SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                       ----------------------------------
                                   FORM 10-KSB

(Mark one)

|X|  Annual report under section 13 or 15(d) of the  Securities  Exchange Act of
     1934 For the fiscal year ended June 30, 2004

                                       OR

|_|  Transition report under section 13 or 15(d) of the Securities  Exchange Act
     of 1934 For the transition Period from _______ to _______

                        Commission file number 001-15643

                         Cyber Merchants Exchange, Inc.
                 ---------------------------------------------
                 (Name of small business issuer in its charter)

                 California                             95-4597370
      -------------------------------       -----------------------------------
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)

     4349 Baldwin Avenue, Suite A       Registrant's telephone number:
         El Monte, California                   (626) 636-2530          91731
----------------------------------------                              ---------
(Address of principal executive offices)                              (Zip Code)

Securities registered under Section 12(b) of the Act:      Name of exchange on
                  (Title of Class)                           which registered

                       None                                        None
 ----------------------------------------------------      ---------------------

Securities registered under Section 12(g) of the Act: Common Stock, no par value
                                                      --------------------------
                                                          (Title of class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. |_|

Registrant's net revenue for its most recent fiscal year:  $1,771,475

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant on September 23, 2004,  computed by reference to the closing price of
that date, was $1,026,415, assuming solely for purposes of this calculation that
all  directors  and  executive  officers  of the issuer are  "affiliates."  This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

On September 23, 2004, the registrant had 7,472,673  shares of Common Stock,  no
par value per share.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy statement under Regulation 14A,
which  statement  will be filed  not  later  than 120 days  after the end of the
fiscal year covered by this report,  are  incorporated  by reference in Part III
hereof.

              TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: Yes | | No |X|

<PAGE>

                         CYBER MERCHANTS EXCHANGE, INC.

                                    Index to
                          Annual Report on Form 10-Ksb
                       for Fiscal Year Ended June 30, 2004

PART I                                                                      PAGE
Item 1   Description of Business..............................................3
Item 2   Description of Property..............................................9
Item 3   Legal Proceedings....................................................9
Item 4   Submission of Matters to a Vote of Security Holders..................9

PART II

Item 5   Market for Common Equity and Related Stockholder Matters............10
Item 6   Management's Discussion and Analysis of Financial Condition
         and Results of Operations...........................................11
Item 7   Financial Statements................................................15
Item 8   Changes In and Disagreements With Accountants on Accounting
         and Financial Disclosure............................................15
Item 8A  Controls and Procedures.............................................15

PART III

Item 9   Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act...................16
Item 10  Executive Compensation..............................................16
Item 11  Security Ownership of Certain Beneficial Owners and Management......16
Item 12  Certain Relationships and Related Transactions......................16
Item 13  Exhibits and Reports on Form 8-K....................................17
Item 14  Principal Accountant Fees and Services..............................18

Signatures...................................................................18

Report of Independent Registered Public Accounting Firm.....................F-1


                                       2

<PAGE>

                                     PART I

FORWARD-LOOKING STATEMENTS
--------------------------

Except for the historical  information  presented in this document,  the matters
discussed  in this  Form  10-KSB,  and  specifically  in the  sections  entitled
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of  Operations,"  or otherwise  incorporated  by reference
into this document contain "forward-looking statements" (as such term is defined
in the Private  Securities  Litigation Reform Act of 1995). These statements can
be  identified by the use of  forward-looking  terminology  such as  "believes,"
"plans,"  "expects,"  "may," "will,"  "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties.  The safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended,  and Section 27A
of the Securities Act of 1933, as amended,  apply to forward-looking  statements
made by the Company, as defined below. These forward-looking  statements involve
risks and  uncertainties,  including those statements  incorporated by reference
into this Form 10-KSB.  The actual results that the Company  achieves may differ
materially  from  any   forward-looking   projections  due  to  such  risks  and
uncertainties.  The  following  are some of the factors  that could cause actual
results  to differ  materially  from  those  reflected  in any  forward  looking
statement made by or on behalf of the Company:  reliance on collaborative retail
partners; market acceptance of Company products and services;  changing business
conditions or  technologies  in the industry,  which could affect demand for the
Company's  products  and  services;  the impact of  competition;  problems  with
technology;  product  development  schedules;  and regulatory factors beyond the
Company's  control.  These  forward-looking  statements  are  based  on  current
expectations,  and the Company assumes no obligation to update this information.
Readers are urged to carefully review and consider the various  disclosures made
by the Company in this Annual Report on Form 10-KSB and in the  Company's  other
reports filed with the Securities and Exchange Commission that attempt to advise
interested  parties  of the risks and  factors  that may  affect  the  Company's
business.

ITEM 1.  DESCRIPTION OF BUSINESS
--------------------------------

THE COMPANY

         Cyber  Merchants  Exchange  ("C-Me" or the  "Company")  is a trade-show
organizer and an international  electronic trading and logistics company that is
initially  targeting the apparel industry.  The Company was incorporated in July
1996  under the laws of the  State of  California.  In July  1999,  C-Me  raised
approximately  $3.2 million through its IPO. On June 30, 2000 the Company raised
an additional $6.3 million in a private placement offering subscribed by 30 high
net-worth Chinese investors. As of July 2004, C-Me had approximately 7.5 million
shares of common stock  outstanding  and over 600  shareholders.  The Company is
currently  listed on the OTCBB  under the  symbol  CMEE,  and a fully  reporting
Company.

         C-Me's  value to global  suppliers  and  buyers  in the  manufacturing,
wholesaling  and  retailing  clothing  business lies in its  capabilities  as an
intermediary  for the industry.  The Company used its raised capital and 7 years
of hard  work to  build a  second  to none  unique  foundation  to meet  today's
ever-changing   international  trading  landscape.  The  Company  presently  has
representatives  located in 25 countries throughout Asia, Africa, and the Middle
East to facilitate international transactions.

THE CHANGING APPAREL INDUSTRY AND BUSINESS MODEL

         Over the years, various quotas governing exports from apparel-producing
countries to the US and other industrial  countries have been established  under
the auspices of the GATT.  U.S  ready-wear  apparel quota  purchased from China,
India, Pakistan, Bangladesh, etc, will be removed January 1, 2005. It is safe to
predict that the market share of apparel  exports to the U.S will rapidly change
its sources to those low labor cost countries.


                                       3

<PAGE>

         C-Me's  strength  lies in its  management's  knowledge  of the  apparel
industry.  By first  cornering the sourcing  trade shows in the U.S.,  C-Me will
have easy access to decision makers in the industry and manufacturers of apparel
in China, India,  Pakistan,  Bangladesh and elsewhere in the world. C-Me's other
value added services,  including innovative  international financial platform to
replace the outdated Letter of Credit,  B2B electronic  trading  targeted on the
stock lot  merchandise  and  logistics,  will then easily gain more  revenue and
market share.

OVERVIEW OF C-ME SERVICES

Trade Shows
-----------

         ASAP  GLOBAL  SOURCING  SHOW - a trade  show  for U.S.  buyers  to meet
hundreds of overseas ready-made garment  manufacturers - is held twice a year in
Las Vegas.  The sixth  edition of the ASAP Show in August  2004 was the  world's
largest  garment and textiles  sourcing show. The August show had  approximately
350 full package factories representing from 45 countries exhibiting.

         ASAP CHINA BUYING TRIP 2005 is being  arranged by C-Me to bring 150 U.S
buyers,  each with more than $10 million in  purchasing  power,  to 4 production
centers  in  China.  This  reverse  trade-show  event  has  been  overwhelmingly
supported by the U.S Cotton Council,  American Apparel and Footwear Association,
The CIT Group ("CIT"),  Ernst and Young, and many other leading corporations and
associations  active in the  industry.  The first tour of its kind  designed for
U.S.  buyers  prepared  to  place  production  orders,   license  their  brands,
understand China's distribution channels,  find joint ventures possibilities and
relocate U.S. textile plants to China. Participation from the U.S. side includes
such prominent names as Fruit of the Loom, Jockey and many others.

         MATERIAL WORLD is a once-a-year  textile and accessories  sourcing show
held in Miami,  Florida.  C-Me will act as  Material  World's  global  marketing
partner effective  immediately and will share 50% of the profits associated with
sales of booths by C-Me.

GLOBAL FINANCIAL PLATFORM ("GFP")

         Letters  of credit  have  historically  been the  predominant  means of
payment  for  international  trading.  C-Me's  patent  pending  GFP  provides  a
framework  for  obtaining  non-recourse  financing of  merchandise  shipments to
pre-approved  buyers in the  United  States,  without  the need for  letters  of
credit.

         Through C-Me's GFP, CIT,  overseas bank and C-Me, each of the tri-party
participants plays an integral role. First, CIT guarantees the credit worthiness
of the U.S.  buyers.  Secondly,  the  overseas  bank  provides  working  capital
financing and acts as the conduit for foreign  manufacturers to receive payment.
Consequently,  U.S.  buyers  can  purchase  overseas  merchandise  just  as they
purchase domestic goods, with open terms and without the need to open Letters of
Credit.

THE INTERNET SOURCING NETWORK ("ISN")

         The ISN is a private  extranet  that C-Me builds and  maintains for its
U.S. retail clients.  ISN allows C-Me's retail clients and overseas suppliers to
conduct business using the web-based application. Overseas suppliers have direct
access to U.S. retail buyers, foresight into a retailer's procurement cycle, and
feedback on their product needs,  and receive weekly  "open-to-buy"  information
broadcast from buyers. Currently, the ISN is used by Value City, National Retail
Stores and others to purchase overseas stock lots.

LOGISTICS AND WAREHOUSING

         C-Me also provides  logistics  and warehouse  services for its overseas
exhibitors/suppliers.  This added value service plays a very  important  tighter
relationship with C-Me's overseas exhibitors/suppliers.


                                       4

<PAGE>

SUPPORTING TECHNOLOGY

The Company has developed three proprietary technologies:

     1.   Product Driven Search Engine

     The Company believes the keyword search  functions  employed by traditional
     search  engines are  impractical  for  merchandise  sourcing.  Rather,  the
     Company  developed a product  driven search  engine,  which  simplifies the
     search  process.  This search  engine is linked to dynamic  listings of the
     overseas  manufacturers'  product  catalog and line sheets,  complete  with
     detailed product descriptions and digital  photographs.  These products are
     then  indexed  and  separated  into  easily  recognizable  categories  that
     facilitate quick product searches by retail buyers.

     2.  Focused Broadcasting ("FOCASTING(TM)")

     The  Company's  FOCASTING(TM)  software  enables  retail  buyers  to create
     individual Web pages,  thereby  limiting  unnecessary  "surfing." After the
     buyer creates his or her customized Web page,  the  FOCASTING(TM)  software
     will  "push" or  broadcast  all  products  contained  within the  Company's
     database directly to the buyer's desktop. For example, if a buyer for Men's
     jeans created a customized Web page using FOCASTING(TM) and selected "Men's
     jeans," the  FOCASTING(TM)  software would transmit all the information and
     images  relating to Men's jeans within the Company's  database to the buyer
     each time he or she logs on.

     3.  Dynamic End-User Profile System ("DEPS(TM)")

     The DEPS(TM)  software  provides  retail buyers and overseas  manufacturers
     with numerous  interactive  functions.  The DEPS software  allows a user to
     maneuver and manipulate  (delete,  restore,  etc.) the product  information
     contained within his or her own product database. In addition,  DEPS alerts
     a user  whenever  "new"  or  "close-out"  items  are  added  to the  user's
     database.  For the  overseas  manufacturer,  DEPS  enables them to remotely
     change,  upload  and  delete  their  product  information  based on  users'
     requests as well as receive business  critical  announcements  from buyers.
     Additionally,  DEPS(TM)  will  allow  the  buyer to send  bulk OR  personal
     e-mails  to all  overseas  manufacturers  in the ISN.  These may be used to
     announce the buyer's "open-to-buy  position," request special products, and
     announce merchandise buying and planning goals.

REVENUE MODEL

Transaction Sales
-----------------

         The  Company  acts as a  purchasing  agent  for  U.S.  buyers  or sales
representatives for overseas  manufacturers.  Once there is a confirmed purchase
order with  credit-worthy  U.S.  buyers,  the  Company  will place the order and
resell the  merchandise  against  the orders.  In order to earn a better  profit
margin,  the Company will act as the principal and take title and  possession of
the merchandise and sell it to approved  credit-worthy  buyers, with open terms.
The Company does not take any credit risk, all the  receivables  are assigned to
CIT for non-recourse collection basis.

Tradeshows
----------

         The tradeshow  revenue is generated  primarily from booth sales.  There
are  many  other  ancillary  revenues  such  as  seminar  fees,  advertisements,
tradeshow  decoration material rentals,  etc.  Currently,  Management places all
resources  and  manpower  to  develop  the  three  tradeshows  above  mentioned.
Consequently, the Company's revenues are generated purely from the tradeshows.


                                       5

<PAGE>

Global Financial Platform
-------------------------

           CIT pays C-Me  0.5% of  transaction  value.  Letters  of credit  have
historically been the predominant  means of payment for  international  trading.
GFP is designed to  eliminate  the need for letters of credit.  The Company does
not have any  resources  or  manpower  to  assign  to this  project.  Management
believes the revenue from GFP could be one of the larger revenue  sources in the
future.

ISN
---

         C-Me's retail  clients pay C-Me a 5% commission  based upon  successful
transactions to utilize its ISN.

Logistics and warehousing
-------------------------

         The Company charges its overseas suppliers and exhibitors the same rate
as a public warehouse charges.

COMPETITION

International Electronic Trading
--------------------------------

The distinction  between  merchandise  sourcing  (front-end) and the procurement
function  (back-end)  is important to a discussion  on  competition.  Currently,
standardized  EDI  transaction  sets,  including  purchase  orders,  are common.
However,  EDI is costly and does not solve the  front-end  issue of  merchandise
sourcing and international electronic trading.

The  Company's  primary  competitors  of the  Company's  front-end  sourcing and
international electronic trading business are as follows:

     o    QRS enables retailers and overseas manufacturers to list, buy and sell
          merchandise  through a staged auction  process over the Internet.  All
          buyers and sellers are  pre-registered and authorized to trade by QRS.
          After   registering,   customers   are  provided   with  a  Tradeweave
          `Passport,'  which  authenticates  them as an  approved  trader in the
          marketplace.  Sellers  issue  `Visas' to selected  approved  buyers to
          formalize trading  relationships.  Sellers benefit by increasing their
          market reach,  drawing more  competitive bids and gaining more control
          over  their  brand and the sales  process.  Buyers  benefit  by having
          broader access to  merchandise at attractive  prices through a central
          location.   Both  sellers  and  buyers   benefit  from  an  integrated
          e-commerce back-end using existing QRS services.  All industry players
          have  access  to   Tradeweave's   retail   trade  news,   content  and
          directories.

     o    GLOBAL  SOURCES  is an  enabler of global  merchandise  trade.  Global
          Sources develops and operates  independent  Internet  marketplaces and
          offers software solutions that facilitate cross-border transactions in
          public and private  environments.  Global Sources cataloging  software
          and content  management  infrastructure  support these offerings while
          its trade magazines remain a key complementary  component of its total
          solution.

     o    ALIBABA.COM is the world's largest marketplace for global trade and is
          the leading  provider of online  marketing  services for importers and
          exporters.  Alibaba.com is the number one  destination  for buyers and
          sellers to find  trade  opportunities  and  promote  their  businesses
          online.

Trade Shows
-----------

There are numerous  fashion,  apparel,  textile and  accessories/supplies  trade
shows in the U.S. each year.  Some of these shows are well  established and have
been held for years. The Company's trade show is focused on sourcing merchandise
and  merchandise  manufacturing  services  from overseas  manufacturers


                                       6

<PAGE>

located  throughout  the world,  but  currently  with an  emphasis  on  overseas
manufacturers from Southeast Asia and Africa.

The primary competitors of the Company's ASAP Show are as follows:

     o    MAGIC - MAGIC,  the Men's Apparel Guild in California,  was founded in
          1933. Due to enormous  growth,  the show relocated from Los Angeles to
          Las Vegas in 1989. Today,  MAGIC  International is the world's largest
          and most widely  recognized  organizer of apparel and fashion industry
          trade shows.  The show encompasses  every facet of fashion:  MAGIC for
          Men's Apparel;  WWDMAGIC and femme for Women's Apparel; MAGIC kids for
          Children's Apparel; The Edge, Sourcing Zone and Fabric at Magic.

     o    Material  World  Miami  Beach - Material  World  showcases  the latest
          introductions and innovations from leading mills,  textile converters,
          trim and related  product  manufacturers,  as well as software and CAD
          system providers.

     o    IFFE at New York Javits Center - The largesT textile, trim and leather
          show in North  America,  newly  expanded this season to feature a most
          comprehensive array of Fall/Winter 2005/2006 Collections.

Although the competitors  detailed in the preceding paragraphs may offer similar
services to C-Me,  the Company  believes  that no other company has its range of
services,  approach to serving the  industry or such an  experienced  management
team. C-Me is focused on providing a complete  merchandise  sourcing solution by
providing on-line  merchandise  sourcing,  a network to access overseas markets,
its Global Financial Platform, its ASAP Global Sourcing Show, and other services
that  interlock  each other and are  focused on  serving  buyers'  international
sourcing and transaction needs.

INTELLECTUAL PROPERTY PROTECTION

The Company has one patent pending that pertains to business processes:

     Global Financial Platform ("GFP") (patent pending)

     C-Me's GFP eliminates  the need for letters of credit by allowing  overseas
     suppliers ship merchandise to pre-approved  retailers/buyers  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. In essence,  it is the first
     workable  international  factoring  mechanism.   Overseas  suppliers,  U.S.
     retailers/buyers,  international  banks and CIT are linked to C-Me's Global
     Financial  Platform.  Through  this  arrangement,  each  of  the  tri-party
     participants  play an  integral  role.  First,  CIT  guarantees  the credit
     worthiness of the U.S.  retailers/buyers.  Secondly,  Bank SinoPac provides
     cash  advances up to 80% and acts as the conduit for foreign  suppliers  to
     receive  payment.  Through C-Me's GFP, U.S.  retailers/buyers  can purchase
     overseas merchandise, just as they purchase domestic merchandise, with open
     terms and without the need to open  letters of credit.  Overseas  suppliers
     ship merchandise to pre-approved retailers without payment risk and receive
     up to 80% cash advance when they ship the merchandise.

             In addition, the Company has trademarked the following trade names:
C-Me(TM), Cyber Merchants Exchange(TM), ASAP GLOBAL Sourcing Show(TM), ASAP(TM);
DEPS(TM); FOCASTING(TM); and Internet Sourcing Network(TM).

GOVERNMENT REGULATIONS

Since the Company's  core business is related to  international  apparel  trade,
there are numerous U.S and foreign government  regulations and restrictions that
impose a significant burden upon the Company's


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<PAGE>

international  business, such as quota limitations for apparel entering the USA,
tariffs  and U.S.  Customs  controls.  The World  Trade  Organization's  ("WTO")
bilateral  agreement  between the U.S.  and each  overseas  country has numerous
limitations and conditions to be met. The Company's buyers or sellers' violation
of the  WTO  conditions  will  have a  material  effect  on the  Company's  core
business.

Government  regulations  of the  Internet  are another  barrier that the Company
faces.  For example,  wide use of the Internet is  restricted in China and other
countries where the Company may seek to do business.

EMPLOYEES

As of September  23, 2004,  the Company  employs 12  full-time  employees  and 1
part-time employee  classified as follows:  2 full-time  executive  officers;  4
full-time  administrative  personnel;  6 full-time  marketing  personnel;  and 1
part-time technical personnel. None of the employees are subject to a collective
bargaining agreement, and the Company believes that relations with its employees
are good.

RISK FACTORS

THE FOLLOWING RISK FACTORS INCLUDE,  AMONG OTHER THINGS,  CAUTIONARY  STATEMENTS
WITH RESPECT TO CERTAIN  FORWARD-LOOKING  STATEMENTS,  INCLUDING  STATEMENTS  OF
CERTAIN  RISKS  AND  UNCERTAINTIES  THAT  COULD  CAUSE  ACTUAL  RESULTS  TO VARY
MATERIALLY  FROM  THE  FUTURE  RESULTS  REFERRED  TO  IN  SUCH   FORWARD-LOOKING
STATEMENTS. SEE "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS."

WE ARE AN EARLY-STAGE COMPANY WITH A LIMITED OPERATING HISTORY.

The company is an early-stage  company.  It is using an unproved  business model
and  cannot   guarantee   that  the  business   model  is   appropriate  to  the
implementation of its business plan.

WE EXPECT TO DEPEND ON REVENUE  FROM OUR  DOMESTIC  AND  INTERNATIONAL  INTERNET
SOURCING NETWORKS,  ASAP TRADE SHOWS, AND GLOBAL FINANCIAL PLATFORM. The Company
expects to depend primarily on revenue from the complete  implementation  of our
domestic and international  Internet Sourcing  Networks,  ASAP Shows, and Global
Financial  Platform.  The ASAP Show has generated revenue in the past.  However,
there is no guarantee  that the ASAP Show will  continue to generate  revenue or
that that revenue will meet our  expectations.  The Internet  Sourcing  Network,
Global  Financial  Platform and  Warehouse  Logistics  are in their  development
stages, therefore there is no significant revenue generated from these services.

WE HAVE A HISTORY OF OPERATING LOSS AND ARE NOT PROFITABLE.

The Company has a history of operating  losses.  We have not been  profitable in
our history, and do not expect to be profitable in the near future.

WE HAVE NOT PROVED THE REVENUE OR PROFIT POTENTIAL OF OUR BUSINESS MODEL.

Because the business model is unproven, both the revenue and profit potential of
the Company are uncertain. If the Company meets its revenue expectations,  there
is no  guarantee  that the  Company  will be  profitable  or that costs will not
continue to exceed revenue.

WE FACE INTENSE COMPETITION FROM MANY ENTITIES.

The trade show marketplace is highly competitive.  Although the Company believes
it has several key advantages, the barrier to entry is not significant.  We have
identified and continue to identify  numerous  companies that are better funded,
have more  experience  and more  significant  resources that have entered or are
planning to enter the trade show.  Should  these  companies  decide to enter our
specific  market,  there  is no  guarantee  that we will be able to  effectively
compete with them.

WE ARE DEPENDENT ON OUR FOREIGN ALLIANCES.

The Company is dependent  upon its ability to establish and maintain  successful
foreign alliances.  If we are not able to establish and maintain such alliances,
we will not be able to implement the business plan in its current configuration,
which will affect both our revenue stream and profit potential. In addition, the


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<PAGE>

Company faces  political  sovereign risks of conducting  international  business
including  risks of changing  economic  conditions in the Pacific Rim, which may
have a material  adverse  effect on our  ability to provide  global  merchandise
sourcing to our retail clients.

WE ARE DEPENDENT ON MARKET DEMAND FOR AN ACCEPTANCE OF OUR SERVICES.

Much of the Company's  success is dependent upon  aggregating a critical mass of
subscribing overseas manufacturers and trade show attendees and establishing and
maintaining  strong  relationships  with retail  clients.  If market  demand and
acceptance for our services is not in line with the Company's  expectations,  it
is likely that the Company's revenue will not meet its expectations.

WE ARE DEPENDENT ON  RELATIONSHIPS  WITH KEY RETAIL CLIENTS,  AND THE ABILITY TO
CREATE MORE SUCH RELATIONSHIPS.

Our business model is retailer/buyer -centric.  Successful  implementation of it
is predicated  on our ability to create and nurture  strong  relationships  with
retailers/buyers.   If  we  are   unable  to  expand   and   maintain   existing
relationships,  our  revenue  and  profitably  will not  meet our  expectations.
Although  the  Company  believes  it  can  create  and  maintain  the  necessary
relationships, there is no guarantee that it will.

WE DEPEND ON THE RELIABILITY AND CONTINUITY OF OUR SERVICES.

As a service provider,  the Company is dependent upon the continued  reliability
of its  Internet  Sourcing  System,  ASAP Trade  Show,  software  and  hardware.
Although  we have  reliable  systems  in  place,  and have not had any  problems
providing  quality service,  there is no guarantee that the Company will be able
to continue to provide reliable services.

WE DEPEND UPON KEY MEMBERS OF MANAGEMENT.

The  implementation of our business plan and our continued success relies on key
members of the  management  team and sales,  marketing,  and finance  personnel.
There  is no  guarantee  that  these  employees  will  continue  to work for the
Company.  In addition,  there is no  guarantee  that the Company will be able to
replace these  employees with personnel of similar  caliber,  should they not be
able to work, or decide not to work for the Company.

INCREASED  GOVERNMENT  REGULATION OF THE INTERNET COULD HAVE A MATERIAL  ADVERSE
EFFECT ON US Increased  government  regulation,  or the  application of existing
laws to online  activities,  could inhibit Internet growth,  expose us and other
sellers of  products  for use on the  Internet  to  additional  liabilities  and
increase the cost of doing business.  This could have a material  adverse effect
on our profits and liquidity.  The increasing popularity and use of the Internet
and other online  services may lead to the adoption of new laws and  regulations
in the U.S. or elsewhere  covering issues such as online privacy,  copyright and
trademark,   sales  taxes  and  fair   business   practices  or  which   require
qualification to do business as a foreign corporation in certain jurisdictions.

ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

The Company leases its corporate  headquarters  located at 4349 Baldwin  Avenue,
Suite A, El Monte, California 91731. Its telephone number is (626) 636-2530. The
lease  commenced on March 15, 2003,  and expires on March 31, 2006.  The Company
currently leases  approximately  9,800 square feet at an average monthly rent of
approximately $5,880.

ITEM 3.  LEGAL PROCEEDINGS
--------------------------

None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

None


                                       9

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

The  Company's  common stock is traded on the NASDAQ  Over-the-Counter  Bulletin
Board (OTC-BB) under the symbol "CMEE." The following table sets forth,  for the
periods  indicated,  the  range of high and low sales  prices  of the  Company's
common stock as quoted by various  market  makers for the period of July 1, 2002
through June 30, 2004.

             July 1, 2002 to June 30, 2003:         HIGH*         LOW*
                                                    ------------------
                      First Quarter                 $ 0.24       $0.24
                      Second Quarter                $ 0.25       $0.22
                      Third Quarter                 $ 0.32       $0.22
                      Fourth Quarter                $ 0.33       $0.25

             July 1, 2003 to June 30, 2004:         HIGH*         LOW*
                                                    ------------------
                      First Quarter                 $ 0.25       $0.25
                      Second Quarter                $ 0.42       $0.42
                      Third Quarter                 $ 0.30       $0.30
                      Fourth Quarter                $ 0.25       $0.25

* The source of the high and low closing  sales price  information  is Commodity
Systems, Inc. and can be found on Yahoo's Web-site at  http://finance.yahoo.com.
These quotations reflect inter-dealer prices, without retail mark-up,  mark-down
or commission and may not represent actual transactions.

HOLDERS OF RECORD

On June 30, 2004,  the  Company's  issued and  outstanding  common stock totaled
7,472,673  shares,  held by 173  shareholders  of record and by an  undetermined
number of additional  shareholders  through nominee or street name accounts with
brokers.

DIVIDENDS

The  Company  has not  paid  dividends  in prior  years  and has no plans to pay
dividends  in the near future.  The Company  intends to reinvest its earnings on
the  continued  development  and  operation  of its  business.  Any  payment  of
dividends  would  depend upon the  Company's  pattern of growth,  profitability,
financial condition,  and such other factors, as the Board of Directors may deem
relevant.

PENNY STOCK

The Company's securities are subject to the Securities and Exchange Commission's
"penny stock"  rules.  The penny stock rules may affect the ability of owners of
the  Company's  shares to sell  them.  There may be a limited  market  for penny
stocks due to the regulatory burdens on broker-dealers. The market among dealers
may not be active.  Investments  in penny  stocks often are unable to sell stock
back to the dealer that sold them the stock. The mark-ups or commissions charged
by the  broker-dealers  might be greater  than any profit an investor  may make.
Because of large spreads that market  makers  quote,  investors may be unable to
sell the stock  immediately back to the dealer at the same price the dealer sold
the stock to the investor.

The  Company's  securities  are also  subject  to the  Securities  and  Exchange
Commission   rule  that  imposes  special  sales  practice   requirements   upon
broker-dealers that sell such securities to other than established  customers or
accredited investors. For purposes of the rule, the phrase "accredited investor"
means,  in general  terms,  institutions  with assets  exceeding  $5,000,000  or
individuals  having net worth in excess of $1,000,000 or having an annual income
that  exceeds  $200,000  (or that,  combined  with a  spouse's  income,  exceeds
$300,000).  For transactions  covered by the rule, the broker-dealer must make a
special suitability


                                       10

<PAGE>

determination for the purchaser and receive the purchaser's written agreement to
the transaction prior to the sale. Consequently, the rule may affect the ability
of purchasers of the Company's securities to buy or sell in any market.

RECENT SALES OF UNREGISTERED SECURITIES

None

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
        OF OPERATIONS
        -------------

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Company's  audited  financial
statements  and the  related  notes  thereto-included  elsewhere  in this annual
report for the fiscal year ended June 30,  2004.  Certain  statements  contained
herein may constitute forward-looking  statements, as discussed at the beginning
of Part I of this Annual  Report on Form 10-KSB.  The Company's  actual  results
could differ  materially  from the results  anticipated  in the  forward-looking
statements as a result of a variety of factors, including those discussed in the
Company's filings with the Securities and Exchange Commission

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fiscal Year Ended June 30, 2004, Compared to Year Ended June 30, 2003
---------------------------------------------------------------------

The following discussion sets forth information for the twelve months ended June
30, 2004,  compared with the twelve months ended June 30, 2003. This information
has been derived in part from the audited  financial  statements  of the Company
contained elsewhere in this Form 10-KSB.

REVENUES

Transaction Sales
-----------------

Net  revenues  from  transaction  sales for the year  ended  June 30,  2004 were
$107,001,  a decrease of $100,793 from  $207,794 in 2003.  During the year ended
June 30,  2004,  the Company had  transaction  sales of  $1,351,401  compared to
$2,189,828  for the same period last year.  The gross profit margin for the year
ended June 30,  2004 was 7.9%,  compared  to 9.5% for the same period last year.
Management  put all the Company's  resources and manpower to the ASAP Trade Show
development for the year of 2004, which is the reason why the transaction  sales
reduced,  compared  with year  2003.  Even  though it is less in gross  revenue,
management is focused on more profitable transactions.  The Company expects this
net revenue  percentage  to grow,  as it begins to fully  utilize  its  overseas
sourcing network and its external sales force.

Asap Show
---------

TRADE SHOWS

The ASAP show segment derives revenue principally from the sale of exhibit space
and conference  attendance fees generated at its events. In 2004,  approximately
95% of our trade  shows and  conferences  revenue  was from the sale of  exhibit
space. Events are generally held on a semi-annual basis in Las Vegas, Nevada. At
many of our trade  shows,  a portion of exhibit  space is  reserved  and partial
payment is received as much as 90 days in advance.  The sale of exhibit space is
generally  impacted by the on-going  quality and quantity of  attendance,  venue
selection and availability,  industry life cycle and general market  conditions.
Revenue and related  direct event  expenses are recognized in the month in which
the event is held.  Cash is  collected in advance of an event and is recorded on
our balance sheet as deferred revenue.

Our business is seasonal,  with revenue  typically  reaching its highest  levels
during the first and third  quarters  of each  fiscal  year,  largely due to the
timing of the ASAP trade  shows.  In 2004,  approximately  63% of our  tradeshow
revenue was generated during the first quarter and  approximately 47% during the


                                       11

<PAGE>

third quarter.  Because event revenue is recognized  when a particular  event is
held,  we may also  experience  fluctuations  in quarterly  revenue based on the
movement of annual trade show dates from one quarter to another.

ASAP Show  revenues  totaled  $1,663,274,  compared to $893,523,  an increase of
$769,751 or 86% compared to last fiscal year.

SUBSCRIBER FEES

Subscriber  fees  decreased  $5,161 or 81% to $1,200 in the year  ended June 30,
2004 from  $6,362 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 EXPENSES

Operating  expenses  consist  primarily  of  show  production  cost,   marketing
programs,  investor relations, and payroll related expenses.  Operating expenses
decreased  $300,842  or 11% to  $2,320,518  in the year ended June 30, 2004 from
$2,621,360  for the same  period  last year.  Such a  decrease  is mainly due to
decreases  in  professional  fees and bad  debts.  Professional  fees  decreased
$72,732 to $97,375 for the year ended June 30, 2004 from  $170,107  for the same
period last year. The decrease is a result from the litigation settlement with a
former employee in fiscal year end 2003. Bad debts decreased $118,480 to $21,675
for the year ended June 30,  2004 from  $140,155  for the same period last year.
The decrease on bad debts is resulted from improvements from accounts receivable
collections.  During the fiscal years ended June 30, 2004 and 2003,  the Company
granted  620,000 and 190,000 stock  options.  No non-cash  employee  stock-based
compensation expense was recognized, for the years ended June 30, 2004 and 2003.

OTHER INCOME (EXPENSE)

Net interest income decreased by $36,029 or 80% to $9,081 in the year ended June
30,  2004 from  $45,110  for the same  period  last year.  The  decrease  of net
interest  income was mainly due to a decrease in cash  investment  in short term
certificates  of deposit and lower  interest  rates.  In  addition,  the Company
incurred an impairment loss on a convertible note receivable of $600,000 for the
same period last year.

Under the equity  method of  accounting,  the loss in  overseas  joint  ventures
decreased  by  $181,886  or 95% to $9,341 in the year ended  June 30,  2004 from
$191,227 for the same period last year. Each joint venture in E-SEA,  Taiwan and
China  has  incurred  significant  development  costs  and  amortization  of the
software acquired from the Company  associated with  infrastructure  development
and market  branding.  The Company  invested in the joint ventures with proceeds
received from the sales of its ISN software to the  respective  joint  ventures.
The revenue from the software  sold was  amortized  over a 3-year  straight-line
amortization  method and offset by negative  goodwill.  These joint ventures had
net losses  since  inception  and were formed  during the  Internet  boom with a
business model to attract subscribers to join the Company's ISN services.  Since
the Company's core business model changed from attracting  paid  subscribers for
its ISN  services  to  organizing  trade  shows and  transaction  sales,  it was
determined by the management that the investment was permanently impaired and as
a result,  the Company recorded an impairment  charge of approximately  $720,000
for the year ended June 30, 2004.

Negative goodwill was fully amortized during the year ended June 30, 2003.

Amortization of negative goodwill was $308,333 for the year ended June 30, 2003.
The amortization of negative  goodwill  resulted from the sales of the Company's
ISN (software) to its overseas  joint  ventures in Taiwan,  South East Asia, and
China.  The software sales to Taiwan,  South East Asia, and China were $300,000,
$300,000,  and  $400,000,  respectively.  The  Company  amortized  the  negative
goodwill over three years.


                                       12

<PAGE>

NET LOSS

The net loss for the fiscal  year ended June 30, 2004  decreased  by $681,702 or
35% to $1,270,563 from $1,952,265 for the same period last year. The decrease in
2004 is mainly due to an increase of ASAP show revenue of $769,751,  a reduction
of operating  expenses of $300,842,  less increase in equity impairment  losses,
net of amortization of negative goodwill.

Net loss per  share  decreased  by $0.09 or 34% to $0.17  per share for the year
ended June 30, 2004 from $0.26 for last year.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  working capital deficit  increased from a deficit of $8,808 as of
June  30,  2003  to  $536,088  as  of  June  30,  2004,  primarily  due  to  the
line-of-credit  from a  shareholder  of  $252,000,  and  the  reduction  of cash
reserves of approximately $100,000.  During the fiscal year ended June 30, 2004,
the Company had average monthly general and administrative  expenses  (excluding
non-cash compensation expenses) of approximately  $137,000,  excluding ASAP show
production  costs,  as compared to $148,000 for fiscal year ended June 30, 2003.
During fiscal year 2005, the Company will focus on the  transaction  revenue and
ASAP show business model. As of June 30, 2004, the Company has current assets of
approximately  $101,000.  With the net revenue from transaction  sales, the ASAP
show  income and  continuing  support  from its major  shareholder  to provide a
revolving  line-of-credit,  management believes the company will have enough net
working capital to sustain its business for another 12 months.

The Company accepted a revolving  line-of-credit  (the "Line") on April 14, 2004
from Frank and Vicky Yuan,  the  Company's  CEO and a  significant  shareholder,
which  expires on September 1, 2005 and provides for  borrowings up to a maximum
of  $300,000.  The Line  carries an  interest  rate of 8.0% per annum.  The Line
contained  financial  and  non-financial  covenants,  which the  Company  was in
compliance  with at June 30, 2004. The balance as of June 30, 2004 was $252,000,
with accrued and unpaid interest of $2,208. As of September 3, 2004, the Company
has fully paid the outstanding principal.

On April 17, 2003, the Company  entered an agreement with C.K.  Cooper & Company
("CKCC"),  a NYSD member investment banker based in Irvine,  California,  as its
placement  agent and financial  consultant  to sell newly issued 8%  convertible
preferred  stock at $0.50 per share for a total of  $1,250,000.  The Company has
agreed to pay CKCC sales commissions equal to 8% of gross proceeds,  up to 3% of
which may be re-allowed to  participating  broker-dealers.  The Company has also
agreed to indemnify CKCC for certain liabilities under the Security Act of 1933,
as amended.  This  convertible  stock offering does not have any  commitments or
investments as of the date of the filing.

The  forecast  of the  period  of time  through  which the  Company's  financial
resources  will be  adequate  to support  its  operations  is a  forward-looking
statement that involves risks and  uncertainties.  The Company's  actual funding
requirements may differ materially as a result of a number of factors, including
unknown  expenses  associated  with  the cost of  continuing  to  implement  the
Company's international electronic trading business and ASAP Show expansion.

The Company has no commitments to make capital  expenditures for the fiscal year
ending June 30, 2004.

Over the next two to five years,  the Company plans to utilize a combination  of
internally generated funds from operations,  potential debt and equity financing
to fund its long-term growth.

CRITICAL ACCOUNTING POLICIES

The  preparation of financial  statements and related  disclosures in conformity
with accounting  principles  generally  accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts  reported  in  the  our  consolidated   financial   statements  and  the
accompanying  notes.  The  amounts of assets  and  liabilities  reported  on our
balance sheet and the amountsof  revenues and expenses  reported for each of our
fiscal  periods are affected by estimates and  assumptions,  which are used for,
but not  limited  to,  the  accounting  for  revenue  recognition,  stock  based
compensation,  the  realizability  of the  Company's  investments  in affiliated
companies and the valuation of deferred taxes.  Actual results could differ from
these estimates.  The following critical  accounting  policies are significantly
affected by judgments,  assumptions and estimates used in the preparation of the
financial statements:

                                       13

<PAGE>

REVENUE RECOGNITION

Securities and Exchange  Commission Staff  Accounting  Bulletin 101 ("SAB 101"),
"REVENUE RECOGNITION," 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 the
Securities and Exchange Commission. SAB 101 was amended and replaced by SAB 104.
Management  believes that the Company's revenue  recognition  policy conforms to
SAB 104.

Net  revenues  include  amounts  earned  under  product  transaction  sales  and
subscriptions and trade show fees. 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,  and 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 factories, shippers and suppliers.
Due to the  Company not bearing  credit  risk on all  transactions,  the Company
records a portion  of their  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 for all
net transactions.  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.  The
Company also  recognizes  revenue from the ASAP trade show.  The ASAP trade show
generates  revenue through  exhibitor  booths sales,  corporate  sponsorship and
advertising. The revenue is recognized at the time of the related trade show.

Trade show and  conference  revenue is  recognized in the  accounting  period in
which the event is conducted.

INVESTMENTS IN JOINT VENTURES

The equity method is used to account for the Company's investments in the common
stock of C-ME.com Taiwan,  E-SouthEast Asia, Inc. (E-SEA), and Global Purchasing
Doctor,  Inc.  (GP.com).  because  the  Company  has  the  ability  to  exercise
significant  influence over the invested operating and financial  policies,  but
does not exercise control.

The Company  evaluates  investments in joint ventures for  recoverability in the
normal  course of business.  When  evidence  indicates  that a loss in value has
occurred which is other than temporary,  recoverable amounts are estimated and a
writedown (an  impairment  loss) is recognized to reduce the carrying  amount of
the  investment  to  estimated  recoverable  amounts.  Evidence  of a loss might
include,  but would not  necessarily  be  limited  to,  absence of an ability to
recover the carrying amount of the investment,  the inability of the investee to
sustain an earnings  capacity  which would  justify the  carrying  amount of the
investment  or a  current  fair  value of an  investment  that is less  than its
carrying amount.

DEFERRED TAX ASSET VALUATION

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes." Under SFAS No. 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.
Management  provides a valuation  allowance for significant  deferred tax assets
when it is more likely than not that such assets will not be recovered.

STOCK BASED COMPENSATION

FASB  Interpretation  No. 44 ("FIN 44"),  "ACCOUNTING  FOR CERTAIN  TRANSACTIONS
INVOLVING  STOCK  COMPENSATION,  AN  INTERPRETATION  OF APB  25"  clarifies  the
application  of APB 25 for  (a) the  definition  of  employee  for  purposes  of
applying APB 25, (b) the criteria for determining  whether a plan qualifies as a
noncompensatory  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.  FIN 44
is effective July 1, 2000,  but certain  provisions  cover specific  events that
occur after  either  December 15,  1998,  or January 12,  2000.  The adoption of
certain  other  provisions  of FIN 44  prior  to June  30,  2000  did not have a
material effect on the financial statements.

Under Accounting  Principles Board Opinion No. 25,  "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES,"  the intrinsic  value based method,  compensation  expense is the
excess,  if any,  of the fair


                                       14

<PAGE>

value of the stock at the grant date or other  measurement  date over the amount
an employee  must pay to acquire  the stock.  Compensation  expense,  if any, is
recognized  over the  applicable  service  period,  which is usually the vesting
period.

SFAS 123, "ACCOUNTING FOR STOCK-BASED  COMPENSATION," 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,
stock  volatility  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 the Company adopted the cost recognition requirement under SFAS
123, are required to be presented.

SFAS 148, "ACCOUNTING FOR STOCK-BASED  COMPENSATION - TRANSITION AND DISCLOSURE,
AN AMENDMENT  OF FASB  STATEMENT  NO.  123," was issued in December  2002 and is
effective  for fiscal years ending  after  December 15, 2002.  SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee  compensation.  In addition,  this
Statement  amends  the  disclosure  requirements  of  Statement  123 to  require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results.

RECENT ACCOUNTING PRONOUNCEMENTS

The  Company  continues  to assess the  effects of  recently  issued  accounting
standards.  The impact of all recently adopted and issued  accounting  standards
has  been  disclosed  in  the  footnotes  to  the  Company's  audited  Financial
Statements, Note 1.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

The Company's audited  Financial  Statements are set forth beginning on page F-1
in this Form 10-KSB.

ITEM 8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
-------------------------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

None.

ITEM 8A.  EVALUATION OF CONTROLS AND PROCEDURES
-----------------------------------------------

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer ("CEO") and Chief Financial  Officer  ("CFO"),  we
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls  and  procedures  (as defined in Rule  13a-15(e)  and  15d-15(e) of the
Exchange Act as of a date (the "Evaluation Date") within 90 days prior to filing
the Company's June 30, 2004 Form 10-KSB. Based upon that evaluation, our CEO and
CFO concluded that, as of June 30, 2004, our disclosure  controls and procedures
were  effective  in  timely  alerting  management  to the  material  information
relating to us (or our consolidated subsidiaries) required to be included in our
periodic  filings with the SEC. Based on their most recent  evaluation as of the
Evaluation  Date,  our CEO and the CFO have  also  concluded  that  there are no
significant  deficiencies  in the design or operation of internal  controls over
financial  reporting,  at the reasonable  assurance level,  which are reasonably
likely to adversely affect our ability to record, process,  summarize and report
financial information,  and such officers have identified no material weaknesses
in our internal controls over financial reporting.

Changes in Controls and Procedures

There were no significant  changes made in our internal  controls over financial
reporting  during the quarter ended June 30, 2004 that have materially  affected
or  are  reasonably  likely  to  materially  affect


                                       15

<PAGE>

these  controls.   Thus,  no  corrective  actions  with  regard  to  significant
deficiencies or material weaknesses were necessary.

Limitations on the Effectiveness of Internal Control

Our Management,  including the CEO, does not expect that our disclosure controls
and procedures or our internal control over financial reporting will necessarily
prevent all fraud and material errors. An internal control system, no matter how
well  conceived  and  operated,  can  provide  only  reasonable,  not  absolute,
assurance that the objectives of the control system are met. Further, the design
of a control  system must reflect the fact that there are resource  constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent  limitations on all internal control  systems,  no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud,  if any,  within  Cyber  Merchants  Exchange  have been  detected.  These
inherent  limitations  include the realities that judgements in  decision-making
can be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally,  controls  can be  circumvented  by the  individual  acts  of some
persons,  by collusion of two or more people,  and/or by management  override of
the control.  The design of any system of internal control is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance  that any design will  succeed in achieving  its stated goals under
all  potential  future  conditions.  Over time,  controls may become  inadequate
because of changes in  circumstances,  and/or the degree of compliance  with the
policies and procedures may deteriorate.  Because of the inherent limitations in
a cost effective internal control system,  financial reporting misstatements due
to error or fraud may occur and not be detected on a timely basis.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
        WITH SECTION 16(A) OF THE EXCHANGE ACT
        --------------------------------------

The  information  required by this item is included  under the caption  entitled
"Election of  Directors"  and  "Information  Concerning  Directors and Executive
Officers"  in the  Company's  definitive  proxy  statement on Schedule 14A to be
filed within 120 days of June 30, 2004, and is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------

The  information  required by this item is included  under the caption  entitled
"Executive Compensation" in the Company's definitive proxy statement on Schedule
14A to be filed within 120 days of June 30, 2004, and is incorporated  herein by
reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------

The  information  required by this item is included  under the caption  entitled
"Security  Ownership  of  Certain  Beneficial  Owners  and  Management"  in  the
Company's definitive proxy statement on Schedule 14A to be filed within 120 days
of June 30, 2004, and is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

The  information  required by this item is included  under the caption  entitled
"Certain  Relationships  and Related  Transactions" in the Company's  definitive
proxy  statement  on Schedule  14A to be filed within 120 days of June 30, 2004,
and is incorporated herein by reference.


                                       16

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

EXHIBITS

EXHIBIT NUMBER       DESCRIPTION
--------------       -----------

     3.1*            Articles of Incorporation

     3.2*            Bylaws

     4.1**           Lock-Up Agreement

     4.2*****        Specimen Stock  Certificate  for Shares of Common Stock of
                     the Company

     4.3*            Warrant expiring October 15, 2002 issued by the Company to
                     Burlington  Coat Factory  Warehouse  Corporation  on
                     October 15, 1997

     4.4*****        Warrant expiring February 10, 2004 issued by the Company to
                     Imperial Bank on February 10, 1999

     4.5***          Warrant expiring May 25, 2005 issued by the Company to
                     Factory 2-U on May 25, 2000

     10.1*           Lease of registrant's facilities

     10.2*           Participation Agreement with Burlington Coat Factory
                     Warehouse Corporation

     10.3*           Contract with Family Bargain Corporation

     10.4*           1996 World Wide Magic Net, Inc. Stock Option Plan

     10.5*****       1999 Stock Option Plan

     10.6*****       2001 Stock Option Plan

     10.7*****       Software Sales Agreement to Global Purchasing Dotcom

     10.8*****       Software Sales Agreement to eSEA Co., LTD

     10.9*****       Software Sales Agreement to C-Me Taiwan

     10.10*****      Joint Venture Agreement with Good Support International,
                     Limited

     10.11*****      Joint Venture Agreement with Vickem Patana Co., Ltd.

     10.12*****      Joint Venture Agreement with Abest Tech Company, Ltd.

     10.13*****      Factory 2-U Stores, Inc. - Joint Marketing and Cooperation
                     Agreement

     21.1            List of Subsidiaries

     31.1            Rule 13a-14(a) Certification of Chief Executive Officer
     31.2            Rule 13a-14(a) Certification of Chief Financial Officer

     32.1            Section 1350 Certification of Chief Executive Officer

     32.2            Section 1350 Certification of Chief Financial Officer


                                       17

<PAGE>

*     Filed on May 6, 1999 as an exhibit to the Company's Registration Statement
      on Form SB-2 (File No. 333-60487), as amended,, and incorporated herein by
      reference.

**    Filed on January  27,  2000 as an  exhibit to a report by the Company on a
      Form 8-A and incorporated herein by reference.

***   Filed on July 18,  2000 as an exhibit to a report by the Company on a Form
      8-K dated June 30, 2000 and incorporated herein by reference.

***** Filed on September 29, 2000 as an exhibit to the  Company's report on Form
      10-KSB for the fiscal year ended June 30, 2000 and incorporated  herein by
      reference.

REPORTS ON FORM 8-K

The Company  filed no reports on Form 8-K during the fourth  quarter  ended June
30, 2004.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------------------

For the fiscal year ended June 30, 2004,  the  Company's  fees for  professional
services  rendered by its Independent  Registered Public Accounting Firm were as
follows:

(a) Audit Fees:  Aggregate fees billed or expected to be billed for professional
services  rendered  for the  audit of the  Company's  fiscal  year  2004  annual
financial  statements  and review of the  financial  statements in the Company's
reports on Form 10-QSB: $41,000.

(b) Audit Related Fees: $3,500.

(c) Tax Fees: $0.

(c) All Other  Fees:  The  aggregate  fees  billed  for all  other  professional
services provided to the Company (other than the services  described above under
(a), (b), and (c)) for the fiscal year ended June 30, 2004: None.

The Audit Committee has considered and determined that the services  rendered by
the independent  registered public accounting firm with respect to the foregoing
fees are  compatible  with  maintaining  its  independence  and all services are
pre-approved by the Audit Committee.

                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) 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.

                           By:  /S/ Frank S. Yuan
                               ------------------------------------
                               Frank S. Yuan
                               Chief Executive Officer and Director

                           Date: September 24, 2004


                                       18

<PAGE>

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

        By:  /s/ Frank S. Yuan                          Date: September 24, 2004
            ----------------------------------------
               Frank S. Yuan
               Chief Executive Officer and Director

        By:  /s/ Charles Rice                           Date: September 24, 2004
            ----------------------------------------
               Charles Rice
               Director

        By:  /s/ Deborah Shamaley                       Date: September 24, 2004
            ----------------------------------------
               Deborah Shamaley
               Director

        By:  /s/ James Vandeberg                        Date: September 24, 2004
            ----------------------------------------
               James Vandeberg
               Director


                                       19

<PAGE>


                         Cyber Merchants Exchange, Inc.

                             -----------------------

Report of Independent Registered Public Accounting Firm                     F-1

Financial Statements

    Balance Sheet as of June 30, 2004                                       F-2

    Statements of Operations for the years ended June 30, 2004 and 2003     F-3

    Statements of Shareholders' Deficit the years ended June 30, 2004
      and 2003                                                              F-4

    Statements of Cash Flows for the years ended June 30, 2004 and 2003     F-5

    Notes to Financial Statements                                           F-6

<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Cyber Merchants Exchange, Inc.

We have audited the accompanying balance sheet of Cyber Merchants Exchange, Inc.
("the "Company"), as of June 30, 2004, and the related statements of operations,
Shareholders'  deficit  and cash  flows  for  each of the  years in the two year
period ended June 30, 2004. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Cyber Merchants Exchange,  Inc.
as of June 30, 2004,  and the results of its  operations  and its cash flows for
each of the years in the two year period ended June 30, 2004, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Squar, Milner, Reehl & Williamson, LLP

Newport Beach, California
September 3, 2004


                                      F-1

<PAGE>
                         Cyber Merchants Exchange, Inc.
                                  BALANCE SHEET
                                  June 30, 2004

ASSETS

Current assets:
   Cash                                                         $     26,964
   Accounts receivable                                                16,062
   Prepaid expenses                                                   58,401
                                                                ------------

Total current assets                                                 101,427

Noncurrent Assets:
   Other assets                                                       11,388
                                                                ------------

Total assets                                                    $    112,815
                                                                ============
LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
   Accounts payable and accrued expenses                        $    220,770
   Deferred revenue                                                  164,745
   Line-of-credit from shareholder                                   252,000
                                                                ------------
   Total current liabilities                                         637,515
                                                                ------------
Commitments and contingencies

Shareholders' deficit:
   Preferred stock, no par value, 10,000,000 shares
     authorized, no shares issued and outstanding                         --
   Common stock, no par value; 40,000,000 shares
     authorized; 7,472,673 shares issued and outstanding           9,995,387
   Additional paid-in capital                                      3,631,061
   Accumulated deficit                                           (14,151,148)
                                                                ------------

Total shareholders' deficit                                         (524,700)
                                                                ------------

Total liabilities and shareholders' deficit                     $    112,815
                                                                ============

   The accompanying notes are an integral part of these financial statements.


                                      F-2

<PAGE>

                         Cyber Merchants Exchange, Inc.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Years Ended June 30,
                                                                    --------------------------
                                                                        2004           2003
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
Revenues:
   Transaction apparel sales                                        $ 1,351,401    $ 2,189,828
   Cost of goods sold                                                 1,244,400      1,982,034
                                                                    -----------    -----------
   Net revenue from transaction sales                                   107,001        207,794
   Tradeshow revenue                                                  1,663,274        893,523
   Subscriber fees                                                        1,200          6,362
                                                                    -----------    -----------

Net revenue                                                           1,771,475      1,107,679
                                                                    -----------    -----------
Operating expenses:
   General and administrative                                         1,547,351      1,743,697
   Payroll and related benefits                                         759,665        853,554
   Stock-based compensation                                               6,600             --
   Depreciation and amortization                                          6,902         24,109
                                                                    -----------    -----------
Total operating expenses                                              2,320,518      2,621,360
                                                                    -----------    -----------

Loss from operations                                                   (549,043)    (1,513,681)
Other income (expenses):
   Interest income, net of interest expense                               9,081         45,110
   Equity in net losses in investments in overseas
     joint ventures                                                      (9,341)      (191,227)
   Deferred revenue recognized                                               --        308,333
   Impairment loss on convertible note receivable                            --       (600,000)
   Impairment write-down on investments in overseas
     joint ventures                                                    (720,460)            --
                                                                    -----------    -----------

Total other income (expenses)                                          (720,720)      (437,784)
                                                                    -----------    -----------
Loss before income taxes                                             (1,269,763)    (1,951,465)

Income taxes                                                                800            800
                                                                    -----------    -----------
Net loss                                                            $(1,270,563)   $(1,952,265)
                                                                    ===========    ===========
Basic and diluted net loss available to common
   shareholders per share                                           $     (0.17)   $     (0.26)
                                                                    ===========    ===========

Weighted-average number of common shares outstanding                  7,472,673      7,472,673
                                                                    ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-3

<PAGE>

                         Cyber Merchants Exchange, Inc.

                       STATEMENTS OF SHAREHOLDERS' DEFICIT
                       YEARS ENDED JUNE 30, 2004 AND 2003

<TABLE>
<CAPTION>

                                  Common Stock            Additional                        Total
                           --------------------------      Paid-In      Accumulated     Shareholders'
                              Shares         Amount        Capital         Deficit         Equity
                           ------------   ------------   ------------   ------------    ------------
<S>                        <C>            <C>            <C>            <C>             <C>
Balance, July 1, 2002         7,472,673   $  9,995,387   $  3,624,461   $(10,928,320)   $  2,691,528

Net loss                             --             --             --     (1,952,265)     (1,952,265)
                           ------------   ------------   ------------   ------------    ------------

Balance, June 30, 2003        7,472,673      9,995,387      3,624,461    (12,880,585)        739,263

Stock-based compensation
   for warrants issued               --             --          6,600             --           6,600

Net loss                             --             --             --     (1,270,563)     (1,270,563)
                           ------------   ------------   ------------   ------------    ------------

Balance, June 30, 2003        7,472,673   $  9,995,387   $  3,631,061   $(14,151,148)   $   (524,700)
                           ============   ============   ============   ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-4

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                      Years Ended June 30,
                                                                   --------------------------
                                                                      2004            2003
                                                                   -----------    -----------
<S>                                                                <C>            <C>
Cash flows from operating activities:
   Net loss                                                        $(1,270,563)   $(1,952,265)

   Adjustments to reconcile net loss to net cash used in
     operating activities:
      Depreciation and amortization                                      6,902         24,109
      Deferred revenue recognized                                           --       (308,333)
      Impairment loss on convertible note receivable                        --        600,000
      Bad debts                                                             --        140,155
      Equity in losses on investments in overseas joint ventures         9,342        191,227
      Impairment write-down on investment in overseas joint
         ventures                                                      720,460             --
      Compensation expense for warrants granted                          6,600             --
      Changes in operating assets and liabilities:
          Accounts receivable                                           73,739        (79,586)
          Inventory                                                    189,364         44,547
          Prepaid expenses                                             (32,029)       146,842
          Other assets                                                     (20)        (4,146)
          Accounts payable and accrued expenses                        (52,357)        39,440
          Deferred revenue                                             (42,194)       206,939
                                                                   -----------    -----------
Net cash used in operating activities                                 (390,756)      (951,071)
                                                                   -----------    -----------
Cash flows from investing activities:
   Proceeds from maturity of certificates of deposit                   100,000             --
   Investment in certificate of deposit                                     --       (100,000)
   Collections from related party note receivable and interest
     receivable                                                             --        407,000
                                                                   -----------    -----------
Net cash provided by investing activities                              100,000        307,000
                                                                   -----------    -----------
Cash flows from financing activities:
   Borrowings under line of credit                                          --         40,000
   Repayments on borrowings under line of credit                            --        (40,000)
   Borrowings on line-of-credit from shareholder                       252,000             --
                                                                   -----------    -----------
Net cash used in financing activities                                  252,000             --
                                                                   -----------    -----------
Net decrease in cash                                                   (38,756)      (644,071)
Cash, beginning of year                                                 65,720        709,791
                                                                   -----------    -----------
Cash, end of year                                                  $    26,964    $    65,720
                                                                   ===========    ===========
Supplemental disclosure of cash flow information:
   Cash paid during the year for:

     Interest                                                      $       528    $       243
                                                                   ===========    ===========

     Income taxes                                                  $       800    $       800
                                                                   ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                      F-5

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Cyber  Merchants  Exchange,  Inc.  (the  "Company"  or "C-Me"),  is a trade-show
organizer and an international  electronic trading and logistics company that is
initially  targeting the apparel industry.  The Company was incorporated in July
1996  under the laws of the  State of  California.  In July  1999,  C-Me  raised
approximately $3.2 million through its Initial Public Offering. On June 30, 2000
the Company raised an additional  $6.3 million in a private  placement  offering
subscribed by 30 high net-worth  Chinese  investors.  As of July 2004,  C-Me had
approximately  7.5 million  shares of common stock  outstanding.  The Company is
currently  listed on the  Over-the-Counter-Bulletin  Board  ("OTCBB")  under the
symbol CMEE, and is a fully reporting public Company.

C-Me's value to global  suppliers and buyers in the  manufacturing,  wholesaling
and retailing  clothing business lies in its capabilities as an intermediary for
the  industry.  The Company  believes it has built a foundation  to meet today's
ever-changing international trading landscape.

The  Apparel  Sourcing  Association  Pavilion  ("ASAP")  Trade Show is a natural
extension of C-Me's core business  on-line  model.  ASAP is a global apparel and
textile sourcing show that brings leading manufacturers from around the world to
one venue to meet, greet and sell to buyers.  In the past eight years,  C-Me has
created a comprehensive  base of  manufacturers  from around the world.  Through
C-Me's network,  the Company believes that a significant number of international
manufacturers will exhibit at the ASAP Show twice a year in Las Vegas, Nevada.

At June 30,  2004,  the  Company  has an  accumulated  deficit of  approximately
$14,150,000,  negative working capital of  approximately  $536,000 and a lack of
profitable  operational  history.  The  Company  hopes to  continue  to increase
revenues  from the  continued  growth of their  ASAP  Show.  In the  absence  of
significant  increases  in  revenues,  the  Company  intends to fund  operations
through  additional  debt and  equity  financing  arrangements.  The  successful
outcome of future  activities cannot be determined at this time and there are no
assurances that if achieved,  the Company will have sufficient  funds to execute
its intended business plan or generate positive operating results.

Management believes that the Company will require approximately $300,000 in cash
to fund  operations  for the  fiscal  year  ending  June 30,  2005  based on the
$390,000  cash used in operating  activities  for the fiscal year ended June 30,
2004.  Management  believes it can reduce cash needs for fiscal 2005 to $300,000
based  upon  expense  reductions  and  increased  revenue  from the  ASAP  show.
Management   intends  to  fund  the  $300,000   with  unused   portions  of  the
line-of-credit  from  shareholder,  additional  shareholder  loans,  third party
loans,  and  unregistered  sales of the  Company's  restricted  common  stock to
investors.  As discussed in Note 4, the Company had $300,000 available to borrow
under the line-of-credit from shareholder as of September 3, 2004.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires  management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting periods.  Among the more significant  estimates included in
these financial  statements are the estimated  allowance for doubtful  accounts,
and the valuation allowance for deferred income tax assets. Actual results could
differ from those estimates.

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.


                                      F-6

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

Certain financial  instruments,  principally  accounts  receivable,  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.  As of the balance sheet date,
no  allowance  is required nor provided  against  these  receivables,  which are
deemed to be  collected in the normal  course of business.  Although the Company
expects to collect amounts due, actual collections may differ from the estimated
amounts.

There were no  significant  sales  concentrations  for fiscal 2004 nor  accounts
receivable concentrations at June 30, 2004.

CASH AND CASH EQUIVALENTS

The Company  considers all highly liquid financial  instruments with an original
maturity of three months or less, when purchased,  to be cash  equivalents.  The
Company had no cash equivalents at June 30, 2004.

INVESTMENTS IN OVERSEAS JOINT VENTURES AND ABNET

Investments  in overseas  joint  ventures  were  accounted  for under the equity
method  (see Note 3).  All such  investment  balances  were fully  impaired  and
written off during fiscal 2004.

The Company  evaluates  investments in joint ventures for  recoverability in the
normal  course of business.  When  evidence  indicates  that a loss in value has
occurred which is other than temporary,  recoverable amounts are estimated and a
writedown (an  impairment  loss) is recognized to reduce the carrying  amount of
the  investment to estimated  recoverable  amounts.  Evidence of a loss in value
might include, but would not necessarily be limited to, absence of an ability to
recover the carrying amount of the investment,  the inability of the investee to
sustain an earnings  capacity  which would  justify the  carrying  amount of the
investment  or a  current  fair  value of an  investment  that is less  than its
carrying amount.

INVENTORY

During fiscal year 2004, inventory consisted entirely of ready-to-wear  garments
and was stated at the lower of standard cost or market. Cost was determined on a
weighted average basis that approximates the first-in,  first-out method. Market
was determined by comparison with recent purchases or net realizable value. Such
net  realizable  value  is  based  on  management's  forecast  for  sales of the
Company's  inventory in the ensuing years. The Company sold its entire remaining
inventory during fiscal year 2004.

                                      F-7

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 the 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.

Property and equipment was fully depreciated at June 30, 2004 and not considered
significant.

REVENUE RECOGNITION

Net revenues include amounts earned under  transaction  sales,  trade show booth
sales and subscription fees.

Transaction Sales
-----------------

Transaction  revenues are recorded in accordance with Emerging Issues Task Force
("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,  and 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 factories, shippers and suppliers.

For  financial  reporting  purposes,  the Company  presents the details of gross
transaction  sales and related costs of sales in the accompanying  statements of
operations.

Asap Trade Show
---------------

The ASAP trade show generates revenue through exhibitor booths sales,  corporate
sponsorship, and advertising. Such revenue is collected in advance, deferred and
then recognized at the time of the related trade show. The Company  conducts two
trade shows per year, i.e. February and August each year.

Subscription Fees
-----------------

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.


                                      F-8

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In December 1999, the  Securities and Exchange  Commission  ("SEC") 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 the SEC. SAB 101 has been amended
and replaced by SAB 104.  Management  believes the Company's revenue recognition
policies conform to SAB 104.

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
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.

SFAS No. 123 ("SFAS 123"),  "ACCOUNTING FOR STOCK-BASED  COMPENSATION"  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.

SFAS No. 148 ("SFAS 148"), "ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION
AND DISCLOSURE,  AN AMENDMENT OF FASB STATEMENT NO. 123," was issued in December
2002 and is effective for fiscal years ending after December 15, 2002.  SFAS 148
provides  alternative  methods of transition for a voluntary  change to the fair
value method of accounting for stock-based employee  compensation.  In addition,
this  Statement  amends  the  disclosure  requirements  of SFAS  123 to  require
prominent  disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results.

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  requirements  under SFAS 123,  are required to be
presented.

At June 30, 2004, the Company has three stock-based employee  compensation plans
(see Note 6). No stock-based  employee  compensation cost was recognized for the
years ended June 30, 2004 and 2003,  respectively,  as certain  options  granted
under  those plans had an  exercise  price  equal to or greater  than the market
value


                                      F-9

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

of the  underlying  common  stock  on the date of  grant.  The  following  table
illustrates  the effect on net income and  earnings per share if the Company had
applied  the  fair  value  recognition  provisions  of SFAS  123 to  stock-based
employee compensation.

                                                         Years Ended June 30,
                                                         2004           2003
                                                     -----------    -----------
Net loss, as reported                                $(1,270,563)   $(1,952,265)
    Deduct: total stock-based employee compensation
    expense determined under fair value based method
    for all awards                                       (57,000)       (43,173)
                                                     -----------    -----------
    Pro-forma                                        $(1,327,563)   $(1,995,438)
                                                     ===========    ===========
Basic and diluted net loss per share:
    As reported                                      $     (0.17)   $     (0.26)
                                                     ===========    ===========
    Pro-forma                                        $     (0.18)   $     (0.27)
                                                     ===========    ===========

LOSS PER SHARE

Under SFAS No. 128,  "Earnings per Share",  basic earnings per share is computed
by dividing net 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  575,502 and 202,000  shares at June 30, 2004 and 2003,  respectively,
based on the  Treasury  Stock  method).  Because the Company  has  incurred  net
losses,  basic and diluted loss per share are the same as  additional  potential
common shares would be anti-dilutive.

FAIR VALUE

"Disclosures About Fair Value of Financial  Instruments," requires disclosure of
fair value  information  about financial  instruments  when it is practicable to
estimate  that value.  The  carrying  amounts of the  Company's  cash,  accounts
receivable, accounts payable, accrued expenses and deferred revenues approximate
their  fair  values  due  to  the  short-term   maturities  of  those  financial
instruments.  The fair value of the line-of-credit from shareholder approximates
its carrying amount based upon its subsequent re-payment in September 2004.

ADVERTISING

The  Company  expenses  the cost of  advertising  when  incurred  as general and
administrative  expenses.  Advertising  expenses were approximately  $79,000 and
$139,000  for the  years  ended  June  30,  2004  and  2003,  respectively.  The
advertisement  costs are primarily to promote brand and awareness and to attract
attendees to the ASAP Show.

COMPREHENSIVE INCOME

The Company has adopted  Statement of  Financial  Accounting  Standards  No. 130
("SFAS 130"), "Reporting  Comprehensive Income," which establishes standards for
reporting and display of


                                      F-10

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  The adoption of SFAS 130 has not materially impacted the
Company's  financial  position or results of  operations,  as the Company has no
items of comprehensive income.

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 (see Note 9).

ACCOUNTING FOR WEB SITE DEVELOPMENT COSTS

The  Emerging  Issues  Task  Force  reached  a  consensus  on  Issue  No.  00-2,
"Accounting for Web Site Development  Costs" ("EITF 00-2"). The consensus states
that for specific web site  development  costs,  the  accounting  for such costs
should be accounted  for under AICPA  Statement of Position  98-1 ("SOP  98-1"),
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal  Use." Web site  maintenance  costs incurred and expensed under general
and  administrative  expenses in the accompanying  statements of operations were
insignificant to the Company for the years ended June 30, 2004 and 2003.

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

In  November  2002,  the FASB  issued FIN No. 45,  "GUARANTOR'S  ACCOUNTING  AND
DISCLOSURE  REQUIREMENTS  FOR  GUARANTEES,   INCLUDING  INDIRECT  GUARANTEES  OF
INDEBTEDNESS  OF OTHERS." FIN No. 45  clarifies  that a guarantor is required to
recognize,  at the  inception of a guarantee,  a liability for the fair value of
the obligation undertaken in issuing the guarantee.  The initial recognition and
measurement  provisions of FIN No. 45 are  applicable on a prospective  basis to
guarantees  issued or modified  after  December 31, 2002,  while the  disclosure
requirements  became  applicable  in 2002.  The  Company is  complying  with the
disclosure   requirements  of  FIN  No.  45.  The  other  requirements  of  this
pronouncement did not materially affect the Company's financial statements.

SFAS  No.  148,  "ACCOUNTING  FOR  STOCK-BASED  COMPENSATION  -  TRANSITION  AND
DISCLOSURE, AN AMENDMENT OF FASB STATEMENT NO. 123," was issued in December 2002
and is effective for fiscal years ending after  December 15, 2002.  SFAS No. 148
provides  alternative  methods of transition for a voluntary  change to the fair
value method of accounting for stock-based employee  compensation.  In addition,
this pronouncement amends the disclosure requirements of SFAS No. 123 to require
more prominent  disclosure in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the effect of
the  method  used on  reported  results.  The  Company  is  complying  with  the
disclosure requirements of SFAS No. 148.

In January 2003, the FASB issued FIN No. 46, "CONSOLIDATION OF VARIABLE INTEREST
ENTITIES, AN INTERPRETATION OF ARB NO. 51." The primary objectives of FIN No. 46
are to provide guidance on the  identification  of entities for which control is
achieved through means other than voting rights (variable interest entities,  or
"VIEs"),  and  not to  determine  when  and  which  business  enterprise  should
consolidate  the VIE.  Management has determined  that the Company does not have
any VIEs.


                                      F-11

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In April 2003,  the FASB issued SFAS No. 149,  "AMENDMENTS  OF STATEMENT  133 ON
DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES,"  which  amends and  clarifies
financial accounting and reporting for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging  activities
under SFAS No. 133. This  pronouncement is effective for contracts  entered into
or  modified  after June 30,  2003 (with  certain  exceptions),  and for hedging
relationships  designated  after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's financial statements.

In May 2003,  the FASB issued SFAS No. 150,  "ACCOUNTING  FOR CERTAIN  FINANCIAL
INSTRUMENTS WITH  CHARACTERISTICS  OF BOTH LIABILITIES AND EQUITY." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial instruments with characteristics of both liabilities and equity and is
effective (except for certain mandatorily redeemable  noncontrolling  interests)
for  financial  instruments  entered into or modified  after May 31,  2003.  The
Company adopted SFAS No. 150 on June 1, 2003. The adoption of this pronouncement
did not have a  material  impact  on the  Company's  results  of  operations  or
financial condition.

Other  recent  accounting  pronouncements  issued  by the  FASB  (including  its
Emerging  Issues  Task  Force),  the  American  Institute  of  Certified  Public
Accountants,  and the  Securities  and  Exchange  Commission  did not or are not
believed by  Management to have a material  impact on the  Company's  present or
future financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to the fiscal 2003 financial statements
to conform to the current year's financial statement presentation.

NOTE 2 - AGREEMENT WITH CIT

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
certain accounts  receivable,  as defined,  arising from transaction  sales. CIT
assumes the credit risk on a non-recourse  basis on each account  approved.  For
each sales transaction  assigned to CIT for collection,  CIT charges 1.5% of the
assigned  invoice  value as their  factoring  fee. The amount of factoring  fees
incurred  by the  Company  for the  years  ended  June 30,  2004  and 2003  were
insignificant.

NOTE 3 - INVESTMENTS IN OVERSEAS JOINT VENTURES

On December  22,  1999,  the Company  entered  into an agreement 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,
see below) 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 years ended June 30, 2004 and 2003,
the Company  recognized an  investment  loss in the  accompanying  statements of
operations  from  this  joint  venture  of  approximately  $4,000  and  $27,000,
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,


                                      F-12

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 3 - INVESTMENTS IN OVERSEAS JOINT VENTURES (CONTINUED)

which  used  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 (see  below)).  During the fiscal years ended June 30, 2001 and
2002, the Company invested an additional $100,000 and $21,338,  respectively for
a total equity  interest  approximating  47% and accounted  for this  investment
under  the  equity  method.  For the year  ended  June  30,  2003,  the  Company
recognized an investment loss in the accompanying  statements of operations from
this joint  venture of  approximately  $65,000,  based on the  Company's  equity
ownership  percentage.  Management  together  with the  joint  venture  partners
decided to close the operations as of June 30, 2003.

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
focused on  implementing  several  targeted  businesses  in  China's  e-commerce
market. The Company invested $400,000 during the fiscal year ended June 30, 2000
(which was used to purchase software back from the Company (see below)).  During
the fiscal year ended June 30, 2001, the Company invested an additional $600,000
for a total interest of 50% and accounted for this  investment  under the equity
method,  as it has no  ability  to  significantly  influence  the  decisions  of
management.  For the years ended June 30, 2004 and 2003, the Company  recognized
an investment loss in the accompanying  statements of operations from this joint
venture  of  approximately  $5,000  and  $100,000,  respectively,  based  on the
Company's equity ownership percentage.

For the year ended June 30, 2004, the Company  recorded an impairment  charge of
approximately  $720,000 related to C-Me Taiwan and GP.com.  The Company invested
in the joint  ventures with proceeds  received from the sale of its ISN software
to the  respective  joint  ventures.  The  revenue  from the  software  sold was
amortized over a 3-year straight-line amortization method and offset by negative
goodwill.  These two joint  ventures  had net losses  since  inception  and were
formed  during  the  Internet  boom  with  a  business  model  to  attract  paid
subscribers  to join the  company's  ISN  services.  Since  the  Company's  core
business model changed from attracting paid  subscribers for its ISN services to
organizing  trade  shows  and  transaction  sales,  it  was  determined  by  the
management  that the investment was  permanently  impaired and as a result,  the
Company has written off such investments in full.

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  are  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. For the years ended
June 30,  2004 and 2003,  the Company  recognized  income in the  statements  of
operations   from  the   amortization   of  these  software  sales  of  nil  and
approximately  $333,000,  respectively.  The respective joint ventures amortized
the cost of software over the same  three-year  period.  As a result,  the total
amortization  expense  recognized  by the joint  venture  companies for the year
ended June 30, 2004 was nil.

During  fiscal years 2002 and 2003,  the Company  entered into  agreements  with
third parties to form joint ventures in Bangladesh,  Korea, Hong Kong, Indonesia
and Sri Lanka named C-Me Bangladesh,  C-Me Korea, C-Me Hong Kong, C-Me Indonesia
and  C-Me  Sri  Lanka,  respectively,  in  which  all  will  use  the  Company's
proprietary  web-based   communication  systems  to  facilitate  the  front  end
merchandise sourcing. The Company is not required to invest money into the joint
ventures.  Per the joint  venture  agreements,  the  Company is to  provide  its
technology  and all costs to operate the joint  ventures are to be funded by the
third party joint venture  partners.  Profits are first to be distributed to the
joint venture


                                      F-13

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 3 - INVESTMENTS IN OVERSEAS JOINT VENTURES (CONTINUED)

partners  until the joint venture  partners are reimbursed for all costs paid by
the third  parties on behalf of the joint  ventures,  then all  profits  will be
allocated  on a 50%  basis to each  partner.  As of June  30,  2004,  the  joint
ventures are fully  operational and are promoting the Company and the ASAP show,
however the operations were insignificant.

As of June 30,  2004,  and for the  years  ended  June 30,  2004 and  2003,  the
investment in respective joint ventures are summarized as follows:

                                C-Me Taiwan      E-SEA      GP.com      Total
================================================================================
Net investment at July 1, 2002   $  81,437    $ (35,137)   566,395    $ 612,695
Amortization of negative
   goodwill                         75,000      100,000    133,333      308,333
Equity in loss of joint ventures   (26,708)     (64,863)   (99,656)    (191,227)
                                 ---------    ---------  ---------    ---------
Net investment at June 30, 2003    129,729           --    600,072      729,801

Equity in loss of joint ventures    (4,298)          --     (5,043)      (9,341)
Impairment write-down in joint
   ventures                       (125,431)          --   (595,029)    (720,460)
                                 ---------    ---------  ---------    ---------
Net investment at June 30, 2004  $      --    $      --  $      --    $      --
                                 =========    =========  =========    =========

NOTE 4 - LINE-OF-CREDIT FROM SHAREHOLDER

The Company accepted a revolving  line-of-credit  (the "Line") on April 14, 2004
from Frank Yuan, the Company's Chief Executive Officer and a significant Company
shareholder,  which expires on September 1, 2005 and provides for  borrowings up
to a maximum of $300,000.  The Line carries an interest  rate of 8.0% per annum.
The balance as of June 30, 2004 was $252,000,  with accrued and unpaid  interest
of $2,208. As of September 3, 2004, the Company had repaid such $252,000 in full
with interest.

NOTE 5 - INCOME TAXES

Income tax expense for the years ended June 30, 2004 and 2003  differed from the
amounts  computed by applying the U.S.  Federal income tax rate of 34 percent to
the loss before income taxes as a result of the following:

                                                      2004         2003
                                                   ---------    ---------
Computed "expected" tax expense (benefit)          $(432,000)   $(663,000)
Adjustment in income taxes resulting from:
    Change in valuation allowance                    522,800      707,800
    Deferred income                                  (14,000)      84,000
    Other                                                 --        1,000
    State and local income taxes, net of federal     (76,000)    (129,000)
                                                   ---------    ---------

                                                   $     800    $     800
                                                   =========    =========


                                      F-14

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 5 - INCOME TAXES (CONTINUED)

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets at June 30, 2004 are presented below:

Deferred tax assets:
    Net operating loss carryforwards           $ 4,280,000
    Stock compensation expense                   1,240,000
    Other                                           14,000
                                               -----------

Total                                            5,534,000

    Less valuation allowance                    (5,534,000)
                                               -----------

    Net deferred tax assets                    $        --
                                               ===========

As of June 30, 2004,  the Company had net tax operating  loss  carryforwards  of
approximately  $11,043,000  and  $9,773,000  available to offset future  taxable
Federal and State  income,  respectively.  The Federal and State carry  forwards
expire in varying amounts through 2024.

Effective  September  11,  2002,  pursuant  to  California  revenue and tax code
section  24416.3,  no net  operating  loss  deduction  would be allowed  for any
taxable year  beginning on or after January 1, 2002, and before January 1, 2004.
For any suspended losses, the carryover period would be extended by one year for
losses  incurred in tax years  beginning on or after January 1, 2002, and before
January 1, 2003; and by two years for losses incurred in taxable years beginning
before January 1, 2002.

Due to the change in ownership  provisions of Internal Revenue Code Section 382,
net  operating  loss  carryforwards  for Federal and State income tax  reporting
purposes  are  subject to annual  limitations.  Should an  additional  change in
ownership occur, net operating loss carryforwards may be limited as to their use
in future years.

NOTE 6 - SHAREHOLDERS' EQUITY (DEFICIT)

OPTIONS

The Company's 1996 Stock Option Plan (the "1996 Plan")  provides for granting of
stock options to employees and non-employee directors.  The Company has reserved
250,000  shares of common stock for issuance  under the 1996 Plan. The terms and
conditions of grants of stock options are  determined by the Board of Directors.
Generally,  one-half of the granted options are exercisable after the employee's
first year of employment. The remaining options are exercisable after the end of
the employee's third year of employment.  The options granted will expire within
three months after termination of employment.

The Company's 1999 stock option plan (the "1999 Plan")  provides for granting of
stock options to employees,  officers,  directors,  and other  entities who have
made contributions to the Company.  The Company has reserved 2,500,000 shares of
common stock for issuance under the 1999 Plan. The Board of Directors determines
the terms and  conditions  of granting  stock  options.  Generally,  the vesting
period is two years,  allocated as follows: the first 25% of options granted are
exercisable after the first six months of employment, then 4.16% are vested each
month thereafter until fully vested.  The 1999 Plan provides for the useful life
of the  options  granted  to be 10 years  starting  from the date of grant.  The
options granted expire within three months after the termination of employment.

The Company's 2001 stock option plan ("2001 Plan")  provides for grants of stock
options to  employees,  officers,  director,  and other  entities  who have made
contributions  to the  Company.  The Company has  reserved  2,000,000  shares of
common stock for issuance under the 2001 Plan. The Board of Directors determines
the terms and  conditions for granting  stock  options.  Generally,  the vesting
period is two


                                      F-15

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 6 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)

years,  allocated as follows:  the first 25% of options  granted are exercisable
after the first six  months of  employment,  then  4.16% are  vested  each month
thereafter until fully vested. The 2001 Plan provides for the the useful life of
the options granted to be 10 years starting from the date of grant.  The options
granted expire within three months after the termination of employment.

During the year ended June 30,  2003,  the  Company,  pursuant to the 1999 plan,
granted  options to purchase an aggregate of 50,000 shares of restricted  common
stock,  at an exercise price of $0.24 per share  (estimated fair market value of
the Company's  common stock on the date of grant),  to various  employees of the
Company.  The options vest through  December  2004 and are  exercisable  through
December 2012.

In addition,  during the year ended June 30, 2003, the Company,  pursuant to the
2001 plan,  granted  options  to  purchase  an  aggregate  of 140,000  shares of
restricted  common stock, at exercise prices of $0.24 per share  (estimated fair
market value of the  Company's  common  stock on the date of grant),  to various
employees  of the  Company.  The  options  vest  through  December  2004 and are
exercisable through December 2012.

For the year  ended  June 30,  2004,  the  Company,  pursuant  to the 1999 plan,
granted options to purchase an aggregate of 290,000 shares of restricted  common
stock, at an exercise price of $0.20 per share (estimated to be in excess of the
fair  market  value of the  Company's  common  stock on the date of  grant),  to
various  employees of the Company.  The options vest through  September 2005 and
are exercisable  through September 2013. In addition,  the Company,  pursuant to
the 2001 plan,  granted  options to  purchase  an  aggregate  330,000  shares of
restricted  common  stock,  at exercise  prices  ranging from $0.20 to $0.51 per
share  (estimated to be the fair market value of the  Company's  common stock on
the dates of grant),  to various  employees  of the  Company.  The options  vest
through September 2005 and are exercisable through September 2013.

No compensation  expense was recorded during the fiscal year ended June 30, 2004
and 2003.

A summary of changes in stock options during each year is presented below:

                                                         Weighted Average
                                      Stock Options       Exercise Price
                                      --------------    -----------------

Balance, July 1, 2002                   1,427,885             $3.54
Options granted                           190,000              0.24
Options cancelled                         (36,000)             3.18
                                       ----------             -----

Balance, June 30, 2003                  1,581,885              3.14
Options granted                           620,000              0.43
Options cancelled                         (81,420)             1.60
                                       ----------             -----

Balance, June 30, 2004                  2,120,465             $2.35
                                       ==========             =====

Options exercisable at June 30, 2004    1,930,467             $2.56
                                       ==========             =====


                                      F-16

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 6 - SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)

The following table summarizes  information about the stock options  outstanding
at June 30, 2004:

<TABLE>
<CAPTION>
                                    Options Outstanding                    Options Exercisable
                       ---------------------------------------------   ---------------------------
                                        Weighted
                                         Average         Weighted                         Weighted
                                        Remaining        Average                           Average
                                       Contractual       Exercise                         Exercise
  Exercise Price         Number           Life            Price            Number           Price
-------------------    ---------------------------------------------------------------------------
<S>                    <C>             <C>                <C>           <C>                 <C>
  $0.20 to $0.51         980,000       8.49 years         $0.13           790,002           $0.15
  $3.00 to $3.50         741,500       5.27 years         $3.26           741,500           $3.26
  $4.00 to $6.50         398,965       5.73 years         $5.83           398,965           $5.83
                       ---------------------------------------------------------------------------
Total                  2,120,465       6.85 years         $2.35         1,930,467           $2.56
===================    ===========================================================================
</TABLE>

The fair value of the stock options granted during the years ended June 30, 2004
and 2003 was $57,000 and $42,184,  respectively,  on the date of grant using the
Black  Scholes  option-pricing  model.  The  pricing  assumptions  used  were as
follows:

                                       Year Ended            Year Ended
                                     June 30, 2004          June 30, 2003
                                     -------------          -------------
Discount rate - bond yield rate          3.50%                 3.50%

Volatility                                291%                  272%

Expected life                              3                     3

Expected dividend yield                    -                     -
                                     =============          =============

WARRANTS

On May 25, 2000,  the Company  entered into a joint  marketing  and  cooperation
agreement  with Factory  2-U. As a part of the  agreement,  the Company  granted
Factory  2-U a warrant  that  allowed  Factory  2-U to purchase up to 10% of the
issued and outstanding  shares of the Company's common stock  immediately  after
its June 2000 private  placement at the same price at which the shares were sold
in the private  placement.  The maximum  shares  Factory 2-U could purchase were
838,119 shares at $4.878 per share. In accordance with SFAS No. 123, the Company
recognized  an expense  of  $684,738  in fiscal  2000 for the  granting  of this
warrant. The warrant will expire on May 25, 2005.

In April  2003,  the  Company  issued a  Private  Placement  Memorandum  ("PPM")
offering  qualified  investors 8% convertible  preferred  shares  ("Shares") and
warrants  ("Warrants"),  collectively  the  "Units",  in  exchange  for  a  cash
investment in the Company for an aggregate of  $1,250,000.  The Company  offered
125 Units  priced at $10,000 per Unit.  Each Unit  consists of 20,000  shares of
preferred  stock with an 8% annual  dividend  and 5,000  Warrants,  to  purchase
common  stock at $0.50 per  share,  immediately  exercisable  for a term of five
years.  This  convertible  stock  offering  does  not have  any  commitments  or
investments as of June 30, 2004. The Company entered into an agreement with C.K.
Cooper & Company  ("CKCC"),  a NYSD member  investment  banker  based in Irvine,
California as its  placement  agent and  financial  consultant  for the PPM. The
Company has agreed to pay CKCC a sales commission


                                      F-17

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 6 - SHAREHOLDERS' EQUITY (CONTINUED)

equal to 8% of the  gross  proceeds,  up to 3% of  which  may be  re-allowed  to
participating  broker-dealers.  In  addition,  the Company  will pay CKCC 10,000
warrants,  exercisable  at 120% of the fair  market  value  on the date  earned,
immediately vesting and expiring three years from issuance,  upon the closing of
the initial $250,000 investment.  In addition,  CKCC will receive 5,000 warrants
each  month  ("Monthly  Warrants")  up to twelve  months,  with a minimum of six
months, beginning May 1, 2003. The Monthly Warrants shall be exercisable at 120%
of the fair market value of the Company's  common stock on the first trading day
of the month and expiring  three years from  issuance.  As of June 30, 2004, the
Company had issued a total of 30,000  warrants  and the related  expense was not
significant.

The following  represents a summary of warrants  outstanding for the years ended
June 30, 2004 and 2003:

                                             Year Ended June 30,
                                 --------------------------------------------
                                         2004                    2003
                                 ---------------------   --------------------
                                              Weighted               Weighted
                                              Average                 Average
                                  Warrants     Price     Warrants      Price
                                 ---------     ----      ---------     ----
Outstanding, beginning of year     869,119     4.99      1,697,052     4.59
   Granted                          20,000     0.28         10,000     0.28
   Exercised                            --       --             --       --
   Cancelled/Forfeited              20,000     8.00        837,933     4.12
                                 ---------     ----      ---------     ----

Outstanding, end of year           869,119     4.81        869,119     4.99
                                 =========     ====      =========     ====

Exercisable, end of year           869,119     4.81        869,119     4.99
                                 =========     ====      =========     ====

A detail of the warrants  outstanding  and exercisable as of June 30, 2004 is as
follows:

                                 Warrants Outstanding and Exercisable
                                --------------------------------------
                                                 Weighted     Weighted
                                                 Average       Average
                                   Number       Remaining     Exercise
 Range of Exercise Prices       Outstanding        Life         Price
                                -----------     ----------    --------
        $0.26 - $0.30               30,000       2.0 years    $0.28
        $4.88                      839,119       0.9 years    $4.98

                                ----------
                                   869,119
                                ==========

PREFERRED STOCK

The  Company  is  authorized  to issue up to  10,000,000  shares of no par value
preferred  stock.  As of June 30, 2004, no preferred  stock has been issued.  As
discussed  above,  the April 2003 PPM  provides  for the  issuance of  preferred
stock, but there has been no investment under the PPM as of June 30, 2004.


                                      F-18

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004

NOTE 7 - CONVERTIBLE NOTE

In June 2001, the Company loaned $600,000 to an unrelated  non-public company in
Taiwan for a  convertible  note  receivable  ("Note").  The Note,  which accrued
interest at 6% per annum, was payable in monthly  installments of interest only,
with the entire principal  balance plus any unpaid and accrued interest due June
12,  2003.  The  Note  was  convertible  into  common  stock  of this  unrelated
non-public  company at the discretion of the Company at $3 per share,  which was
estimated  by both the Company and the note maker to be the fair market value of
the common stock at the loan date.

Due to the accumulated losses of this unrelated  non-public company, the Company
had  significant  doubts  of the  payees'  ability  to  repay  the note in full.
Management  also believes that it is not in the best interest for the Company to
convert  this  note into  this  unrelated  non-public  Company's  common  stock,
therefore,  the board of  directors  of the  Company  decided to  write-off  the
balance  of the  note in the  amount  of  $600,000,  which  is  included  in the
statement of operations for the year ended June 30, 2003.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

The  Company  leases  office  space  under  a  non-cancelable   operating  lease
agreement,  the lease provides for monthly lease payments  approximating  $5,900
and  expires  on  March  31,  2006.   Future   minimum  lease   payments   under
non-cancelable operating leases as of June 30, 2004 approximate the following:

YEARS ENDING JUNE 30,
---------------------
          2005                                          $       70,000
          2006                                                  55,000
                                                        --------------
                                                        $      125,000
                                                        ==============

Rent  expense  for the  years  ended  June 30,  2004 and 2003 was  approximately
$70,000 and $68,000, respectively.

LITIGATION

The  Company  may be  involved  from time to time in various  claims,  lawsuits,
disputes with third parties,  actions involving allegations or discrimination or
breach of contract actions  incidental in the normal operations of the business.
The Company is currently not involved in any such  litigation  which  management
believes  could have a material  adverse  effect on its  financial  position  or
results of operations.


                                      F-19

<PAGE>

                         Cyber Merchants Exchange, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2004


NOTE 9 - BUSINESS SEGMENTS

Reportable  business segments for the years ended June 30, 2004 and 2003 were as
follows:
                                                          2004          2003
                                                      -----------   -----------
Net sales from continuing operations:
          Transaction apparel sales                   $   107,001   $   207,794
          ASAP Show                                     1,663,274       893,523
          Other                                             1,200         6,362
                                                      -----------   -----------
                                                      $ 1,771,475   $ 1,107,679
                                                      ===========   ===========
Operating profit (loss) from continuing operations:
          Transaction apparel sales                   $  (153,588)  $  (983,745)
          ASAP Show                                      (393,310)     (529,413)
          Other                                            (2,145)         (523)
                                                      -----------   -----------
                                                      $  (549,043)  $(1,513,681)
                                                      ===========   ===========
Depreciation and amortization - continuing operations:
          Transaction apparel sales                   $     6,902   $    24,109
          ASAP Show                                            --            --
          Other                                                --            --
                                                      -----------   -----------
                                                      $     6,902   $    24,109
                                                      ===========   ===========
Identifiable assets - continuing operations:
          Transaction apparel sales                   $   112,815     1,219,329
          ASAP Show                                            --            --
          Other                                                --            --
                                                      -----------   -----------
                                                      $   112,815   $ 1,219,329
                                                      ===========   ===========
Capital expenditures
          Transaction apparel sales                   $        --   $        --
          ASAP Show                                            --            --
          Other                                                --            --
                                                      -----------   -----------
                                                      $        --   $        --
                                                      ===========   ===========

Net sales as reflected above consist of sales to unaffiliated  customers only as
there were no significant intersegment sales during 2004 and 2003.

There was no significant  concentration on net segment sales for the years ended
June 30, 2004 and 2003.

Transaction  apparel  sales are made to China  while  ASAP show  revenues relate
exclusively to the Company's Las Vegas, Nevada trade show.

                                      F-20