**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 December 31, 2001[ ]    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 (unaudited) as of December 31 and June 30, 2001           Statement ofOperations (unaudited) for the three months and six months ended            December 31, 2000 andDecember 31, 2001           Statement of CashFlows (unaudited) for six months ended December 31, 2000 and December 31, 2001           Notes to FinancialStatements (unaudited)Item 2: Management's Discussion and Analysis or Plan ofOperation**PART II- OTHER INFORMATION**Item 1: Legal ProceedingsItem 6: Exhibits and Reports on Form 8-K

**Signatures**

 

**PART I**

ITEM1. FINANCIAL STATEMENTS

**CYBER MERCHANTS EXCHANGE, INC.**

**BALANCE SHEETS**

June 30 2001
Dec. 31 2001
(Unaudited)**ASSETS**Current assets:   Cash and cash equivalents
$    205,384
$     106,537   Certificates of deposit
2,800,000
1,950,000   Accounts receivable
367,400
588,204   Noted receivable
400,000   Accrued interest receivable
37,043
10,654    Prepaid expense.
220,513      **Total current assets**
3,409,827
3,275,908Property and equipment, net71,24752,427Investment in ABNet851,121829,359Investment in overseas joint ventures658,201632,204Convertible note receivable600,000600,000Other assets11,49717,222Total assets
$5,601,893

$5,407,120
**LIABILITIES AND STOCKHOLDERS' EQUITY**Current Liabilities:   Accounts payable 
$   279,946

$   354,385
   Deferred revenue97,990   Accrued expenses112,83531,849   Line of credit borrowings400,000566,938Total current liabilities792,7811,051,162Shareholders' equity   Common stock, no par value;          40,000,000 shares authorized; 7,583,673              shares issued and outstanding10,032,01710,032,017Additional paid-in capital3,523,3643,624,461Accumulated deficit(8,746,269)(9,300,520)Total stockholders' equity4,809,1124,355,958Total liabilities and stockholders' equity
$5,601,893    
$5,407,120
            See accompanying notes to financial statements
 

**CYBER MERCHANTS EXCHANGE, INC.**

**STATEMENT OF OPERATIONS**

Three Months Ended          December 31,
Six Months Ended          December 31,
2000          
2001          
2000          
          2001          
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)**REVENUES:**   Transaction sales
$                          -
$    576,350
$                          -
$    1,076,623   Cost of goods sold-          $    489,785          
-          
945,990             Net revenues from transaction          sales-77,565
-
130,633   Subscribers' fees15,294          3,930          
28,194          
7,940          Net revenue15,29481,494
28,194      
138,572      Operating expenses:   General and administrative          expenses571,139190,302
992,758
562,866   Stock-based compensation259,849101,097518,873101,097   Cost of  revenue130,8555,845200,38723,433Total operating expenses961,843297,2441,712,018687,396Loss from operations(946,549)(215,750)
(1,683,824)
(548,824)Other income (expenses)   Interest income, net of          interest expense 85,49419,017161,87664,469   Equity in losses on investments          in overseas joint ventures (87,204)(62,183)(147,883)(214,002)   Amortization of software sales83,33383,333166,66616,666   Impairment write-down on          investments in ABNet (105,310)-(105,310)(21,762)   Other(13,980)-(15,434)-Loss before income taxes(985,016)(175,581)(1,623,909)(553,451)Income taxes800-1,214800Net loss(985,016)(175,581)$    (1,625,123)
$    (554,251)
Basic and diluted net loss per share  (0.13)(0.02)(0.21)(0.07)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.**

**STATEMENT OF CASH FLOWS**

Six Months Ended          December 31 2001
2000          
          2001          
(Unaudited)
(Unaudited)Cash flows from operating activities   Net loss
          $   (1,625,123)

          $ (554,251)
   Adjustments to reconcile net          loss to net cash used in operating activities:      Depreciation          and amortization          23,382          23,433      Gain          amortization          of negative goodwill          (166,666)          (166,666)      Stock          compensation expense      518,872            101,097            Loss on          investments253,193235,764   Changes in assets and          liabilities:      Accounts          receivable 27,560(220,804)      Accrued          interest          receivable-26,389      Prepaid          expenses472(220,513)      Other assets(3,603)(5,725)      Accounts          payable74,439      Deferred          revenue          97,990      Accrued          expenses
(628,650)          
(80,986)          Net Cash used in operating activities(1,600,563)(689,835)Cash flows from investing activities:   Purchase of property and          equipment(49,555)(4,613)   Proceeds from maturity of          certificates of deposit(394,024)850,000   Investment in note receivable-(400,000)   Investment in GP.com(600,000)-   Investment in E-SEA(100,000)(21,337)Net cash (used in) provided by investing          activities(1,143,579)424,050Cash flows from financing activities:   Net proceeds from line of          credit borrowings1,481,240166,938Net cash provided by financing          activities1,481,240166,938Net decrease in cash and cash equivalents          (1,262,902)          (98,847)Cash and cash equivalents, beginning of          period1,274,395205,384Cash and cash equivalents, end of period
$       11,493      
          $      106,537          
           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 beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and with theinstructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for fair presentation have been included. Operating results for the three-month and six months period ended December 31, 2001 arenot necessarily indicative of the results that may be expected for the yearending June 30, 2002.  For further information, refer to thefinancial statements and footnotes thereto included in the Company's annualreport 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 createsefficiencies for retailers worldwide to source and finance internationalpurchases.  C-Me, a California corporation, was formed in July 1996.

The Company provides its customers with an Internet-based communicationsystem that enables retailers and vendors to conduct negotiations and toelectronically facilitate the sourcing, and the purchase and sale of merchandiseon a global basis.  Using C-Me's proprietary software, the Companymaintains a secure yet open electronic network that allows retailers to manageon-line communications and transactions with their vendors.  The front-endcommunications and trading process is generally referred to in the retailindustry as "sourcing".   High volumes of product and transactiondata are exchanged between retailers and their vendors in order for buy-selltransactions to be initiated, negotiated, and consummated.  This criticalsourcing process typically requires a substantial amount of time and attentionfrom both the retail merchandise buyer and the salesperson of a vendor. The Company's related software products and services are designed to make thesourcing, 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.

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 opening 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 $1,950,000 in certificates of deposit at five different    banks as of December 31, 2001.  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 $1,650,000 being    uninsured at December 31, 2001.  At    December 31, 2001, the Company has accrued interest income of $10,654    related to these certificates of deposit.      

Three    customers account for approximately 89% of sales for the six months ended    December 31, 2001. 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.

**Property    and Equipment**

Property    and equipment are stated at cost.  Depreciation    of property and equipment is calculated on the straight-line method over the    estimated useful lives of the assets, generally three to five years.     Leasehold improvements are amortized over the shorter of the    amortized useful lives or lease term.

Maintenance, repairs and minor renewals are charged directly to expense as    incurred.  Additions and    betterments to property and equipment are capitalized.     When assets are disposed of, the related cost and accumulated    depreciation thereon are removed from the accounts and any resulting gain or    loss is included in the statement of operations.    
**Impairment    of Long-Lived Assets**

Statement of financial accounting standards no. 121, "accounting for the    impairment of long-lived assets and long-lived assets to be disposed of,"    establishes guidelines regarding when impairment losses on long-lived    assets, which include property and equipment, investments in overseas joint    ventures, convertible note receivable, and investment in ABNet, should be    recognized and how impairment losses should be measured.     The company periodically reviews such assets for possible impairments    and expected losses, if any, are recorded concurrently.     For three months ended December 31, 2001, ABNet reported an    operating profit of $115,285.  As    the Company is recording this investment under the cost method, the Company    did not record any profit related to this investment.  Based on its analysis, management determined that it has incurred an    impairment loss of $21,762 in its investment in ABNet, which was recorded in    the statement of operations in the six month period ended December 31, 2001.

**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.  

**Income    Taxes**

The Company accounts for income taxes under Statement    of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting    for Income Taxes."  Under SFAS    109, deferred tax assets and liabilities are recognized for the future tax    consequences attributable to differences between the financial statement    carrying amounts of existing assets and liabilities and their respective tax    bases.  Deferred tax assets and    liabilities are measured using enacted tax rates expected to apply to    taxable income in the years in which those temporary differences are    expected to be recovered or settled.  A    valuation allowance is provided for significant deferred tax assets when it    is more likely than not that those assets will not be recovered.     
**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 2001 and 2000).     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 had 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.  As    approximately 99% of the Company's revenues, loss from operations and    identifiable assets are from the transaction sales, the Company has not made    segment disclosures in the accompanying financial statements.

**Recent Accounting Pronouncement**
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.

**Convertible    Note Receivable**

In June    2001, the company advanced $600,000 to an unrelated non-public company for a    convertible note receivable ("note").     The note, which accrues interest at 6%, is payable in monthly    interest installments, with the entire principal balance plus any unpaid and    accrued interest due June 12, 2003.  The    note is convertible into common stock at the discretion of the company at $3    per share, which is estimated by both the company and the note maker to be    the fair market value of the common stock.     Interest payments on this note are current as of December 31, 2001.

**Note Receivable**

During the    quarter ended December 31, 2001, the Company entered into a note receivable    agreement with an investor totaling $400,000.     As of the filing of the 10-QSB, all amounts had been repaid to the    company.

**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    December 31, 2001 and 2000 and for the periods then ended, the amounts of    factoring have not been significant to the Company.

**2001 Stock    Option Plan**

On December 31,    2001, the Company's Board of Directors approved the 2001 Stock Option Plan    ("The Plan"), effective May 1, 2001.     An aggregate of 1,000,000 shares of common stock are reserved for    issuance under the Plan from the effective date until its termination on the    10th anniversary.  The    exercise price for each option shall be equal to the fair market value of    the Company's common stock, as defined.     The vesting schedule shall be determined by the Board of Directors    and shall be stated in the individual option agreement.

In December 2001,    the Company's Board of Directors granted, pursuant to the Plan, an    aggregate of 52,500 of non-qualified stock options (as defined by the Plan),    exercisable at $0.20 per share (the fair market value of the Company's    common stock on the day of grant) to certain employees and directors of the    Company.

In October 2001,    the Company's Board of Directors granted pursuant to the Plan, an    aggregate of 90,000 non-qualified stock options (as defined by the Plan),    exercisable at $0.20 per share (the fair market value of the Company's    common stock on the day of grant) to certain employees and directors of the    Company.

In December 2001,    the Company's Board of Directors granted, pursuant to the 1999 Stock    Option Plan, an aggregate of 80,000 options (as defined in the Plan),    exercisable at $0.40 per share (the fair market value of the Company's    common stock on the day of grant) to certain employees and directors of the    Company.

During the    quarter ended December 31, 2001, the Company recognized $101,097 of    compensation expense related to the vesting of stock options issued to    various employees in fiscal year 2000.

**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 six months ended December 31,    2001.  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 envisions made-to-order and programmed goods as a viable new source    of revenue for 2002.    

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.  Once the show has    ended, the Company will transfer all deferred revenue and prepaid expenses    to the statement of operations.    

**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 sixth months    ended December 31, 2001 and 2000, the Company recognized an investment loss    in the accompanying statements of operations from this joint venture of    $94,122 and $84,834, 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 sixth months ended December 31, 2001 and    2000, the Company recognized an investment loss in the accompanying    statements of operations from this joint venture of $65,722 and $12,615    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 six months ended December 31,    2001 and 2000, the Company recognized an investment loss in the accompanying    statements of operations from this joint venture of $54,157 and an    investment loss of $50,434, 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 December 31, 2001 and 2000,    the Company recognized income in the statements of operations from the    amortization of these software sales in the amount of $525,000 and $191,666,    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 $525,000, and $191,666 respectively.

**Accumulated    Losses**

The Company has incurred significant losses since its inception    and may never generate or sustain a profit. For the second quarter ended    December 31, 2001, the Company reported a net loss of $378,670.     The Company devotes significant resources to developing, enhancing,    selling and marketing its 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 December 31, 2001 and 2000**
**Revenue**
Net gross revenues on transaction    sales for the quarter ended December 31, 2001 were $576,350, an increase of    $576,350 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.    

Subscriber    fees decreased $11,364 or 74% to $3,930 in the quarter ended December 31,    2001 from $15,294 in the prior 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.      
Operating Costs and Expenses
General and administrative expenses decreased by $380,837, or 67%, to    $190,302 for the three months ended December 31, 2001, as compared to    $571,139 for the same period last year. The decrease in general and    administrative expenses is primarily due to the decrease in payroll,    professional consulting expenses, IR/PR, and traveling expenses.     Payroll expenses decreased by $134,967 to $92,450 for the three    months ended December 31, 2001 as compared to $227,417 for the same period    last year, due to a decrease in full time employees and employee's payroll    being capitalized for trade show related projects.     Professional fees decreased by $85,050 to $17,153 for the three    months ended December 31, 2001 as compared to $102,203 for the same period    last year, due to a decrease in fees paid to consultants and professionals    for accounting, legal and other professional services.     The IR/PR decreased by $26,630 to $11,640 for three months ended    December 31, 2001 as compared to $38,270 for the same period last year.     The travel expenses decreased by $49,537 to $2,333 for the three    months ended December 31, 2001 as compared to $51,870 for the same period    last year.   

The Company recognized non-cash stock compensation expense of $101,097 for    the three-month ended December 31, 2001 compared to $259,849 for the same    period last year related to the vesting of various stock options. 

**Net Loss**

The    Company recorded a net loss of $175,581 for the three months ended December    31, 2001, a $809,435 decrease in net loss, as compared to a net loss of    $985,016 for the same period last year.     The decrease in net loss is attributable to $81,494 in net revenue    compared to$15,294 from the same quarter last year.     The decrease in net loss is also attributable to a reduction in    non-cash stock based compensation of $158,752 in the same quarter last year,    in addition to the reduction of General and Administrative expenses of    $380,837.  Also, the Company had    a decrease in costs associated with subscriber fees as the Company's    current business model is focusing on transaction sales.     Loss per share for the three-month period ending December 31, 2001    was $0.02 as compared to $0.13 as of December 31, 2000 due to a decrease in    net loss.    

**Six Months Ended December 31, 2001 and 2000**Revenue     
Net gross revenues on transaction    sales for the six months ended December 31, 2001 were $1,076,623, an    increase of $1,076,623 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.    

Subscriber    fees decreased $20,254 or 72% to $7,940 in the six months ended December 31,    2001 from $28,194 in the prior 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.     
**Operating Costs and Expenses**
General and administrative expenses decreased by $429,892, or 43%, to    $562,866 for the six months ended December 31, 2001, as compared to $992,758    for the same period last year. The decrease in general and administrative    expenses is primarily due to the decrease in payroll and professional    consulting expenses.  Payroll    expenses decreased by $256,204 to $289,580 for the six months ended December    31, 2001 as compared to $545,784 for the same period last year, due to a    decrease in full time employees and certain employee payroll being    capitalized for trade show related projects.     Professional fees decreased by $111,811 to $40,965 for the six months    ended December 31, 2001 as compared to $152,776 for the same period last    year, due to a decrease in fees paid to consultants and professionals for    accounting, legal and other professional services.     

The Company recognized non-cash stock compensation expense of $101,097 for    the six months ended December 31, 2001 compared to $518,873 for the same    period last year related to the vesting of various stock options. 

**Net Loss**

The    Company recorded a net loss of $554,251 for the six months ended December    31, 2001, a $1,070,872 decrease in net loss, as compared to a net loss of    $1625,123 for the same period last year.     The decrease in net loss is attributable to $138,572 in net revenue    compared to $28,194 from the same period last year.     The decrease in net loss is also attributable to a reduction in    non-cash stock based compensation of $417,776 in the same period last year,    in addition to the reduction of General and Administrative expenses of    $429,892.  Also, the Company had    a decrease in costs associated with subscriber fees as the Company's    current business model is focusing on transaction sales.     Loss per share for the six month period ending December 31, 2001 was    $0.07 as compared to $0.21 as of December 31, 2000 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 $2,224,746 as of December 31, 2001, primarily due to cash used in    operations of $689,835.  During    the current year, the Company had average monthly general and administrative    expenses (excluding non-cash compensation expenses) of approximately $94,000    as compared to $165,000 in 2000. The cost reduction plan includes reduction    of its staff, professional consulting fees, investor relations and marketing    costs.  With working capital of    approximately $2.2 million and average monthly expenses of approximately    $94,000, coupled with growing net revenue, the Company believes its    operations can breakeven or become profitable by fiscal year end 2002.   

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.     

During    the quarter ended December 31, 2001, the Company capitalized approximately    $220,513, of costs associated with the ASAP tradeshow.     In addition, the Company has recorded deferred revenue totaling    $97,990 related to cash deposits.  Once    the show has ended, the Company will transfer all deferred revenue and    prepaid expenses to the statement of operations.     

On    September 19, 2001, the Company entered into non-revolving lines of credit    with a commercial bank for up to $750,000.     Borrowing under these lines of credit bear interest at certain    percentages (5.01% and 2.67% at December 31, 2001) and are secured by    $500,000 and $250,000 time certificates of deposit at the bank.     The lines of credit will expire on February 22, 2002 and June 15,    2002 respectively.  As of    December 31, 2001 the Company has outstanding loan balances of $566,938.     

**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.

**ITEM 5.  OTHER INFORMATION**

None.

**ITEM 6.  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    statement 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:  2/15/ 2002

         

/s/ Frank S.        Yuan                                                                Frank S. Yuan Chairman, Chief Executive Officer        
        Date:  2/ 15/ 2002/s/ Luz M.        Jimenez                                                                         Luz M. Jimenez (Acting Chief Financial Officer)