998. 
Implementation of the Company's business plan, including implementation of 
ACSA Solution services and the general strains of the Company's growth will 
require that the Company significantly expand its operations in all areas. 
This growth in the Company's operations and activities will place a 
significant strain on the Company's management, operational, financial and 
accounting resources. Successful management of the Company's operations will 
require the Company to continue to implement and improve its financial and 
management information systems. The Company's ability to manage its future 
growth, if any, will also require it to hire and train new employees, 
including management and technical personnel, and motivate and manage its new 
employees and integrate them into its overall operations and culture. The 
Company's failure to manage implementation of its business plan would have a 
material adverse effect on the Company's business, operating results and 
financial condition. 

    RISK OF POTENTIAL JOINT VENTURES OR ACQUISITIONS.  In the future, the 
Company may acquire complementary companies, products or technologies, 
although no specific acquisitions currently are pending or under negotiation. 
Acquisitions involve numerous risks, including adverse short-term effects on 
the combined business' reported operating results, impairments of goodwill 
and other intangible assets, the diversion of management's attention, the 
dependence on retention, hiring and training of key personnel, the 
amortization of intangible assets and risks associated with unanticipated 
problems or legal liabilities. A portion of the net proceeds of the initial 
public offering may be used to fund such acquisitions at the broad discretion 
of the Board of Directors. The Board of Directors may consummate such 
acquisitions, if any, without permitting shareholders to review or vote on 
such transactions, unless required under applicable law.

    CONSTRUCTION OF FIRST ACSA CENTER.  The Company has applied approximately 
$120,000 of the net proceeds from the initial public offering to complete 
construction of and to equip its first ACSA Center. The first ACSA Center is 
expected to be completed by the end of August 1998. Any significant delay 
in completion of the ACSA Center could result in delays in the commencement 
of sales of assembly and custom software configuration services and adversely 
affect the Company's business, operating results and financial condition. 
There can be no assurance that the ACSA Center will be available on time or 
that the Company will be successful in timely hiring and training engineers 
and technicians necessary to commence operations of the ACSA Center. Any such 
delay would delay the Company's ability to commence offering the ACSA 
Solution and have a material adverse effect upon the Company's business, 
operating results and financial condition.

    RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS.  The market for the 
Company's ACSA technology is characterized by rapidly changing technology and

                                      17
<PAGE>


frequent new product introductions. Even if the Company's ACSA Solution 
services using its licensed Configurator software gains initial market 
acceptance, the Company's success will depend, among other things, upon its 
ability to enhance the ACSA Solution services and to develop and introduce 
new products and services that keep pace with technological developments, 
respond to evolving customer requirements and achieve continued market 
acceptance. There can be no assurance that the Company will be able to 
identify, develop, manufacture, market or support new products or offer new 
services successfully, that such new products or services will gain market 
acceptance, or that the Company will be able to respond effectively to 
technological changes or product announcements by competitors. Any failure by 
the Company to anticipate or respond adequately to technological developments 
and customer requirements or any significant delays in product development or 
introductions could result in a loss of market share or revenues. 

    AVAILABILITY OF COMPONENTS.  The computer component and computer assembly 
businesses have from time to time experienced periods of extreme shortages in 
product supply, generally as the result of demand exceeding available supply. 
When these shortages occur, suppliers tend either to slow down shipments or 
place their customers "on allocation," reducing the number of units sold to 
each customer. While the Company believes that it has well-established 
relationships with vendors and that it has not been adversely affected by 
recent shortages in certain storage and other computer components, no 
assurance can be given that future shortages will not adversely impact the 
Company.

    COMPETITION.  The Company faces intense competition, both in its selling 

                                      18
<PAGE>


efforts and purchasing efforts, from the significant number of companies that 
configure and/or assemble personal computers, manufacture or distribute disk 
drives and offer software configuration services. Many of these companies, 
such as CompuCom Systems, Inc., CDW Computer Centers, Inc., Vanstar Corp. and 
Inacom, Inc. in the Computer Products distribution market, large computer 
manufacturers such as IBM Corp. and Compaq Computer Corporation, which 
provide custom configuration and automated software configuration for 
standardized systems, large distributors such as Ingram Micro Inc., Vanstar 
Corp., En Point Technologies, Inc., Microwarehouse, Inc. and CompuCom 
Systems, Inc. in the systems integration and network services market, have 
substantially greater assets and possess substantially greater financial and 
personnel resources than those of the Company and may develop software, or 
services or products which are comparable to the ACSA Solution. Many 
competing distributors also carry or offer brands or product lines which the 
Company does not carry. Generally, large disk drive and personal computer 
component manufacturers and large distributors do not focus their direct 
selling efforts on small to medium sized OEMs and distributors, which 
constitute the vast majority of the Company's customers; however, as the 
Company's customers increase in size, disk drive and component manufacturers 
may find it cost effective to focus direct selling efforts on those 
customers, which could result in the loss of customers or pressure on 
margins. In addition, CASI and/or Datatec Systems Inc. ("Datatec"), formerly 
known as Glasgal Communications, Inc., the parent corporation of CASI, may 
directly enter into the Company's integration and configuration markets using 
the software the Company has licensed from CASI. While the Company knows of 
no operating division or subsidiary of Datatec that is currently competing in 
the Company's markets, there can be no assurance that Datatec will not decide 
to directly compete with the Company in the future. Further, the terms of the 
Company's license agreement with CASI allows CASI to license the software 
used in the ACSA Solution and the ACSA Centers to new or existing direct 
competitors of the Company. There can be no assurance that the Company will 
be able to continue to compete effectively with existing or potential 
competitors.

    ELECTRONICS INDUSTRY CYCLICALITY.  The personal computer component 
distribution industry has been affected historically by general economic 
downturns, which have had an adverse economic effect upon manufacturers and 
corporate end users of personal computers, as well as component distributors 
such as the Company. In addition, the life cycle of existing personal 
computer products and the timing of new product development and introduction 
can affect demand for disk drives and other personal computer components. Any 
downturns in the personal computer component distribution industry, or the 
personal computer industry in general, could adversely affect the Company's 
business and results of operations.

                                      19
<PAGE>

    FOREIGN TRADE REGULATION.  A significant number of the products 
distributed by the Company are manufactured in Taiwan, China, Korea, Japan 
and the Philippines. The purchase of goods manufactured in foreign countries 
is subject to a number of risks, including economic disruptions, 
transportation delays and interruptions, foreign exchange rate fluctuations, 
imposition of tariffs and import and export controls and changes in 
governmental policies, any of which could have a material adverse effect on 
the Company's business and results of operations. The ability to remain 
competitive with respect to the pricing of imported components could be 
adversely affected by increases in tariffs or duties, changes in trade 
treaties, strikes in air or sea transportation, fluctuation in currency and 
possible future United States legislation with respect to pricing and import 
quotas on products from foreign countries. For example, it is possible that 
political or economic developments in China, or with respect to the United 
States' relationship with China, could have an adverse effect on the 
Company's business. The Company's ability to remain competitive could also be 
affected by other governmental actions related to, among other things, 
anti-dumping legislation and international currency fluctuations. While the 
Company does not believe that any of these factors adversely impact its 
business at present, there can be no assurance that these factors will not 
materially adversely affect the Company in the future. Any significant 
disruption in the delivery of merchandise from the Company's suppliers, 
substantially all of whom are foreign, would also have a material adverse 
impact on the Company's business and results of operations.

                                     20
<PAGE>


    POSSIBLE ISSUANCE OF PREFERRED STOCK; BARRIERS TO TAKEOVER.  The 
Company's Articles of Incorporation authorize the issuance of up to 2,000,000 
shares of Preferred Stock. No shares of Preferred Stock of the Company are 
outstanding, and the Company has no present intention to issue any shares of 
Preferred Stock. However, because the rights and preferences for any series 
of Preferred Stock may be set by the Company's Board of Directors in its sole 
discretion, the rights and preferences of any such Preferred Stock are likely 
to be superior to those of the Common Stock and thus could adversely affect 
the rights of the holders of Common Stock. The Company currently has no 
commitments or contracts to issue any additional securities. Any securities 
issuances might result in a reduction in the book value or market price of 
the outstanding shares. Further, any new issuances could be used for 
anti-takeover purposes or might be used as a method of discouraging, delaying 
or preventing a change of control of the Company. Additionally, certain 
provisions of the Company's Articles of Incorporation and Bylaws could delay 
or make more difficult a merger, tender offer or proxy contest involving the 
Company. 

    NO DIVIDENDS ANTICIPATED.  The Company has never declared or paid 
dividends on its Common Stock. The Company does not intend for the 
foreseeable future to declare or pay any cash dividends and intends to retain 
earnings, if any, for the future operation and expansion of the Company's 
business.

    DELISTING FROM THE NASDAQ SMALLCAP MARKET; POTENTIAL PENNY STOCK 
CLASSIFICATION.  The Company's Common Stock is quoted on The Nasdaq SmallCap 
Market and listed on the Boston Stock Exchange. However, there can be no 

                                      21
<PAGE>


assurance that a trading market for the Common Stock will be maintained. 
No assurance can be given that the Company will be able to satisfy the 
criteria for continued quotation on The Nasdaq SmallCap Market or the 
criteria for continued listing on the Boston Stock Exchange. Failure to meet 
the maintenance criteria in the future may result in the Common Stock not 
being eligible for quotation or listing. If the Company were removed from The 
Nasdaq SmallCap Market and the Boston Stock Exchange, trading, if any, in the 
Common Stock would thereafter have to be conducted in the over-the-counter 
market in so-called "pink sheets" or, if then available, the OTC Bulletin 
Board. As a result, holders of the Common Stock would find it more difficult 
to dispose of, or to obtain accurate quotations as to the market value of, 
the Common Stock. 

     In addition, if the Common Stock is delisted from trading on Nasdaq and 
the Boston Stock Exchange and the trading price of the Common Stock is less 
than $5.00 per share, trading in the Common Stock would also be subject to 
the requirements of Rule 15g-9 promulgated under the Securities Exchange Act 
of 1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who 
recommend such low-priced securities to persons other than established 
customers and accredited investors must satisfy special sales practice 
requirements, including a requirement that they make an individualized 
written suitability determination for the purchaser and receive the 
purchaser's written consent prior to the transaction. The Securities 
Enforcement Remedies and Penny Stock Reform Act of 1990 also requires 
additional disclosure in connection with any trades involving a stock defined 
as a penny stock (generally, according to regulations adopted by the 
Securities Exchange Commission (the "Commission"), any equity security not 
traded on an exchange or quoted on Nasdaq that has a market price of less 
than $5.00 per share, subject to certain exceptions), including the delivery, 
prior to any penny stock transaction, of a disclosure schedule explaining the 
penny stock market and the risks associated therewith. Such requirements 
could severely limit the market liquidity of the Common Stock and the ability 
of shareholders to sell their securities in the secondary market. There can 
be no assurance that the Common Stock will not be delisted or treated as a 
penny stock. 

    ELIMINATION OF CUMULATIVE VOTING.  The Articles of Incorporation of the 
Company provide that at such time as the Company has (i) shares listed on the 
New York Stock Exchange or the American Stock Exchange, or (ii) securities 
designated for trading as a national market security on the National 
Association of Securities Dealers Automatic Quotation System (or any 
successor national market system) if the Company has at least 800 or more 
holders of its Common Stock as of the record date of the Company's most 
recent annual meeting of shareholders, the cumulative voting rights of 
shareholders will cease. The Company believes that it has more than 800 
holders of its Common Stock. If the Company has shares listed on the New York 
Stock Exchange or the American Stock Exchange, or designated for trading as 
national market securities on The Nasdaq National Market System, cumulative 
voting rights of shareholders will cease. The Company has applied for 
quotation of its Common Stock on the Nasdaq National Market System, which 
application is pending. There can be no assurance that the Company will be 
approved for quotation on the Nasdaq National Market System or, if approved, 
that it will satisfy the criteria for continued quotation on the Nasdaq 
National Market System. Elimination of cumulative voting will have the effect 
of making it more difficult for minority shareholders to obtain 
representation on the Board of Directors. 

    LIMITATION OF LIABILITY AND INDEMNIFICATION.  The Company's Articles of 
Incorporation, as amended, (the "Articles") include a provision that 
eliminates the personal liability of its directors to the Company for 
monetary damages for 

                                      22
<PAGE>


breach of their fiduciary duties (subject to certain limitations) as a 
director to the fullest extent permissible under California law. The 
Company's Articles and Bylaws allow the Company to provide for 
indemnification of its Directors the fullest extent permitted by law. The 
Bylaws allow the Company to enter into indemnity agreements with individual 
directors, officers, employees and other agents. The Company has entered into 
indemnification agreements designed to provide the maximum indemnification 
permitted by law with all the directors of the Company. These agreements, 
together with the Company's Bylaws and Articles, may require the Company, 
among other things, to indemnify these directors against certain liabilities 
that may arise by reason of their status or service as directors (other than 
liabilities resulting from willful misconduct of a culpable nature), to 
advance expenses to them as they are incurred, provided that they undertake 
to repay the amount advanced if it is ultimately determined by a court that 
they are not entitled to indemnification, and to obtain directors' and 
officers' insurance if available on reasonable terms. The Company has 
purchased and does maintain directors' and officers' liability insurance. As 
a result of the provisions in the Company's Articles and in the 
indemnification agreements, it may be more difficult for shareholders to 
obtain relief against a director for breaches of such director's fiduciary 
duty than if these provisions were not included in the Company's Articles and 
Bylaws.

    NO EARTHQUAKE INSURANCE.  The Company's executive office, warehouse and 
assembly facility is located in a Company-leased facility in Industry, 
California, an area which experienced damage in the 1994 Northridge, 
California earthquake. The Company does not currently carry insurance against 
earthquake-related risks. 

    DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.  This report includes 
"forward-looking statements." All statements other than statements of 
historical fact included in this report, including, without limitation, the 
statements under "Cautionary Statements and Risk Factors," "Management's 
Discussion and Analysis of Financial Condition and Results of Operations" 
regarding the Company's strategies, plans, objectives and expectations; the 
Company's ability to provide custom assembly, configuration and distribution 
services of computer equipment and peripherals to technology companies; the 
ability of the Company to establish and operate an ACSA Center and to 
automate its custom configuration process and systems integration solutions 
for its customers; the ability of the Company to successfully market the ACSA 
Solution; the ability of the Company to develop processes to position itself 
as a low-cost leader for outsourcing system assembly and distribution 
services; the Company's future operating results; and other matters are all 
forward-looking statements. Although the Company believes that the 
expectations reflected in such forward-looking statements are reasonable at 
this time, it can give no assurance that those expectations will prove to be 
correct. Important factors that could cause actual results to differ 
materially from the Company's expectations are set forth in these "Cautionary 
Statements and Risk Factors," as well as elsewhere in this report. All 
subsequent written and oral forward-looking statements attributable to the 
Company or persons acting on its behalf are expressly qualified in their 
entirety by these "Cautionary Statements and Risk Factors."

                                      23
<PAGE>


PART II.  OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS

     The Company is periodically subject to legal actions which arise in the 
ordinary course of its business. The Company does not believe that any 
pending action is material to its results of operation or financial condition.

ITEM 2.   CHANGES IN SECURITIES

Use of Proceeds

     The Company's Registration Statement on Form S-1 (File No. 333-43151) 
relating to the offer and sale (the "Offering") of an aggregate of 2,350,000 
shares (the "Firm Shares") of Common Stock, without par value (the "Common 
Stock"), of the Company was declared effective by the Securities and Exchange 
Commission (the "Commission") on April 7, 1998.  The managing underwriter for 
the Offering was Joseph Stevens & Company, Inc. (the "Managing Underwriter").

     The Offering commenced on April 8, 1998 and the sale of 2,350,000 shares 
closed on April 14, 1998, with the sale of an additional 352,500 shares (the 
"Option Shares" and, together with the Firm Shares, the "Shares") closing on 
April 23, 1998 (which were sold by the Company upon the exercise of the 
over-allotment option granted to the underwriters).  All the Shares were sold 
in the Offering at an aggregate price of $5.00 per share, for aggregate 
proceeds of $13,512,500.  After deducting underwriting discounts and 
commissions of $0.4625 per share, and other issuance costs, the Company 
received net proceeds of $11,200,000.  On April 14, 1998, the Company also 
received $0.001 per warrant, for an aggregate of $23.50, in consideration of 
unregistered 5-year warrants to purchase 235,000 shares of Common Stock at an 
initial exercise price of 165% of the Offering price, exercisable one year 
after the effective date of the Registration Statement, granted to the 
Managing Underwriter in connection with the Offering.  See "Recent Sales of 
Unregistered Securities."

     As of June 30, 1998, the Company had used the proceeds from the Offering 
as follows: (i) payment of $1,200,000 in satisfaction of the CASI Note, the 
Datatec Note and the Bridge Notes and (ii) - $50,000 to purchase fixed 
assets. The remaining $9,950,000 of the proceeds from the Offering had not 
yet been applied as of June 30, 1998.

RECENT SALES OF UNREGISTERED SECURITIES.

     On April 14, 1998, in connection with the Company's April 1998 initial 
public offering (the "Offering"), the Company issued five (5) year warrants 
(the "Representative's Warrants") to purchase 235,000 shares of Common Stock 
to Joseph Stevens & Company, Inc., the managing underwriter of the Offering 
of the Common Stock of the Company, for nominal consideration of $23.50, or 
$.0001 per warrant.  The Representative's Warrants are exercisable at any 
time during a period of four (4) years commencing twelve months after the 
effective date of the Registration Statement at a price equal to 165% of the 
Offering price per share and are restricted from sale, transfer, assignment, 
or hypothecation for a period of twelve months from the effective date of the 
Registration Statement, except to officers of the underwriters.  The issuance 
and sale of these securities was exempt from the registration and prospectus 
delivery requirements of the Securities Act of 1933, as amended (the "Act"), 
pursuant 

                                      24
<PAGE>


to Section 4(2) of the Act, as a transaction not involving any public 
offering.

     On November 26, 1997, the Company issued warrants to purchase 35,000 
shares of Common Stock to Joseph Stevens & Company, Inc. (the "Placement 
Agent Warrants").  The Placement Agent's Warrants were sold for a nominal 
purchase price of $3.50, or $0.001 per warrant, and were exercisable at $3.00 
per share during the period commencing November 26, 1998 and ending November 
26, 2001. The Placement Agent's Warrants were cancelled on March 6, 1998.  In 
December 1997, the Company issued warrants to purchase 45,000 shares of 
common stock of the Company to Troop Meisinger Steuber & Pasich, LLP 
("TMSP"). The warrants issued to TMSP were issued for nominal consideration 
of $45.00 and for legal services provided in connection with the Bridge 
Financing (as defined below). These warrants are exercisable beginning 
December 23, 1997 and ending December 31, 2002 at an exercise price of $3.00 
per share. Each of Joseph Stevens & Company, Inc. and TMSP, represented that 
(i) it acquired the warrants for its own account with the present intention 
of holding such warrants for investment purposes only and not with a view to, 
or for sale in connection with, any distribution of such warrants (other than 
a distribution in compliance with all applicable federal and state securities 
laws); (ii) it is an experienced and sophisticated investor and has such 
knowledge and experience in financial and business matters that it is capable 
of evaluating the relative merits and the risks of an investment in the 
warrants and of protecting its own interest in connection with the 
transaction at issue; (iii) it is willing to bear and is capable of bearing 
the economic risk of an investment in the warrants; and (iv) the Company made 
available, prior to the date of its warrant agreement, to it the opportunity 
to ask questions of the Company and its officers, and to receive from the 
Company and its officers information concerning the terms and conditions of 
the warrant and the warrant agreement and to obtain any additional 
information with respect to the Company, its business, operations and 
prospects, as reasonably requested by it; and (v) it is an "accredited 
investor" as that term is defined under Rule 501(a)(8) of Regulation D 
promulgated by the Commission under the Securities Act. The issuance and sale 
of these securities was exempt from the registration and prospectus delivery 
requirements of the Securities Act pursuant to Section 4(2) of the Securities 
Act (in accordance with Rule 506 of Regulation D and Rule 152 promulgated by 
the Commission under the Securities Act) as a transaction not involving any 
public offering.

     On December 23, 1997, prior to the filing of the Registration Statement 
with respect to the Offering, the Company completed a financing (the "Bridge 
Financing") consisting of the sale of 20 units (the "Units"), each unit 
comprised of: (i) an unsecured promising note (each a "Bridge Note") of the 
Company in the principal amount of $20,000, bearing interest at a rate of 10% 
per annum payable upon the earlier of the closing of the Offering or 18 
months form the date of issuance; (ii) 15,000 shares of Common Stock of the 
Company, and (iii) 5,000 warrants of the Company, each warrant exercisable to 
purchase one share of Common Stock at an initial exercise price of $3.00 per 
share, subject to adjustment, during the 36-month period commencing one year 
from the date the warrants are issued (the "Bridge Warrants"). Each Unit was 
sold for $50,000 generating gross proceeds to the Company of $1,000,000 and 
net proceeds of $678,184. 60,000 of the Bridge Warrants are exercisable 
during the period beginning November 26, 1998 and ending November 26, 2001. 
37,500 of the Bridge Warrants are exercisable during the period beginning 
December 16, 1998 

                                      25
<PAGE>


and ending December 16, 2001. 2,500 of the Bridge Warrants are exercisable 
during the period beginning December 23, 1998 and ending December 23, 2001. 
Prior to filing the Registration Statement with respect to the Offering, the 
purchasers in the Bridge Financing had entered into binding agreements for 
the purchase of the Units. 12 of the Units were sold on November 26, 1997, 
7.5 of the Units were sold December 16, 1997, and 0.5 of the Units were sold 
on December 23, 1997. The obligations of the purchasers were not subject to 
any conditions within the control of the purchasers or any right of 
renegotiation. All purchasers of Units in the Bridge Financing were brokerage 
customers of Joseph Stevens & Company, Inc., the managing underwriter of the 
Offering, who acted as placement agent and there was no public solicitation 
or advertising in connection with the Bridge Financing. The transaction was 
exempt from the registration requirements of the Securities Act of 1933 (the 
"Act") under Section 4(2) of the Act (in accordance with Rule 506 of 
Regulation D and Rule 152 promulgated by the Commission under the Act) as a 
transaction not involving any public offering. The proceeds were used by the 
Company for working capital, to repay indebtedness and to commence 
construction of the Company's first ACSA Center.

     On April 12, 1996, the Company sold 2,192,118 shares of its Common Stock 
to Nancy Hundt for $200,000. On November 12, 1997, Ms. Hundt signed an 
investment representation which states that she purchased the shares for her 
own account and not with a view to resale or distribution. On April 12, 1996, 
Ms. Hundt was appointed, and she accepted as a director of the Company. There 
were no underwriters involved in the sale of these securities and there was 
no public solicitation or advertisement by the Company in connection with the 
sale of these securities. This transaction was exempt form the registration 
requirements of the Act under section 4(2) of the Act and section 25102(f) of 
the California Securities Law. The proceeds were used by the Company as 
working capital to cover general start-up costs.

     On April 12, 1996, the Company sold 1,096,059 shares of its Common Stock 
each to James Ung and Mei Yang, who are married, each of whom paid $25,000 in 
consideration therefor. On November 12, 1997, each of Mr. Ung and Ms. Yang 
signed an investment representation which states that each of Mr. Ung and Ms. 
Yang purchased the shares for their own accounts and not with a view to 
resale or distribution. On April 12, 1996, Mr. Ung and Ms. Yang were 
appointed, and they each accepted their appointment as a director of the 
Company. There were no underwriters involved in the sale of these securities 
and there was no public solicitation or advertisement by the Company in 
connection with the sale of these securities. This transaction was exempt 
from the registration requirements of the Act under section 4(2) of the Act 
and section 25102(f) of the California Securities Law. The proceeds were used 
by the Company as working capital to cover general start-up costs.

     On April 7, 1997, the Company sold 65,764 shares of its Common Stock and 
an option to purchase an additional 372,659 shares, which option expired 
October 7, 1997, to Vince Yiang, the brother of Mei Yang, who paid $300,000 
in consideration therefor. On November 12, 1997, Mr. Yiang signed an 
investment representation in which Mr. Yiang represents that he purchased the 
shares for his own account and not with a view to resale or distribution, and 
that he has an individual net worth greater than $1.0 million. There were no 
underwriters involved in the sale of these securities and there was no public 
solicitation or advertisement by the Company in connection with the sale of 
these securities. The transaction was exempt from the registration 
requirements of 

                                      26
<PAGE>


the Act under section 4(2) of the Act. The proceeds were used by the Company 
as general working capital.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
               None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
               None

ITEM 5.   OTHER INFORMATION
               None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

                Exhibit 27  Financial Data Schedule


                                     SIGNATURE


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


                                             CUMETRIX DATA SYSTEMS CORP.

Date: August 14, 1998                        /s/ Carl L Wood
                                                 Chief Financial Officer

                                      27
<PAGE>


                                   EXHIBIT INDEX

ITEM           EXHIBIT                                                 PAGE
----           -------                                                 ----

  27           Financial Data Schedule