**U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549****Form 10-QSB**
(Mark one)[X]    Quarterly report under section 13 or 15(d) of theSecurities Exchange Act of 1934 For the fiscal year ended  March 31, 2002[ ]    Transition report under section 13 or 15(d) of theSecurities Exchange Act of 1934 For the transition Period from _______ to_______

 Commission file number 001-15643

**Cyber Merchants Exchange, Inc.**(Exact name of small business issuer in its charter)

**California**

 

**95-4597370**

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

**600 S. Lake Avenue, Suite 208      Pasadena, California**

Issuer's telephone number: **(626) 793-5000**

**91106**      (Zip Code)

(Address of principal executive offices)

 

Check whether the Issuer (1) filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act during the past 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days.               Yes    X   No __

Number of shares outstanding of the issuer'sclasses of common equity, as of November 13, 2001**7,583,673 shares of Common Stock (One Class)**

Transitional Small Business Disclosure Format: Yes __  No   X

**CYBER MERCHANTS EXCHANGE, INC.Table of Contents**

**PART I - FINANCIAL INFORMATION**Item 1:  FINANCIAL STATEMENTS           BalanceSheets as of June 30, 2001 and March 31, 2002 (unaudited)           Statements ofOperations for the Three months and Nine Months Ended March 31, 2002 and2001(unaudited)           Statements of CashFlows for Nine Months EndedMarch 31, 2002 and 2001(unaudited)            Notes to FinancialStatements (unaudited)Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLANOPERATION**PART II- OTHER INFORMATION**Item 1: LEGAL PROCEEDINGSItem 6: EXHIBITS AND REPORTS ON FORM 8-K

**SIGNATURES**

 

**CYBER MERCHANTS EXCHANGE, INC.****PART I****- FINANCIAL INFORMATION**

ITEM1. FINANCIAL STATEMENTS

**BALANCE SHEETS**

June 30, 2001
March 31, 2002
(Unaudited)**ASSETS**CURRENT ASSETS:   Cash and cash equivalents
$    205,384
$     8,578   Certificates of deposit
2,800,000
1,321,343   Accounts receivable, net 
367,400
256,525   Inventory
-        
81,930   Related party note receivable
-        
404,000   Other current assets
37,043
4,569    Prepaid expenses
-
2,355    **TOTAL CURRENT ASSETS**
3,409,827      
2,079,300      Property and equipment, net71,24740,710Investment in ABNet851,121829,359Investment in overseas joint ventures658,201608,211Convertible note receivable600,000600,000Other assets11,4977,222TOTAL NONCURRENT ASSETS
2,192,066    
2,085,502          TOTAL ASSETS
$5,601,893

$4,164,802
**LIABILITIES AND STOCKHOLDERS' EQUITY**CURRENT LIABILITIES:    Accounts payable 
$   279,946

$   141,289
   Accrued expenses112,835147,188   Line of credit borrowings400,00075,000TOTAL CURRENT LIABILITIES:792,781363,477STOCKHOLDERS' EQUITY:   Common stock, no par value;          40,000,000 shares authorized; 7,583,673              shares outstanding10,032,01710,032,017Additional paid-in capital3,523,3643,624,461Retained earnings(8,746,269)(9,855,153)TOTAL STOCKHOLDERS' EQUITY4,809,1123,801,325TOTAL LIABILITIES AND          STOCKHOLDERS' EQUITY
$5,601,893    
$4,164,802
            See accompanying notes to financial statements
 

**CYBER MERCHANTS EXCHANGE, INC.**

**STATEMENTS OF OPERATIONS**

Three Months Ended          March 31,
Nine Months Ended          March 31,
2001          
2002          
2001          
          2002          
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)**REVENUES:**   Transaction sales
$                          -
$    335,734
$                          -
$    1,412,356   Cost of goods sold-              322,300          
-          
1,268,290             Net revenues from transaction          sales5,71213,434
5,712
144,066
   Tradeshow revenue-425,271
-
425,271   Subscriber fees1,435          5,413          
29,629          
13,353          NET REVENUE7,147444,118
35,341      
582,690      OPERATING EXPENSES:   General and administrative 508,117982,117
1,701,262
1,544,983   Stock-based compensation259,848-778,721101,097   Depreciation and amortization-11,717-35,150TOTAL OPERATING EXPENSES:767,965993,8342,479,9831,681,230LOSS FROM OPERATIONS(760,818)(549,716)
(2,444,642)
(1,098,540)OTHER INCOME (EXPENSE):   Interest income, net 63,36919,076225,24583,545   Equity in losses on investments          in              overseas joint ventures (129,274)(107,326)(277,157)(321,328)   Amortization of software sales83,33383,333249,999250,001   Impairment write-downs on                investment in ABNet (20,662)-(125,172)(21,762)   Other income (expense)1,757-(13,677)-LOSS BEFORE INCOME TAXES$    (762,295)$    (554,633)$    (2,385,404)$    (1,108,084)Income taxes--800800NET INCOME   $   (762,295)$   (554,633)
$   (2,386,204)

$    (1,108,884)
Basic and diluted net loss available to          common stockholders per share  $                   0.10)$                  (0.07)$                    (0.31) $                     (0.15)Weighted-average number of common shares          outstanding7,589,6697,583,673
7,589,669
7,583,673
            See accompanying notes to financial statements
 

**CYBER MERCHANTS EXCHANGE, INC.**

**STATEMENTS OF CASH FLOWS**

Nine Months Ended          March 31
2001          
          2002          
(Unaudited)
(Unaudited)Cash flows from operating activities:  Net loss
          $   (2,386,204)

          $ (1,108,884)
  Adjustments to reconcile net          loss to net cash used in operating activities:    Depreciation          and amortization          36,839          35,150    Amortization          of negative goodwill          (249,999)          (250,001)    Equity losses on          investments in overseas joint ventures      351,730            321,328          Impairment write-down on          investments in ABNet50,59921,762    Compensation expense for          options and warrants granted      778,722            101,097           Accrued interest      -            (8,569)          Changes in operating assets and          liabilities:      Accounts          receivable 22,150110,875      Interest          receivable(25,446)37,043      Inventory-(81,930)      Prepaid          expenses-(2,355)      Other assets1,7644,275      Accounts          payable and accrued expenses(617,806)          (104,304)          Net cash used in operating activities(2,037,651)(924,513)Cash flows used in investing activities:   Sales of certificates of          deposits112,6151,478,657   Increase in stockholder notes          receivable-(400,000)   Investment in GP.com/China          joint venture(600,000)-   Investment in overseas joint          ventures, net of software sales(100,000)(21,337)   Purchase of property and          equipment(49,584)(4,613)Net cash provided by (used in) investing          activities(636,969)1,052,707Cash flows from financing activities:  Proceeds from stock subscribed and          exercise of stock options1,481,240-  Proceeds from borrowings under line          of credit-750,000  Principal repayments on line of          credit-(1,075,000)Net cash provided by (used in) financing          activities1,481,240(325,000)Net decrease in cash           (1,193,380)          (196,806)Cash at beginning of the period1,274,395205,384Cash at end of the period
$       81,015      
          $      8,578                             Supplemental disclosure of cash flow information:                   Cash paid during the year for:                            Interest
$                      -
$      7,306                             Income taxes
$                      -
$         800
           See accompanying notes to financial statements
 
NOTES TO THE FINANCIAL STATEMENTS
*Certain statements contained in this Report, including, withoutlimitation, statements containing the words, "believes,""anticipates," "expects," and other words of similar import,constitute "forward-looking statements" within the meaning of Section27A of the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Such forward-looking statements involveknown and unknown risks, uncertainties and other factors, which may cause theactual results, performance or achievements of Cyber Merchants Exchange, Inc. tobe materially different from any future results, performance, or achievementsexpressed or implied by such forward-looking statements.  These factorsinclude, but are not limited to, the factors discussed under the caption"Company Risks" elsewhere in Item 1 of this Report.  Given theseuncertainties, readers are cautioned not to place undue reliance on suchforward-looking statements.  Cyber Merchants Exchange, Inc. disclaims anyobligation to update any such factors or to announce publicly the results of anyrevision of the forward-looking statements contained or incorporated byreference herein to reflect future events or developments.*

**Basis of Presentation**

    The accompanying unaudited financial statements have    been prepared in accordance with accounting principles generally accepted in    the United States of America for interim financial information and with the    instructions to Form 10-QSB and Article 10 of Regulation S-X.     Accordingly, they do not include all of the information and footnotes    required by accounting principles generally accepted in the United States of    America for complete financial statements.  In the opinion of management, all adjustments (consisting of normal    recurring adjustments) considered necessary for fair presentation have been    included.  Operating results for    the three-month and nine-month period ended March 31, 2002 are not    necessarily indicative of    the results that may be expected for the year ending June 30, 2002.  For further information, refer to the financial statements and    footnotes thereto included in the Company's annual report on Form 10-KSB    for the year ended June 30, 2001.    

**Our Company**

Cyber Merchants    Exchange, Inc. (the "Company" or "C-Me") is an international    business-to-business electronic trading company that creates efficiencies    for retailers worldwide to source and finance international purchases.     C-Me, a California corporation, was formed in July 1996.    

The Company    provides its customers with an Internet-based communication system that    enables retailers and vendors to conduct negotiations and to electronically    facilitate the sourcing, financing, and the purchase and sale of merchandise    on a global basis.  Using C-Me's    proprietary software, the Company maintains a secure yet open electronic    network that allows retailers to manage on-line communications and    transactions with their vendors.  The    front-end communications and trading process is generally referred to in the    retail industry as "sourcing".  High volumes of product and transaction data are exchanged between    retailers and their vendors in order for buy-sell transactions to be    initiated, negotiated, and consummated.  This critical sourcing process typically requires a substantial    amount of time and attention from both the retail merchandise buyer and the    salesperson of a vendor.  The    Company's related software products and services are designed to make the    sourcing, financing, and transaction function substantially more effective    and efficient.   

During    September 2001, C-Me began to undertake a new and exciting venture called    the Apparel Sourcing Association Pavilion ("ASAP") Trade Show.  ASAP is an international sourcing and manufacturing trade show that    brings leading manufacturers from around the world to one venue to greet,    meet and sell to buyers.  The    ASAP Show is a natural extension of C-Me's core business on-line model.     In the past four years, C-Me has created a comprehensive base of    manufacturers from around the world.  Through    C-Me's network of global offices, the Company anticipates that hundreds of    international manufacturers will exhibit at the ASAP Show twice a year in    Las Vegas, Nevada.    

C-Me's patent    pending Global Financial Platform ("GFP") eliminates the need for    issuing letters of credit to purchase merchandise from overseas and allows    foreign suppliers to ship merchandise to pre-approved credit worthy    retailers in the United States.  C-Me    pioneered this process by establishing the first tri-party agreement with    The CIT Group and Bank SinoPac in Taiwan.  Through this arrangement, each of the tri-party participants plays an    integral role.  First, CIT    guarantees the credit worthiness of the U.S. retailer.  Secondly, Bank SinoPac provides working capital financing and acts as    the conduit for foreign manufacturers to receive payment.  Through C-Me's GFP, U.S. retailers can purchase overseas    merchandise, just as they purchase domestic merchandise, with open terms and    without the need or hassle of obtaining a letter of credit.    

C-Me has adopted    a buyer-centric business focus by creating a proprietary Internet Sourcing    Network which consists of specialized private extranets for retailers    that centralizes the merchandise review and search process.  Its current retail partners are, among others, Burlington Coat    Factory, Factory 2-U Stores, and Bermo Enterprises.  Additional retailers have benefited by using C-Me's services    including but not limited to Value City Department Stores, Ames Department    Stores, Ross Stores, T.J. Maxx, and 99 cents only Stores.    

In    January 2001, the Company began to focus and continues to focus on sourcing    overseas goods for off-price retailers who do not have their own import    department.  The Company is    using email to show the overseas' closeout merchandise in a standard    format, and then C-Me's sales staff personally presents pre-qualified    goods to the retailer who responds to the email marketing.  The management team believes, that the mix of electronic trading and    a national sales force is the future of the Company's success.    

**Risks and Uncertainties**

The Company operates in a highly competitive consumer    product and high-technology environment that is subject to intense    competition, government regulation and rapid change.  The Company's operations are subject to significant risk    and uncertainties including financial, operational and other risks    associated with the business, including the potential risk of business    failure.     

**Current    Vulnerability Due to Certain Concentrations**

Certain    financial instruments, principally trade receivables, potentially subject    the Company to credit risk.  The    Company performs ongoing credit evaluations of its customers but does not    require collateral.  The Company    maintains an allowance for doubtful receivables and sales returns based upon    factors surrounding the credit risk of specific customers, historical trends    and the Company's estimate of future product returns.          

The    Company has invested $1,321,343 in certificates of deposit at four different    banks as of March 31, 2002.  These    certificates mature within the next six months.     The amount invested at each bank exceeds the FDIC insurance    coverage limit of $100,000, resulting in approximately $921,343 being    uninsured at March 31, 2002.  At    March 31, 2002, the Company has accrued interest income of $4,569 related to    these certificates of deposit.       

Five    customers account for approximately 85% of sales for the nine months ended    March 31, 2002.  The loss of    either of these customers may have a material impact on the Company's    financial statements.    

** ****Investments    in Overseas Joint Ventures and ABNet**

 Investments    in overseas joint ventures are accounted for under the equity method.     Investment in ABNet is accounted for under the cost method and valued    at the lower of cost or net realizable value with any impairment being    recognized in the statements of operations at the time the impairment    exists.    

**Revenue    Recognition**

Net revenues include amounts earned    under product transaction sales and subscriptions.     Product transaction revenues are recorded in accordance with    EITF 99-19 "Reporting Revenue Gross as a Principal versus net as an    Agent."  The Company    recognizes net revenues from product transaction sales when title to the    product passes to the customer, net of factoring fees.  For all product transactions with its customers, the Company acts as    a principal, takes title to all products sold upon shipment, bears inventory    risk for return products that the Company is not able to return to the    supplier, although these risks are mitigated through arrangements with    factors, shippers and suppliers.  Due    to the Company not bearing credit risk for a majority of its transactions,    the Company records the respective revenue on a net basis.  However, for financial reporting purposes the Company presents the    details of gross transaction sales and related costs of sales in the    accompanying statements of operations.  The Company also recognizes revenue from monthly subscription fees.     Subscriber fees represent revenue generated through one-time,    non-refundable setup fees and monthly hosting fees.  Subscription and subscriber fees are recognized as revenue after the    services have been provided.    

In December 1999, the Security and Exchange    Commission issued Staff Accounting Bulletin 101 ("SAB 101"), "Revenue    Recognition" which outlines the basic criteria that must be met to    recognize revenue and provide guidance for presentation of revenue and for    disclosure related to revenue recognition policies in financial statements    filed with Security and Exchange Commission.  The effective date of this pronouncement is the fourth quarter of the    fiscal year beginning after December 15, 1999.  The adoption of SAB101 in fiscal 2001 did not have a material impact    on the Company's financial position or results of operations.  

**Stock-based    Compensation**

 The Company accounts for stock-based compensation issued to    employees using the intrinsic value based method as prescribed by Accounting    Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock    issued to Employees."  Under    the intrinsic value based method, compensation is the excess, if any, of the    fair value of the stock at the grant date or other measurement date over the    amount an employee must pay to acquire the stock.  Compensation, if any, is recognized over the applicable service    period, which is usually the vesting period.     

 The Financial Accounting Standards Board ("FASB") issued    Statement of Financial Accounting Standards No. 123 ("SFAS 123"),    "Accounting for Stock-Based Compensation."     This standard, if fully adopted, changes the method of accounting for    employee stock-based compensation plans to the fair value based method.     For stock options and warrants, fair value is determined using an    option pricing model that takes into account the stock price at the grant    date, the exercise price, the expected life of the option or warrant and the    annual rate of quarterly dividends.  Compensation expense, if any, is recognized over the    applicable service period, which is usually the vesting period.    

 The adoption of the accounting methodology of SFAS 123    is optional and the Company has elected to continue accounting for    stock-based compensation issued to employees using APB 25; however, pro    forma disclosures, as if the Company adopted the cost recognition    requirement under SFAS 123, are required to be presented (in audited    financial statements).    

** **In March 2000, the FASB issued    Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions    Involving Stock Compensation, an Interpretation of APB 25."     FIN 44 clarifies the application of APB 25 for (a) the definition of    employee for purpose of applying APB 25, (b) the criteria for determining    whether a plan qualifies as a no compensatory plan, (c) the accounting    consequence for various modifications to the terms of a previously fixed    stock option or award, and (d) the accounting for an exchange of stock    compensation awards in a business combination.  The adoption of FIN 44 did not have a material effect on the    Company's financial statements.    

 **Loss Per    Share**

 The Company has adopted Statement of    Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings    per Share."  Under SFAS No.    128, basic earnings per share is computed by dividing income available to    common shareholders by the weighted-average number of common shares assumed    to be outstanding during the period of computation.  Diluted earnings per share is computed similar to basic earnings per    share except that the denominator is increased to include the number of    additional common shares that would have been outstanding if the potential    common shares had been issued and if the additional common shares were    dilutive (totaling zero shares in 2002 and 2001).  Because the Company has incurred net losses, basic and diluted loss    per share are the same as additional potential common shares and would have    an anti-dilutive effect on earnings per share.     

** ****Segments    of an Enterprise and Related Information**

 The Company has adopted Statement of Financial Accounting Standards No. 131 ("SFAS    131"), "*Disclosures about    Segments of an Enterprise and Related Information*."  SFAS 131 changes the way public companies report information about    segments of their business in their annual financial statements and requires    them to report selected segment information in their quarterly reports    issued to shareholders.  It also    requires entity-wide disclosures about the products and services an entity    provides, the material countries in which it holds assets and reports    revenues and its major customers.    

 **Recent Accounting Pronouncements**

 In July    2001, FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS    141"), "Business Combinations" which is effective for business    combinations initiated after June 30, 2001.  SFAS 141 eliminates the pooling of interest method of accounting for    business combinations and requires that all business combinations occurring    on or after July 1, 2001 be accounted for under the purchase method.  The Company does not expect SFAS No. 141 to have a material impact on    its financial statements.    

 In July    2001, FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS    142"), "Goodwill and Other Intangible Assets," which is effective for    fiscal years beginning after December 15, 2001.  Early adoption is permitted for entities with fiscal years    beginning after March 15, 2001 provided that the first interim financial    statements have not been previously issued.  SFAS 142 address how intangible assets that are acquired individually    or with a group of other assets should be accounted for in the financial    statements upon their acquisition and after they have been initially    recognized in the financial statements.  SFAS 142 requires that goodwill and intangible assets that have    indefinite useful lives not be amortized but rather be tested at least    annually for impairment, and intangible assets that have finite useful lives    be amortized over their useful lives.  SFAS    142 provides specific guidance for testing goodwill and intangible assets    that will not be amortized for impairment.  In addition, SFAS 142 expands the disclosure requirements about    goodwill and other intangible assets in the years subsequent to their    acquisition.  Impairment losses    for goodwill and indefinite-life intangible assets that arise due to the    initial application of SFAS 142 are to be reported as resulting from a    change in accounting principle.  However, goodwill and intangible assets acquired after June    30, 2001 will be subject immediately to be provision of SFAS 142.  The Company does not expect SFAS 142 to have a material effect on its    financial statements.       

 In    July 2001, the FASB issued Statement of Financial Accounting Standards No.    143 ("SFAS 143"), "*Accounting for Asset Retirement Obligations,"*SFAS    143 establishes standards associated with the retirement of tangible    long-lived assets and the associated asset retirement costs.  This statement is effective for financial statements issued    for fiscal years beginning after June 15, 2002.  The Company has not yet assessed the impact of this standard on its financial    statements, but does not expect the impact to be material.    

 In    August 2001, the FASB issued Statement of Financial Accounting Standards No.    144 ("SFAS 144"), Accounting for the Impairment or Disposal of    Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for    the impairment of long-lived assets and for long-lived assets to be disposed    of. The provisions of SFAS 144 are effective for financial statements issued    for fiscal years beginning after December 15, 2001, and interim periods    within these fiscal years, with early adoption encouraged. The Company does    not expect SFAS 144 to have a material impact on its financial statements.

 **Agreement    with CIT and Bank Sinopac**

 On    October 19, 2000, the Company and CIT Commercial Services entered into a    Factoring Agreement. Under the agreement, the Company sells and assigns to    CIT all accounts receivable arising from transaction sales. CIT assumes the    credit risk on a non-recourse basis on each account approved. For each sales    transaction processed to CIT for collection, CIT will charge a certain    percentage of the assigned invoice value as their factoring fee. As of March    31, 2002 and 2001 and for the periods then ended, the amounts of factoring    have not been significant to the Company.

 **Pending    Litigation**

 The Company has been named as a defendant, along with Burlington    Coat Factory Warehouse ("BCF"), in a lawsuit brought by Stanley Rosner    ("Rosner"), an individual.  In    March 1998, Rosner commenced an action in the Supreme Court of the State of    New York alleging breach of oral and written contracts between the Company    and Rosner and between BCF and Rosner in 1997.  Rosner claims that he is due certain fees from both the Company and    BCF for services allegedly rendered in connection with certain transactions    involving the Company and BCF.  These    transactions relate to the Internet services that the Company has and will    provide to BCF, and current and anticipated transactions arising from    vendors of BCF.  Rosner claims that he is due damages in an amount not less    than $5,000,000 plus unspecified punitive damages from both the Company and    BCF. 

Rosner's attorney has agreed    that the Company and BCF are entitled to have the venue of the lawsuit    transferred from Nassau County, New York to New York County    (Manhattan), New York; Rosner's attorney also agreed to arrange for the    transfer.  Rosner's attorney    also agreed that the Company's and BCF's responsive papers would be due no    later than ten (10) days after notice of such transfer had been served.     To date, the Company has not received notice of the proposed transfer    of venue and has not filed its responsive papers or otherwise moved against    the complaint. 

The Company intends to    vigorously defend this action.  The    Company believes that it is not obligated to make any payments to Rosner and    has meritorious defenses to all of Rosner's allegations.  However, if the Company does not prevail and a significant damage    award against the Company is granted, this would have a material adverse    effect upon the Company. 

 

**ITEM 2.             MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

The following discussion of the financial condition and    results of operations of the Company should be read in conjunction with the    financial statements and the related notes thereto included elsewhere in    this quarterly report for the three months and nine months ended March 31,    2002.  This quarterly report    contains certain forward-looking statements and the Company's future    operating results could differ materially from those discussed herein.  Certain statements contained in this report, including,    without limitation, statements containing the words "believes,"    "anticipates," "expects" and the like, constitute    "forward-looking statements" within the meaning of Section 27A of    the Securities Act of 1933, as amended, and Section 21E of the Securities    Exchange Act of 1934, as amended.  Such    forward-looking statements involve known and unknown risks, uncertainties    and other factors which may cause the actual results, performance or    achievements of the Company to be materially different from any future    results, performance or achievements expressed or implied by such    forward-looking statements.  These    factors are discussed in more detail in the Risk Factors section of the    Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,    2001.  Given these    uncertainties, readers are cautioned not to place undue reliance on such    forward-looking statements.  The    Company disclaims any obligation to update any such factors or to announce    publicly the results of any revisions of the forward-looking statements    contained or incorporated by reference herein to reflect future events or    developments.    

**STATUS    OF OPERATIONS**

The Company    currently provides two technical services to its customers: Internet    Sourcing Network and Virtual Trade Show.  Both services are embedded with custom Web-site design.     The Company also has three supporting technologies:  (i) Product Driven Search Engine; (ii) Focused Broadcasting; and            (iii) Dynamic End-User Profile System.  The Company developed all these technologies in 1997 and 1998.      

C-Me has targeted its service solutions to off-price and    discounts retailers, and their merchandise suppliers.  The Company adopted a plan to identify retailers with the    same merchandising strategies as those implemented by our partners among    others, such as Factory 2-U Stores, Inc. and Burlington Coat Factory.     C-Me now markets its merchandise directly to individual buyers within    these retail organizations for transaction-based sales.    

Beginning 2001,    C-Me established an internal sales and marketing force in order to build    direct relationships with our retailer customers, and better facilitate    customer product feedback and program needs.  The Company will explore opportunities to expand its    transaction-based services with new retailers.  C-Me will continue prospecting for new retailers to add to the ISN    through a team of national sales executives located in key market areas.     C-Me's ISN provides a valuable sales tool and means for multiple    vendors to exchange company and product information with multiple retailers    on a widespread basis. The Company will leverage existing retailer and    vendor relationships by offering additional services provided by C-Me, such    as program development, Web design and hosting, open to buy broadcasts and    product marketing.    

Currently, the Company's sources of revenue are    transaction-based generated by retailers' purchases of the Company's    goods.  The Company has moved    into this role primarily because of the slow acceptance of retailers to    engage directly with the ISN.  C-Me    has found that domestic vendors are unwilling to pay subscription fees for    the ISN due to an insufficient number of retailers utilizing the system.     Until significant masses of retailers actively implement the network,    the Company will be unable to depend solely on revenue generated from    subscription fees paid by vendors.    

The Company also    anticipates generating revenue in the form of transaction fees associated    with buyers utilizing the GFP to finance their purchases.  Marketing the Company's GFP financial platform and global sourcing    consortium through its foreign offices will be key to the development of    long-term retailer and vendor relationships.  The Company's overseas joint ventures will expand its efforts to    identify and target key overseas manufacturers to subscribe to C-Me's ISN.    

Management    estimates that the net revenue for ASAP Show will increase each year.  The trade show industry is a lucrative business both in revenue    generation and corporate branding of the shows management.  The Company anticipates that the valuation of the new ASAP subsidiary    will exceed C-Me's core international B2B electronic trading business.     ASAP will accomplish these objectives through the sales of exhibitor    space, governmental, trade and corporate advertising sponsorships, and    advertising sales.   

For the    consistency with the financial reporting, the Company has reflected the    revenue and expenses for the ASAP Show as deferred revenue and prepaid    expenses before the February 2002 show.  For the quarter ended March 31, 2002, the Company transferred all    deferred revenue and prepaid expenses to the statement of operations as such    revenues were earned during the quarter.    

**Investments    in Overseas Joint Ventures**

On    December 22, 1999, the Company entered into an agreement with ABNet to form    a joint venture in Taiwan named C-Me Technology Co., Ltd. (C-Me Taiwan) to    facilitate the buying and selling activities between U.S.-based retailers    and Taiwan-based exporters through the Company's web-based communication    system. The Company invested $300,000 (which was used to purchase software    back from the Company) for a 30% interest in February 2000 and accounts for    this investment under the equity method. The Company invested an additional    $200,000 for an additional 10% interest in May 2001. For the nine months    ended March 31, 2002 and 2001, the Company recognized an investment loss in    the accompanying statements of operations from this joint venture of    $130,222 and $108,270, respectively, based on the Company's equity ownership    percentage.     

On    March 11, 2000, the Company entered into an agreement with Vickem Patana    Co., Ltd., a Thailand Corporation, to form a joint venture named E-SouthEast    Asia, Inc. (E-SEA), a Delaware corporation, which will use the Company's    proprietary web-based communication system to facilitate the front-end    merchandise sourcing. The Company invested $300,000 during fiscal year ended    June 30, 2000 (which was used to purchase software back from the Company).    During fiscal year ended June 30, 2001, the Company invested an additional    $100,000 for a total equity interest of 40% and accounts for this investment    under the equity method. For the nine months ended March 31, 2002 and 2001,    the Company recognized an investment loss in the accompanying statements of    operations from this joint venture of $104,158 and $73,370 respectively,    based on the Company's equity ownership percentage.     

On    March 25, 2000, the Company entered into an agreement with Good Support    International Limited, a British Virgin Islands Company, to form a joint    venture named Global Purchasing Dotcom, Inc. (GP.com), a Washington    corporation, which will focus on implementing several targeted businesses in    China's e-commerce market. The Company invested $400,000 during fiscal year    ended June 30, 2000 (which was used to purchase software back from the    Company). During fiscal year ended June 30, 2001, the Company invested an    additional $600,000 for a total interest of 50% and accounts for this    investment under the equity method. For the nine months ended March 31, 2002    and 2001, the Company recognized an investment loss in the accompanying    statements of operations from this joint venture of $86,948 and an    investment loss of $95,517, respectively, based on the Company's equity    ownership percentage.     

During fiscal year 2000, each of C-Me Taiwan,    E-SEA, and GP.com entered into an agreement to purchase the Company's    software for $300,000, $300,000 and $400,000, respectively. The Company has    reduced the carrying amount of its investment in each of the joint ventures    by the amount of the software sale. These amounts will be recognized in    income as an adjustment to the Company's investments in the overseas joint    ventures on a straight-line basis over a three-year period, the estimated    life of the software sold. As of March 31, 2002 and 2001, the Company    recognized income in the statements of operations from the amortization of    these software sales in the amount of approximately $250,000 and $250,000,    respectively. The respective joint ventures are amortizing the cost of    software over the same three-year period; As a result, the total    amortization expense recognized was approximately $250,000, and $250,000    respectively.****

**Accumulated    Losses**

The Company has incurred significant losses since its inception    and may never generate or sustain a profit. For the quarter ended March 31,    2002, the Company reported a net loss of $554,633.  The Company devotes significant resources to developing,    enhancing, selling and marketing its tradeshow, products and services.     As a result, the Company will need to generate significant revenues    to maintain profitability.  The    Company may not continue its historical growth or generate sufficient    revenues to sustain or increase profitability on a quarterly or annual basis    in the future.   

**RESULTS OF    OPERATION    Three    Months Ended March 31, 2002 and 2001**

**Revenue**

Net gross revenues on transaction    sales for the quarter ended March 31, 2002 were $335,734, an increase of    $335,734 or 100% increase compared to the same period last year.     The Company expects the volume of gross sales transactions and the    gross profit margin percentage to maintain and grow, as it begins to fully    utilize its overseas sourcing network and its external sales force.     

ASAP tradeshow revenue on booth sales    for the February 2002 show was $425,271, an increase of $425,271 or 100%    increase compared to the same period last year.  The management expects that the second ASAP show to be held    in Las Vegas in August of 2002 will increase the tradeshow revenue    dramatically and hopefully the August show will break even or be profitable.    

Subscriber fees    increased $3,978 or 277% to $5,413 in the quarter ended March 31, 2002 from    $1,435 in the same period last year, due to the increase in demand from the    users of the Company's VTS, ISN and Web design services.     

**Operating Costs and Expenses**

General and administrative expenses increased by $474,000, or 93%, to    $982,117 for the three months ended March 31, 2002, as compared to $508,117    for the same period last year. The increase in general and administrative    expenses is primarily due to the increase in the ASAP tradeshow related    expenses such as hotel room commitment, convention space rental, contractor    costs and payroll, professional consulting expenses, IR/PR, and traveling    expenses related to the ASAP show division.     The total expenses for the February ASAP show were $795,132.      C-Me's core businesss general and administrative expenses were    $186,985 compared to $508,117 for the same period last year.  The reduction of C-Me's core general and administrative    expenses of $321,132 are primarily due to the reduction of payroll,    professional fees, and effectiveness of overhead control.    

**Net Loss**

The Company recorded a net loss of $554,633 for    the three months ended March 31, 2002, a $207,662 decrease in net loss, as    compared to a net loss of $762,295 for the same period last year.  The net operating loss of $369,861 for the February ASAP show was the    primary reason of the losses for the quarter ended March 31, 2002.  The February ASAP show losses were within the budget and management    believes it is a small cost to enter into the tradeshow industry.   C-Me's core business operating losses for this    quarter were only $184,772, compared to $762,295 for the same period last    year.  The decrease in net loss    is attributable to $444,118 in net revenue compared to $7,147 from the same    quarter last year.  The decrease    in net loss is also attributable to a reduction in non-cash stock based    compensation of $259,848 for the same quarter last year in addition to the    reduction of core general and administrative expenses of $321,132.  Loss per share for the three-month period ending March 31, 2002 was    $0.07 as compared to $0.10 as of March 31, 2001 due to a decrease in net    loss.    

**Nine Months Ended March 31, 2002    and 2001**

**Revenue**

Net gross revenues on transaction    sales for the nine months ended March 31, 2002 were $1,412,356, an increase    of $1,412,356 or 100% increase compared to the same period last year.     The Company expects the volume of gross sales transactions and the    gross profit margin percentage to maintain and grow, as it begins to fully    utilize its overseas sourcing network, the results of the ASAP tradeshow and    its external sales force.    

ASAP tradeshow revenue on booth sales    for the February 2002 show were $425,271, an increase of $425,271 or 100%    increase compared to the same period last year.  The management expects that the second ASAP show to be held    in Las Vegas in August of 2002 will increase the tradeshow revenue    dramatically and hopefully the August show will break even or be profitable.     

Subscriber fees    decreased $16,276 or 55% to $13,353 for the nine months ended March 31, 2002    from $29,629 in the same period last year, due to the shift in focus on the    revenue received from the users of the Company's VTS, ISN and Web design    services to transaction sales and tradeshow revenue.      

**Operating    Costs and Expenses**

General and administrative expenses decreased by $156,279, or 9%, to    $1,544,983 for the nine months ended March 31, 2002, as compared to    $1,701,262 for the same period last year.     There were $795,132 in expenses related to the February ASAP show of    the total $1,544,983 general and administrative expenses.  The ASAP show expenses were transferred from the prepaid    expenses which are in conjunction with the deferred revenue transferred to    tradeshow revenue for this quarter ended. C-Me's core businesss general    and administrative expenses were $749,851 compared to $1,701,262 for the    same period last year.  The    reduction of core general and administrative expenses of $951,411 is    primarily due to the reduction of payroll, professional fees, and    effectiveness of overhead control.   ****

**Net Loss**

The Company recorded a net loss of $1,108,884 for    the nine months ended March 31, 2002, a $1,277,320 decrease in net loss, as    compared to a net loss of $2,386,204 for the same period last year.  The net operating loss of $369,861 for the February ASAP show was    part of the reason for the losses for the nine months ended March 31, 2002.     C-Me's core business operating losses for the nine months ended    March 31, 2002 was $739,023, compared to $2,386,204, for the same period    last year.  The decrease in net    loss is attributable to $582,690 in net revenue compared to $35,341 from the    same period last year.  The    decrease in net loss is also attributable to a reduction in non-cash stock    based compensation of $677,624, in addition to the reduction of general and    administrative expenses of $156,279.  Loss    per share for the nine-month period ending March 31, 2002 was $0.15 as    compared to $0.31 as of March 31, 2001 due to a decrease in net loss.

**LIQUIDITY AND CAPITAL RESOURCES**

The Company's    net working capital decreased from $2,617,046 as of June 30, 2001 to    $1,715,823 as of March 31, 2002, primarily due to cash used in operations of    $924,513.  During the current    year, the Company had average monthly general and administrative expenses    from its core operations (excluding non-cash compensation expenses) of    approximately $83,300 as compared to $189,000 in 2001.  With working capital of approximately $1.7 million and average    monthly expenses of approximately $83,300, coupled with growing net revenue    in transaction sales and tradeshow revenue, the Company believes its    operations can breakeven or become profitable by fiscal year end 2003.     

The Company    believes it has sufficient cash to operate its business over the next 12    months.  Depending on market    acceptance of the Company's current business model, the Company may raise    additional funds, either in debt or equity, to augment future growth of the    business.    

Over the next    two to five years, the Company plans to utilize a combination of internally    generated funds from operations, potential debt and / or equity financing to    fund its longer-term growth.  The    availability of future financing will depend on market conditions. 

On    September 19, 2001, the Company entered into a non-revolving line of credit    with a commercial bank for up to $250,000.     Borrowings under this line of credit bears interest at certain    percentages and are secured by a  $250,000    time certificate of deposit at the bank.  The line of credit will expire June 15, 2002.     As of March 31, 2002 the Company has outstanding loan balances of    $75,000.     ****

**EFFECT OF FLUCTUATION IN FOREIGN    EXCHANGE RATE**

The Company's    current joint ventures are located in countries outside the United States.    The functional currency for each foreign operation is the local currency.     The carrying value of the Company's investments in the Pacific Rim    is subject to the risk of foreign currency fluctuations.  Any dividends received from the Company's international joint    ventures will also be subject to foreign exchange risk.    

     

PART II - OTHER INFORMATION    

**ITEM    1.  LEGAL PROCEEDINGS**

Previously reported on the Company's Form 10-KSB for the    year ended June 30, 2001. The Company has been named as a defendant, along    with BCF, in a lawsuit brought by Stanley Rosner ("Rosner"), an    individual.  In March 1998,    Rosner commenced an action in the Supreme Court of the State of New York,    Nassau County, New York (Index No. 98-006524).  Rosner alleges breach of oral and written contracts between the    Company and Rosner and between BCF and Rosner in 1997.  Rosner claims that he is due certain fees from both the Company and    BCF for services allegedly rendered in connection with certain transactions    and alleged transactions involving the Company and BCF.  Such transactions and alleged transactions relate to the Internet    services that the Company may provide to BCF, and contemplated transactions    arising from vendors of BCF.  Rosner    claims that he is due damages in an amount not less than $5,000,000 plus    unspecified punitive damages from both the Company and BCF.  Rosner's attorney has agreed that the Company and BCF are entitled    to have the venue of the lawsuit transferred from Nassau County, New York to    New York County (Manhattan), New York; Rosner's attorney also agreed to    arrange for the transfer.  Rosner's    attorney also agreed that the Company's and BCF's responsive papers    would be due no later than ten (10) days after notice of such transfer had    been served.  To date, the    Company has not received notice of the proposed transfer of venue and has    not filed its responsive papers or otherwise moved against the complaint.   

**ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS**

None.******

**ITEM    3.  DEFAULTS UPON SENIOR    SECURITIES**

None.     

**ITEM 4.  SUBMISSION OF MATTERS TO A    VOTE OF SECURITIES HOLDERS'******

None.    

**ITEM5.  OTHER INFORMATION******

None.******

**ITEM6.  EXHIBITS AND REPORTS ON FORM    8-K******

**(a)     Exhibits******

None.

**(b)  Reports on 8-K******

On February 6, 2002 the Company filed a form 8-K to report a    change in registrant's certifying accountant from Corbin & Wertz to Squar,    Milner, Reehl & Williamson, LLP.    The Company and Corbin & Wertz did not have any disagreements with    regard to any matter of accounting principles or practices, financial    statements disclosure, or auditing scope or procedure.    

**SIGNATURES**

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

CYBER MERCHANTS EXCHANGE, INC. d.b.a. C-ME.com

(Registrant)

Date:  5/15/ 2002

         

/s/ Frank S.        Yuan                                                                Frank S. Yuan Chairman, Chief Executive Officer        
        Date:  5/15/ 2002/s/ Luz M.        Jimenez                                                                         Luz M. Jimenez (Acting Chief Financial Officer)