<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-14001
CUMETRIX DATA SYSTEMS CORP.
(Exact Name of Registrant as Specified in its Charter)
California 95-4574138
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
957 Lawson Street, Industry, California 91748
(Address, Including Zip Code, Of Registrant's Principal Executive Offices)
(626) 965-6899
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Security Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the last 90 days. Yes [X] No [_]
As of August 11, 2000, the Registrant had 7,392,500 shares of Common Stock,
without par value, issued and outstanding.
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CUMETRIX DATA SYSTEMS CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1. Condensed Balance Sheets - June 30, 2000 (unaudited) and March
31, 2000
2. Condensed Statements of Operations - Three Months Ended
June 30, 2000 (unaudited) and 1999 (unaudited)
3. Condensed Statements of Cash Flows - Three Months Ended
June 30, 2000 (unaudited) and 1999 (unaudited)
4. Notes to Financial Statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CUMETRIX DATA SYSTEMS CORP.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 2,647,609 $ 3,769,174
Time deposits......................................................... 1,126,525 1,600,000
Trade receivables, net of allowance for doubtful accounts of $150,000
and $150,000 ........................................................ 345,991 336,854
Inventories, net of reserve of $150,000 and $150,000.................. 808,444 698,226
Income tax receivable................................................. 541,301 541,301
Prepaid expenses ..................................................... 13,137 -
------------
Total current assets............................................... 5,483,007 6,945,555
------------ -------------
FIXED ASSETS, net 235,687 516,057
OTHER ASSETS........................................................... 146,012 293,012
============ =============
Total Assets....................................................... $ 5,864,706 $ 7,754,624
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 506,481 $ 152,116
Accrued expenses and other current liabilities...................... 571,560 1,559,215
------------ ------------
Total current liabilities.......................................... 1,078,041 1,711,331
------------ ------------
LONG-TERM DEBT, net of current portion................................. 73,410 77,864
SHAREHOLDERS' EQUITY:
Preferred stock, no par value: Authorized, 2,000,000 shares; issued - -
and outstanding, none
Common stock, no par value: Authorized, 20,000,000 shares; issued and
outstanding, 7,392,500 and 7,392,500 at June 30, 2000 and March 31,
2000, respectively................................................... 12,188,414 12,188,414
Retained earnings..................................................... (7,475,159) (6,222,985)
------------ ------------
Total shareholders' equity......................................... 4,713,255 5,965,429
------------ ------------
Total liabilities and shareholders' equity......................... $ 5,864,706 $ 7,754,624
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
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CUMETRIX DATA SYSTEMS CORP.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
NET SALES....................................................... $ 2,976,283 $ 7,056,674
COST OF PRODUCTS................................................ 2,803,005 6,909,938
------------ ------------
Gross profit.............................................. 173,278 146,736
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 858,905 862,003
IMPAIRMENT OF LONG-LIVED ASSETS................................. 207,740 -
------------ ------------
Income (Loss) from operations............................. (893,367) (715,267)
INTEREST EXPENSE................................................ (1,437) (193)
INTEREST INCOME................................................. 39,630 72,645
LOSS ON EQUITY INVESTMENT....................................... 397,000 149,232
------------ ------------
Income (loss) before provision for income taxes........... (1,252,174) (792,047)
PROVISION FOR INCOME TAXES...................................... - -
------------ ------------
NET LOSS........................................................ $(1,252,174) $ (792,047)
============ ============
BASIC AND DILUTED LOSS PER SHARE................................ $ (0.17) $ (0.11)
============ ============
Weighted average shares used in computation of
basic and diluted loss per share............................. 7,392,500 7,392,500
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed statements.
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CUMETRIX DATA SYSTEMS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June30,
2000 1999
-------------- ----------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (1,252,174) $ (792,047)
Adjustments to reconcile net income to cash and cash
equivalents used in operating activities:
Depreciation and amortization............................ 72,630 54,000
Provision for doubtful accounts.......................... - 15,000
Loss on equity investment in affiliate .................. 397,000 149,232
Impairment loss ......................................... 207,740 -
Changes in assets and liabilities:
Trade receivables........................................ (9,137) 471,234
Inventories.............................................. (110,218) 1,283,947
Prepaid expenses......................................... (13,137) 129,414
Accounts payable......................................... 354,365 (2,452,903)
Accrued expenses......................................... (987,655) 4,448
Income taxes payable..................................... - 800
------------- -----------
Net cash provided (used) by operating
activities........................................... (1,340,586) (1,136,875)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets..................................... - (27,593)
Investment in affiliate....................................... (250,000) -
Proceeds from time deposit.................................... 473,475 -
------------- -----------
Net cash provided (used) in investing
activities........................................... 223,475 (27,593)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.................................... (4,454) (979)
------------- -----------
Net cash provided (used) in financing
activities........................................... (4,454) (979)
------------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,121,565) (1,165,447)
CASH AND CASH EQUIVALENTS, beginning of period.................. 3,769,174 6,743,198
------------- -----------
CASH AND CASH EQUIVALENTS, end of period........................ $ 2,647,609 $ 5,577,751
============= ===========
CASH PAID FOR INTEREST 1,437 -
CASH PAID FOR INCOME TAXES 1,600 -
</TABLE>
The accompanying notes are an integral part of these condensed statements.
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CUMETRIX DATA SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
comprise only normal recurring accruals) necessary for a fair presentation have
been included. Operating results for the period ended June 30, 2000 are not
necessarily indicative of results to be expected for the year ending March 31,
2001. For further information, refer to the financial statements and notes
thereto for the year ended March 31, 2000.
NOTE B - EARNINGS PER SHARE
Earnings per share calculations are in accordance with SFAS No.
128,"Earnings per Share". Accordingly, "basic" earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. "Diluted" earnings per share is computed by dividing net income
by the total of the weighted average number of common shares outstanding and
common equivalent shares outstanding for each period presented. Common
equivalent shares include stock options assuming conversion under the treasury
stock method.
Three Months Ended
June 30,
---------------------------
2000 1999
---------- ----------
Weighted average number of common
shares outstanding-Basic 7,392,500 7,392,500
Dilutive effect of outstanding
stock options and warrants - -
----------- ----------
Weighted average number of common
shares outstanding-Diluted 7,392,500 7,392,500
=========== ==========
NOTE C - LINE OF BUSINESS
Cumetrix Data Systems Corp. (the "Company") was incorporated on April 2, 1996 in
the State of California. The Company distributes computer peripherals,
components, and accessories and assembles computer systems. The Company
currently sells a majority of its products to distributors, systems integrators,
and retail stores. Since April 1999, the Company's principal business has been
the electronic sales and marketing of computer systems and components through a
direct business to business and business to consumer model. The Company markets
its products and services through its Internet website, suredeals.com, other
Internet marketing partners such as Egghead.com and Cnet.com, and its outside
sales representatives and telemarketing sales representatives.
NOTE D - INVESTMENT IN AFFILIATE
Investment in affiliate at June 30, 2000 consists of a 29% interest in Online
Transaction Technologies, Inc. ("OTT") with an option to acquire an additional
21%. OTT is a development stage enterprise and is developing Internet auction
software.
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The Company accounts for this investment under the equity method of accounting.
The Company's investment provided substantially all of OTT's working capital.
In February 2000, the Company purchased an additional 52,174 shares of
OTT's common stock for $300,000.
For the three months ended June 30, 2000, Cumetrix's share of losses from
OTT totalled $147,000 compared to a loss of $149,000 for the three months ended
June 30, 1999.
NOTE E - ACQUISITION
On May 22, 2000, the Company initially purchased 125,000 shares of common
stock in Salescentrix.com, Inc., a Canadian based provider of e-business
solutions to small and medium-sized businesses, for $250,000. The Company's
initial investment of $250,000 represents less than 2% of the equity interest in
the investee.
Under the terms of the stock purchase agreement between the Company and
Salescentrix.com, the Company has acquired the rights to purchase Common Stock
and Warrants in three separate stages, each stage is contingent on the previous
stage. In Stage One, the Company has the right to purchase up to 925,000
additional shares of Common Stock at $2.00 per share at any time until June 30,
2000. In addition, the Company shall be issued warrants to purchase 210,000
shares of Common Stock at $2.00 per share at any time until June 1, 2004 (`Stage
One"). Salescentrix.com has extended the expiration date of Stage One from June
30, 2000 to August 10, 2000. On August 10, 2000, the Company purchased 375,000
shares of Salescentrix.com at $2.00 per share, totalling $750,000.
If all shares are purchased in Stage One, the Company may purchase up to
822,222 additional Common Stock at $2.25 per share at any time until September
30, 2000 and the Company shall be issued warrants to purchase up to 111,111
shares of Common Stock at $2.25 per share at any time until August 31,
2000.("Stage Two") In addition, the Company shall be issued a Bonus Warrant to
purchase up to 210,000 shares of Common Stock at a price of $2.25 per share at
any time until September 30, 2004. The Bonus Warrant shall be exercisable in
proportion to the number of shares of Common Stock purchased in Stage Two.
If all shares are purchased in Stage One and Stage Two, the Company may
purchase up to 740,000 additional Common Stock at $2.50 per share at any time
until January 31, 2001 and the Company shall be issued warrants to purchase up
to 100,000 shares of Common Stock at $2.50 per share at any time until December
31, 2000 ("Stage Three"). In addition, the Company shall be issued a Bonus
Warrant to purchase up to 210,000 shares of Common Stock at a price of $2.50 per
share at any time until March 31, 2005. The Bonus Warrant shall be exercisable
in proportion to the number of shares of Common Stock purchased in Stage Three.
For the three months ended June 30, 2000, the Company wrote-off its initial
investment of $250,000 in Salescentrix.com due to recurring losses by
Salescentrix.com.
On August 10, 2000, $750,000 of the $968,000 proceeds from the Bridge Note
was used to increase the Company's investment in Salescentrix.com.
NOTE F - BRIDGE LOAN
On August 9, 2000, the Company signed and executed an "Agreement" to issue,
sell and deliver up to $1,500,000 of the Company's Series 1 Secured Convertible
Bridge Financing Notes (the "Bridge Notes") with attached repricing warrants and
accompanied by certain additional warrants (collectively "the Securities"). The
Company has agreed to grant to the Purchaser certain registration rights with
respect to the Company's common stock issuable upon conversion and/or exercise
of the Securities and to secure the Company's obligation under the Bridge Notes.
The Company and the Purchaser have determined that it is necessary to
register the Securities for sale under the California "blue sky" law, which
registration
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could delay the closing of the purchase and sale of the Bridge Notes for up to
approximately four weeks.
The Purchasers have agreed to advance to the Company a portion of the
proceeds that it would have received upon the issuance of the Bridge Notes on
agreed upon terms and conditions and in connection therewith have loaned the
Company the sum of $1,125,000, evidenced by a series of 11% demand notes (the
"Demand Notes"). Net proceeds to total $968,000. The Demand Notes are payable
upon demand unless certain agreed upon conditions have occurred, in which case,
the demand notes are payable on demand after September 23, 2000. The Demand
Notes are secured pursuant to a pledge agreement dated August 9, 2000.
No later than five (5) business days after August 9, 2000, the Company
agrees to file for a "permit" from the California Department of Corporations to
represent and warrant to the Purchasers that upon issuance of the permit, the
Securities will be exempt from any California usury law.
No later than three (3) business days after issuance of the permit, the
Company shall issue to each of the Purchasers, in exchange for the Demand Note
issued to each Purchaser, a Bridge Note equal to the principal amount of the
Demand Note plus accrued interest.
In connection with the Bridge Financing, on June 15, 2000, the Company
entered into a Consulting Agreement with Sovereign Capital Advisors, LLC
("Sovereign") appointing Sovereign as its non-exclusive agent to issue and sell
the Company's securities. The appointment terminates August 15, 2000, however,
the term may be extended by the mutual consent of the Company and Sovereign. As
part of the Consulting Agreement, the Company will pay at closing $109,982 in
fees to Sovereign, to be deducted from the $1,125,000 proceeds.
In addition, on August 9, 2000, Sovereign Capital Advisors, LLC received
75,000 warrants giving Sovereign Capital Advisors, LLC, the right to purchase
75,000 shares of the Company's common stock at an exercise price equal to 125%
of the average closing bid price of the common shares for the five trading days
immediately prior to the closing date, exercisable within four years from the
closing date.
In connection with the Bridge Financing, the Company on August 9, 2000,
entered into a pledge agreement with SovCap Equity Partners, Ltd. ("SovCap")
granting SovCap a security interest in (a) 1,800,000 shares of the capital stock
of the Company (the "pledged stock"), and (b) all proceeds from the pledged
stock. The Company will issue 1,800,000 shares of its Common Stock, registered
in the name of the Company (Cumetrix Data Systems Corp, as collateral for the
Demand Notes, with an aggregate value of at least 200% of the principal amount
of the Bridge Notes. The 1,800,000 shares is calculated as $1,125,000 divided by
the closing price of the Company's stock on the closing date, August 9, 2000
($1.25) multiplied by 200%.
The proceeds from the Bridge Note are intended to provide additional
funding for existing investments. On August 10, 2000, $750,000 of the $968,000
proceeds from the Bridge Note was used to provide additional working capital for
Salescentrix.com.
NOTE G - CONSULTING AGREEMENT
On April 5, 2000, the Company entered into a consulting agreement with its
Chairman, John Botdorf, which provides that the Company will pay $150,000
annually, payable in 12 monthly installments plus expenses, and will issue an
option to purchase 450,000 shares, vesting over a three-year period, in equal
quarterly installments. The options expire in seven years and are exercisable as
follows: 225,000 at $3.25 per share and 225,000 at $6.75 per share. The
consulting agreement is "at will," and if the agreement is terminated by the
Company without cause, the vesting provisions will accelerate.
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NOTE H - TMA CONSULTING AGREEMENT
In January 2000, the Company entered into a consulting agreement with TMA,
a company based in California to provide Internet/website and e-commerce
consulting services, which include a Cyberspace Network Marketing program. The
agreement was originally for two months at $25,000 per month plus expenses of
$1,000 per month. The contract was amended on March 5, 2000 to extend the term
of the agreement for an indefinite period of time. For the fiscal year ended
March 31, 2000, the Company paid TMA $42,700. From April 1, 2000 to August 11,
2000, the Company paid TMA an additional $158,300, to total $201,000.
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PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
--------
The Company was founded in April 1996, and until December of 1996 operated
entirely as a distributor and value added reseller of computer equipment and
related hardware components and software (The "Computer Products business"). In
December 1996, the Company began offering end-users custom computer
configuration and assembly systems (the "Computer System Assembly" business),
through resellers, third-party E-commerce sites and its own system configuration
E-commerce web site, suredeals.com and sureauctions.com. The Company has reduced
its dependence on the distribution of Computer Products in response to industry-
wide price declines, resulting partly from excess manufacturer inventories and
intense price competition from overseas manufacturers. Consequently, the Company
has substantially reduced inventory levels necessary to support sales and
significantly lowered the Company's working capital requirements and finance
costs. The Company continues to sell Computer Products in selected product
categories and where periodic market opportunities exist, using its established
supplier base while principally acting as a broker for critical computer
components. Sales opportunities in the Computer System Assembly segment,
particularly through E-commerce, are the focus of the Company's current sales
and marketing efforts.
Results of Operations
---------------------
Sales for the three months ended June 30, 2000 were $2,976,283 compared to
$7,056,674 in the previous year. Sales for the three months ended June 30, 2000
declined $4,080,391 or 58%. The decline in sales is the result of the Company's
decision to substantially reduce its dependence on the Computer Products
business (in particular the distribution of computer hard-drives) in response to
changes in market conditions within this segment of the business, and
unacceptably low profit margins.
Gross profit for the three months ended June 30, 2000 was $173,278 or 5.8%
of sales, as compared with gross profit of $146,736 or 2.1% of sales for the
three months ended June 30, 1999. The increase in gross profit as a percent of
sales for the periods is principally attributable to higher margins from
Computer System Assembly and Configuration sales.
Selling, general and administrative expenses for the three months ended
June 30, 2000 were $858,905 as compared with $862,003 for the three months ended
June 30, 1999. The increase in outside services for the three months ended June
30, 2000 is principally attributable to an increase in outside services,
consisting of outside consulting service fees paid to TMA, a California based
company that provides Internet/website and e-commerce consulting services and
fees for an outside consultant. The increase in credit and collection expenses
is due to an increase in service fees charged by Egghead.com and CNet.com.
Salaries and wages for the three months ended June 30, 2000 as compared to
the three months ended June 30, 1999 declined due to an overall decrease in
assembly, plant employees and management and administrative personnel.
A brief summary of the principle components of selling, general and
administrative expenses for the periods is presented below.
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<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
------------ -----------
<S> <C> <C>
Salaries and wages 183,000 430,000
Rent 20,000 23,000
Legal, accounting and other 92,000 100,000
Credit and collection (including bad debt expense) 158,000 48,000
Depreciation and amortization 73,000 54,000
Outside services 164,000 75,000
Other (under 5%) 168,905 132,003
------------ -----------
Total 858,905 862,003
============ ===========
</TABLE>
For the three months ended June 30, 2000, the Company recorded a non-cash
impairment loss of $207,740 related to a write-down of the value of fixed
assets. These assets were written down to their fair value based on the salvage
value of the assets. The recognition of this impairment was in accordance with
the provisions of Statement of Financial Accounting Standards No. 121 -
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.
Interest income, primarily from the investment of the proceeds of the
Company's public offering of the Company's stock was $39,630 and $72,645 for the
three months ended June 30, 2000 and June 30, 1999, respectively.
The Company reported a net loss of $1,252,174 for the three months ended
June 30, 2000 as compared to a net loss of $792,047 for the three months ended
June 30, 1999.
Liquidity and Sources of Capital
--------------------------------
For the three months ended June 30, 2000 net cash used by operating
activities was $1,340,586 as compared to net cash used by operating activities
of $1,136,875 for the same period in the prior year. The net use of cash from
operations for the three months ended June 30, 2000 was principally the result
of net operating losses and a decrease in accrued expenses.
An initial investment of $250,000 in Salescentrix.com constitute the
principle use of cash from investing activities for the three months ended June
30, 2000. Capital expenditures were $0 and $27,593 for the three months ended
June 30, 2000 and 1999, respectively.
Cash flows from financing activities for the three months ended June 30,
2000 of $4,454 are principally associated with the principal repayment of long-
term debt.
As of June 30, 2000 the Company had $3,774,134 in cash, cash equivalents
and investment deposits and working capital of $4,404,966 with a ratio of
current assets to current liabilities of approximately 5.1 : 1. This compares
with cash, cash equivalents and investment deposits of $5,369,174 and working
capital of 5,234,224 with a ratio of current assets to current liabilities of
4.1 :1 as of March 31, 2000.
Inflation
The Company does not believe that inflation has had a material effect on
its results of operations. There can be no assurance, however, that the
Company's business will not be affected by inflation in the future.
The Company believes that current funds are sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next year.
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Management Restructuring
------------------------
During the first quarter of fiscal year 2000, allegations of certain
improprieties and record-keeping irregularities in fiscal year 1999 were brought
to the attention of the Board of Directors. Under the direction of the Audit
Committee of the Board of Directors a special investigation was initiated. As a
result of this investigation, the Company's former President and its Secretary-
Treasurer were terminated from employment and disciplinary actions were taken
with certain other non-management employees.
The Company failed to file timely its Annual 10-K Report for the fiscal
year ended March 31, 1999 and its Quarterly 10-Q Report for the first quarter
ended June 30, 1999, consequently, the company's stock was delisted from the
Boston Stock Exchange and from NASDAQ on August 27, 1999, respectively. The
Company employed an independent management consultant as Chief Executive Officer
in early September, 1999 principally to oversee the filing of the delinquent SEC
reports.
The special investigation was completed to the satisfaction of the
Company's Board of Directors and its outside auditors. On October 15, 1999, the
Company's fiscal year 1999 Annual Report and first Quarterly Report for fiscal
year 2000 were filed with the SEC.
On October 22, 1999 the Company ended its contract with the independent
consultant, and Mr. Max Toghraie was appointed as the Company's Chief Executive
Officer.
In late October 1999, a restructuring plan to reduce the company's
operating overhead and improve operating efficiencies was adopted, which
resulted in the elimination of approximately 25% of the Company's workforce,
including certain management positions.
In October and November, 1999, Directors Mr. James Ung (formerly
President), Mr. Philip Alford and Mr. David Tobey, resigned from the Board of
Directors.
In 1999, Mr. Herbert Tom was appointed as the Company's new Chief Financial
Officer. Mr. Tom's background includes extensive experience in operations as
well as finance and accounting. Mr. Tom is a certified public accountant and
holds a master's degree in business administration.
On January 31, 2000, the Company's agreement with Finova Capital
Corporation to insure the availability of funds to meet the Company's various
cash flow needs was terminated. The Company believes it has adequate resources
to achieve its operating plans for at least the next twelve months.
In March 2000, the Company appointed Jeff Toghraie as a Board of Director.
The current Board consists of John Botdorf, Chairman, Max Toghraie, CEO, Jeff
Toghraie, VP Sales & Marketing, also responsible for day to day operations and
Nancy Hundt, shareholder.
Leased Facility
---------------
The Company's corporate headquarters is located in a leased facility in the
City of Industry, California comprised of approximately 21,900 square feet of
office and warehouse space. The current lease expires January 31, 2001 with an
intent to renew notice due by July 31, 2000. The Company is in the process of
negotiating a one year or shorter term lease renewal. If the Company is not
successful in negotiating a shorter term lease, the Company will seek another
comparable facility.
Egghead Fees
------------
Effective August 10, 2000, the fees charged to the Company by Egghead.com,
the Company's major source of revenue, will increase for all sales generated
through the
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Egghead.com website to 10% from the current fees charged of 5% and 10%.
Currently, approximately 70% of Sales incurred through the Egghead internet
website are charged a 5% fee by Egghead, however, beginning August 10, 2000, all
Sales will be charged a 10% fee. This increase in Egghead fees will have a
material effect on the Company's margins.
Year 2000 Update
----------------
The Company has completed a comprehensive review of its computer systems to
identify the systems that could be affected by ongoing Year 2000 problems.
Upgrades to systems judged critical to business operations have been
successfully installed. To date, no significant costs have been incurred in the
Company's systems related to the Year 2000. While the Company has taken steps to
communicate with outside suppliers, it cannot guarantee that the suppliers have
all taken the necessary steps to prevent any service interruption that may
affect the Company.
Forward-Looking Statements
--------------------------
Certain statements in this Form 10-Q contain "forward-looking statements"
(as defined in Section 27A of the Securities Act of 1933, as amended) that
involve risks and uncertainties that may cause actual results to differ
materially from those predicted in the forward-looking statements. Forward-
looking statements can be identified by their use of such verbs as expects,
anticipates, believes or similar verbs. If any of the Company's assumptions on
which the statements are based prove incorrect or should unanticipated
circumstances arise, the Company's actual results could materially differ from
those anticipated by such forward-looking statements. The differences could be
caused by a number of factors or combination of factors including but not
limited to, the risks detailed in the Company's Securities and Exchange
Commission filings, including the Company's Form 10-K for the fiscal year ended
March 31, 2000.
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PART II. OTHER INFORMATION
--------------------------
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 - Financial Data Schedule
(b) none.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Date: August 11, 2000 CUMETRIX DATA SYSTEMS CORP.
/s/ Herbert H. Tom
Chief Financial Officer
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