UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  FORM 10-Q  TQUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
               EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 2001 OR £TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM
--------------- TO
--------------- . COMMISSION FILE
NUMBER: 000-25399  HEARME(EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER) DELAWARE
  94-3217317(STATE OR OTHER JURISDICTION OF
  (IRS EMPLOYER IDENTIFICATION NO.)INCORPORATION OR ORGANIZATION)
 685 CLYDE AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 429-3900(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)  Indicate
by check mark whether the registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities 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
past 90 days.TYes£No The number of outstanding shares of the
registrant's Common Stock, $0.00005 par value, was  28,804,080 as of  May 4,
2001.   HEARME

Index to Consolidated Financial StatementsPART I: FINANCIAL
  INFORMATIONItem 1. Financial
  StatementsConsolidated
  Balance Sheets  March 31, 2001 (unaudited) and December 31, 2000Unaudited
  Consolidated Statements of Operations  Three Months Ended March 31, 2001 and
  2000Unaudited
  Condensed Consolidated Statements of Cash Flows Three Months Ended March 31,
  2001 and 2000Notes
  to Consolidated Financial StatementsItem
  2. Management's Discussion and Analysis of Financial Condition and Results of
  OperationsItem
  3. Qualitative and Quantitative Disclosure about Market RiskPART II: OTHER
  INFORMATIONItem 1. Legal ProceedingsItem
  2. Changes in Securities and Use of ProceedsItem 3.
  Defaults Upon Senior SecuritiesItem
  4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6.
  Exhibits and Reports on Form 8-KSignatures

HEARMECONSOLIDATED
BALANCE SHEETS
(in thousands)



March
  31
  2001
  December
  31,
  2000(Unaudited)ASSETSCurrent assets:Cash
  and cash equivalents
  $11,266
  $22,096Short-term investments
  9,006
  8,397Accounts receivable, net of
  allowance for doubtful accounts of $661 and$686, respectively
  3,510
  3,383Note receivable
  4,521
  -Interest and other receivables
  175
  227Prepaid expenses and other current
  assets
  1,931
  2,404Net assets of business held for sale
  -
  6,395Total current
  assets
  30,409
  42,902Restricted cash
  220
  220Property and
  equipment, net
  4,692
  4,905Other assets
  1,966
  1,309Total assets
  $37,287
  $49,336LIABILITIES,
  REDEEMABLE COMMON STOCK AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
  $2,262
  $1,536Accrued payroll and related
  expenses
  2,269
  2,839Accrued expenses
  1,163
  1,246Accrued expenses relating to sale
  of business
  3,946
  6,732Deferred revenue
  425
  1,304Current portion of notes payable
  411
  2,468Deferred rent
  127
  129Total current liabilities
  10,603
  16,254Notes payable, net of
  current portion
  572
  187Total liabilities
  11,175
  16,441Redeemable common
  stock
  194
  1,939Stockholders equity:Common stock
  1
  1Additional paid-in capital
  294,259
  295,906Unrealized gain
  20
  15Deferred stock-based compensation
  (1,672)
  (3,504)Notes receivable from stockholders
  (2,456)
  (2,487)Accumulated deficit
  (264,234)
  (258,975)Total stockholders equity
  25,918
  30,956Total liabilities,
  redeemable common stock and stockholders equity
  $37,287
  $49,336The
accompanying notes are an integral part of these consolidated financial
statements.

HEARME

CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except per share data)
(Unaudited)

Three Months EndedMarch 31,2001
  2000Net revenues:Technology Products
  $2,681
  $2,912Cost of net revenues:Technology Products
  500
  224Gross profit
  2,181
  2,688Operating expenses:Research and development (including
  non-cash compensation expense of $133 and$204,  respectively)
  2,798
  2,157Sales and marketing (including non-cash
  compensation expense of $65 and $99, Respectively)
  2,533
  4,315General and administrative (including
  non-cash compensation expense of $127 and $194,  respectively)
  1,783
  3,117Amortization of goodwill and intangible
  assets
  -
  2,798Total operating expenses
  7,114
  12,387Loss from continuing operations
  (4,933)
  (9,699)Interest and other income (expense), net
  (326)
  992Loss from continuing operations.
  (5,259)
  (8,707)Loss from discontinued
  operations
  -
  (2,737)Net loss
  $(5,259)
  $(11,444)Other comprehensive
  income:Unrealized gain on investments
  $5
  $16Comprehensive loss
  $(5,254)
  $(11,428)Net loss from
  continuing operations per common share:Basic and diluted
  $(0.18)
  $(0.38)Net loss from
  discontinued operations per common share:Basic and diluted
  $-
  $(0.12)Net loss per common
  share:Basic and diluted
  $(0.18)
  $(0.50)Weighted average
  shares outstanding:Basic and diluted
  28,446
  23,109The
accompanying notes are an integral part of these consolidated financial
statements.

HEARME

CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Three Months EndedMarch 31,2001
  2000Cash used in
  continuing operating activities
  $(3,772)
  $(8,255)Cash in settlement of
  expenses of discontinued operations
  (3,287)
  -Net cash used in operating activities
  (7,059)
  (8,255)Cash flows from
  investing activities:Purchase of investments
  (3,983)
  -Proceeds from sale of investments
  3,420
  -Proceeds from disposal of fixed
  assets
  11
  -Proceeds from sale of discontinued
  operations
  500
  -Acquisition of property and
  equipment
  (338)
  (1,200)Net cash
  used in investing activities
  (390)
  (1,200)Cash flows from
  financing activities:Payments under notes payable and
  capital lease obligations
  (1,672)
  (205)Repurchase of redeemable common
  stock
  (1,726)
  -Proceeds from repayment of
  stockholder notes
  11
  -Proceeds from exercise of common
  stock options and warrants, net of repurchase
  6
  380Net cash provided by
(used in)
  financing activities
  (3,381)
  175Net
decrease
  in cash and cash equivalents
  (10,830)
  (9,280)Cash and cash
  equivalents, beginning of period
  22,096
  69,329Cash and cash equivalents,
  end of period
  $11,266
  $60,049The
accompanying notes are an integral part of these consolidated financial
statements.

HEARME

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 2001
(Unaudited)

1. Summary of Significant Accounting Policies

Basis of
Presentation

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with 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 (consisting
only of normal recurring accruals) necessary for a fair presentation of the
financial statements at March 31, 2001 and 2000 have been included.

The
consolidated financial statements include those of HearMe (the Company) and
its wholly owned subsidiaries. Inter-company balances and transactions have
been eliminated in consolidation.

Results
for the three months ended March 31, 2001 are not necessarily indicative of
results for the entire fiscal year or future periods. These financial
statements should be read in conjunction with the consolidated financial
statements, the accompanying notes and Managements Discussion and Analysis of
Financial Conditions and Results of Operations included in the Companys Form
10-K/A dated April 24, 2001, as filed with the Securities and Exchange
Commission.

Certain
prior year amounts have been reclassified for conformity with current year
financial statement presentation.

Substantial Future Capital Needs

The
Company has incurred significant losses since inception.  In the period ended March 31, 2001, the
Company incurred losses from continuing operations of $5.0 million and used
$7.1 million in its operating activities. 
Management expects that operating losses and negative cash flows will
continue at least through Fiscal 2001 as the Company continues to market its
VoiceSERVER product and increase its customer base.  Management anticipates that existing sources of liquidity and
anticipated revenue will satisfy projected working capital and other cash requirements
through at least the first quarter of Fiscal 2002.  If the Company fails to develop revenues from sales of its key
product to generate adequate funding from operations, it will be required to
either reduce its operating expenses and/or seek additional debt or equity
financing or a combination of both. 
Such financing may not be available on acceptable terms or at all.

Net Loss Per Share

Historical
basic and diluted loss per share are calculated using the average shares of
common stock outstanding, reduced for shares subject to repurchase by the
Company. Stock options, warrants and unvested common stock are excluded from
the calculation of diluted net loss per share since their effect would be
antidilutive.

Comprehensive Income

Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources.  In the period ended March 31, 2001 and 2000 the Company had
unrealized gains on short-term investments of $5,000 and $16,000, respectively,
resulting in a total comprehensive loss of $5,254,000 and $11,428,000 in the
respective periods.





Revenue Recognition

The Company derives revenues from
licensing fees for its technology products, including its VoiceSERVER product,
which enables customers to create and deploy next generation communication solutions.  The Company also derives incremental
revenues from service, maintenance and upgrade fees.

The Company recognizes product
revenue upon shipment if a signed contract exists, the fee is fixed and
determinable, collection of resulting receivables is probable and product
returns are reasonably estimable.  For
contracts with multiple obligations (e.g., maintenance, unspecified upgrades),
the Company allocates revenue to each component of the contract based on objective
evidence of its fair value, which is specific to the Company, or for products
not being sold separately, the price established by management.  The Company recognizes revenue allocated to
maintenance fees for ongoing customer support and unspecified upgrades ratably
over the period of the maintenance contract or upgrade period.

The Company records deferred
revenue for any amounts received in advance of the completion of the
maintenance contract period and for any amounts received prior to their being
earned.

Impairment Of
Long Lived Assets

During
the quarter ended March 31, 2001, the Company performed an assessment of the
carrying value of some of its long-term investments.  Based upon this review a write down for other than temporary
impairment of $760,000 was recorded within interest and other income
(expense), net.  Any recovery or gain
related to these investments will be recognized when it is realized or can be
substantiated through other means.

2. Acquisitions:

AudioTalk
Acquisition

On March 8, 2000, HearMe entered
into a merger agreement (the Merger Agreement) with AudioTalk.  The Merger Agreement provided for the merger
of a newly formed wholly owned subsidiary of HearMe with and into
AudioTalk.  AudioTalk became a wholly
owned subsidiary of HearMe.  The merger
was accounted for under the purchase method of accounting.  The merger was consummated on April 3, 2000
and the results of AudioTalk have been included in the results of the Company
from the date of acquisition.  The
purchase price of approximately $124,100,000 included approximately
$107,900,000 of stock, issued at fair value (fair value being determined as the
average price of the HearMe stock  for
the period three days before and after the announcement of the merger),
$5,700,000 for the fair value exchange of AudioTalk stock options with Company
options (determined using the Black-Scholes option pricing model), $10,000,000
in cash and estimated acquisition costs of $500,000.

Unaudited pro forma  results of operations for the combined
company as if the transaction had occurred on January 1, 2000 are as follows
(in thousands except per share data):



Quarter Ended
  March 31,
  2000Net revenues
  $3,014Cost of net revenues
  224Gross profit
  2,790Loss from operations
  (20,167)Net loss
  $(22,030)Net loss per common
  share:Basic and diluted
  $(0.80)Weighted average
  shares outstanding:Basic and diluted
  27,471There were no transactions between
the Company and AudioTalk during the periods presented.




3.           DISCONTINUED
OPERATIONS:


On December 13, 2000, the Company
signed a definitive agreement to sell its Live Communities business unit (Live
Communities), including the Mplayer.com voice-enabled Internet games community
and affiliated advertising network, to GameSpy Industries, Inc, an online gaming
company.  The transaction was completed
on January 19, 2001, and the Company received $500,000 in cash, a short-term
note receivable for $4,521,000 and 2,404,890 shares of GameSpy common stock
valued at an aggregate of $1,400,000.

Prior periods financial statements
have been restated to reflect the discontinuation of Live Communities, and the
anticipated loss on disposition was recorded in 2000.  The $7,510,000 loss on disposition of discontinued operations
consists primarily of accrued expenses totaling $8,225,000 less the gain on the
sale of $490,000 and the revenue of $225,000.

4.          REDEMPTION OF COMMON STOCK:

As part of the Resounding
acquisition that was completed in 1999, Common
Stock Put Rights were granted to Resoundings employees to enable them to sell
their pro–rata portion of 200,000 shares of the Companys common stock
back to the Company at a price of $10.00 per share back to the Company.  Such Put Rights expire in October 2001.  During the period ended March 31, 2001, Put
Rights for a total of 172,600 shares were exercised, whereby the Company
repurchased the shares for a total of approximately  $1,726,000.

5.          REPAYMENT OF
TERM LOAN

In May 2000, the Company entered
into a term loan with a financial institution and drew down funds of $2.9 million
under this agreement.  Amounts borrowed
under this agreement are collateralized by substantially all our assets, bear
interest at the prime rate plus 1 percent and are scheduled to mature in
September 2003.  $1.7 million of this
loan was repaid during the quarter ended March 31, 2001.

6.          SUBSEQUENT
EVENTS:

On
March 30, 2001, HearMe entered into an agreement with one of its customers,
which gave the customer the option to make payment on their account by
transferring to HearMe all shares of HearMe Common Stock currently owned by the
customer.  For purposes of this
transfer, such shares were valued at the closing price on the date of the
agreement, which was $0.50 per share. 
Subsequently, on April 4, 2001, the customer elected to exercise this
option and transferred 313,551 shares of HearMe Common Stock to HearMe at a
value of $156,776 as part of the full settlement of the outstanding balance.

On
April 23, 2001, the Company announced that it was focusing the business
operations to further increase operating efficiencies and address only the most
strategic market opportunities.  To
ensure financial flexibility, the Company announced its plans to streamline
operations with decreased spending in marketing and administrative expenses,
and a reduction in headcount of about 50 employees.  The company expects to record a charge of between $5 million and
$6 million, a portion of which has no cash impact, during the second quarter of
2001 as a result of the announced restructuring plans.



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

Managements Discussion and
Analysis of Results of Operations and Financial Condition and other parts of
this Form 10–Q contain forward–looking statements that involve
risks and uncertainties.  Words such as
anticipates, believes, plans, expects, future, intends and similar
expressions identify forward–looking statements.  These statements are not guarantees of
future performance and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or
forecasted.  Factors that might cause
such a difference include, but are not limited to, those discussed in the
section entitled Certain Business Risks, and those appearing elsewhere in
this Form 10–Q.  Readers are
cautioned not to place undue reliance on these forward–looking
statements, which reflect managements analysis only as of the date
hereof.  We assume no obligation to
update these forward–looking statements to reflect actual results or
changes in factors or assumptions affecting forward–looking statements.

Overview

HearMe develops and licenses next
generation VoIP application technologies that deliver increased productivity
and flexibility in communication by integrating the capabilities of the
telephone, mobile devices and the Internet. 
We were incorporated and commenced operations in January 1995.  From inception through September 1996, our
activities primarily consisted of recruiting employees and raising capital,
performing product and technology development, engaging in marketing activities
and negotiating strategic relationships. 
In April 1996, we commenced licensing of our real-time interactive
voice-enabled technology.

During the period from January 1995
to March 31, 1999, we raised gross proceeds of approximately $54.9 million from
the sale of equity securities to venture capital investors and strategic
partners.  The proceeds from these
financings were primarily used to finance our research and development and the
sales and marketing of our products and services.  In May and June 1999, we raised gross proceeds of approximately
$80.7 million from the sale of common stock through aninitial public offering.  A portion of the proceeds from this offering
is being used to finance research and development and to fund sales and
marketing activities.

In September 1999, we announced
that we would commence doing business under the name HearMe.

On March 8, 2000, HearMe entered
into a merger agreement (the Merger Agreement) with AudioTalk.  The Merger Agreement provided for the merger
of a newly formed wholly owned subsidiary of HearMe with and into
AudioTalk.  AudioTalk became a wholly
owned subsidiary of HearMe.  The merger
was accounted for under the purchase method of accounting.  The merger was consummated on April 3, 2000
and the results of AudioTalk have been included in the results of the Company
from the date of acquisition.  The
purchase price of approximately $124,100,000 included approximately $107,900,000
of stock, issued at fair value (fair value being determined as the average
price of the HearMe stock for the period three days before and after the
announcement of the, $5,700,000 for the fair value exchange of AudioTalk stock
options with Company options (determined using the Black-Scholes option pricing
model), $10,000,000 in cash and estimated acquisition costs of $500,000.

Until January 19, 2001, we
generated our revenues from two business units, Technology Products (formerly
known as Mpath Foundation) and Live Communities.  On December 20, 2000, we announced that we had signed a
definitive agreement to divest the Live Communities business unit, including
the Mplayer.com service and the affiliated advertising network, to GameSpy
Industries, Inc., an online games company. 
The sale of the business unit closed on January 19, 2001.  As a result of the divestiture, the
consolidated financial statements have been restated to present the results of
the Live Communities business as discontinued operations since inception.

We derive revenues from licensing
fees for our technology, including our VoiceSERVER and Voice Development Kit
products.  These products are priced
based upon the number of ports, or seats licensed.  Through fiscal 2000, we also derived revenue from other real-time
interactive products and related services. 
We also derive incremental revenues from professional services,
maintenance and upgrade fees.  The Company
recognizes product revenue upon shipment if a signed contract exists, the fee
is fixed and determinable, collection of resulting receivables is probable and
product returns are reasonably estimable. 
For contracts with multiple obligations (e.g., maintenance, unspecified
upgrades), the Company allocates revenue to each component of the contract
based on objective evidence of its fair value, which is specific to the
Company, or for products not being sold separately, the price established by
management.  The Company recognizes
revenue allocated to maintenance fees for ongoing customer support and
unspecified upgrades ratably over the period of the maintenance contract or
upgrade period.

Cost of net revenues consists
primarily of network operating expenses in connection with our customer support
network.

HearMe's operating expenses consist
of research and development expenses, sales and marketing expenses and general
and administrative expenses.  Research
and development expenses consist principally of salaries and compensation paid
to employees and consultants engaged in research and development activities and
product testing.  Sales and marketing
expenses consist principally of salaries paid to employees in sales and
marketing activities, promotional materials and programs, public relations costs
and travel.  General and administrative
expenses consist principally of salaries and compensation paid to employees and
consultants in the administrative departments including finance, human
resources and legal and costs relating to facilities, infrastructure and
related depreciation, in–house and outside legal and accounting fees and
related costs and travel.  All operating
costs are expensed as incurred.

We have a limited operating history
upon which an evaluation of our current business, our prospects and our
management team can be based.  In
addition, our revenue model is evolving and relies substantially upon the
licensing of our technology products. 
Our business must be considered in light of the risks, expenses and
problems frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as that of
VoIP.  Our results of operations and
financial condition may be subject to volatility in future periods.

Results of Operations

Three Months Ended March 31,
2001 Compared to the Three Months Ended March 31, 2000

Net revenues.Net revenues
decreased by 8% from $2.9 million for the period ended March 31, 2000 to $2.7
million for the period ended March 31, 2001. 
The majority of our revenues were derived from licensing our VoiceSERVER
platform and maintenance fees recognized on these and prior licensing
deals.  During the quarter ended March
31, 2001, we closed deals with 13 new customers.  The average contract size on new VoiceSERVER deals was $275,000.

Cost of net revenues.Our cost of
net revenues was $0.5 million for the period ended March 31, 2001, or 19% of
net revenues, as compared to $0.2 million or 8% of net revenues for the period
ended March 31, 2000. Cost of net revenues consists primarily of network
operating expenses in conjunction with providing customer support network to
certain customers.  The increase in cost
of revenues was attributable to support costs and amortization of maintenance
cost associated with certain customers.



Research
and development.Research and
development expenses were $2.8 million, or 104% of net revenues, for the period
ended March 31, 2001 compared to $2.2 million or 74% of net revenues for the
period ended March 31, 2000. Research and development expenses consist
primarily of employee compensation relating to developing and enhancing the
features and functionality of HearMes VoIP technology. The increase in
research and development expenses was primarily due to an increase in salary
expense in 2001 as additional engineers were hired to support the development
of our voice products and to additional consulting fees and software
expenditures associated with these projects. We recently announced that we will
be streamlining our operations and focusing on core initiatives.  Consequently, we expect to incur decreased
product development expenditures in absolute dollars in future periods.  As a percentage of net revenues, we
anticipate that research and development expenses will range from 75% to 95%
during Fiscal 2001. However, anticipated spending levels might vary as a result
of future business activities.

Sales
and marketing.Sales and marketing
expenses were $2.5 million for the period ended March 31, 2001 or 94% of net
revenues compared to $4.3 million or 148% of net revenues for the period ended
March 31, 2000.  In the period ended
March 31, 2000, sales and marketing expenses consist primarily of advertising
and other marketing–related expenses, compensation and employee–related
expenses, sales commission and travel costs. 
Sales and marketing expenses decreased as a percentage of net revenues
in the period ended March 31, 2001 as compared to the period ended March 31,
2000 primarily due to the outbound advertising and marketing campaigns that
were developed and ran during the early part of Fiscal 2000 to promote our
technology products.  The absolute
decrease in sales and marketing expenses was due to the discontinuation of the
branding campaign in Fiscal 2000 and to a decrease in headcount in product
marketing.  As a percentage of net
revenues, we currently anticipate that annual sales and marketing expenses will
range from 65% to 85% during 2001 as HearMe focuses its sales and marketing
efforts on selling its VoIP products and marketing through trade shows and
trade press activities.

General
and administrative.General and
administrative expenses were $1.7 million, or 62% of net revenues for the
period ended March 31, 2001, compared to $3.0 million or 103% of net revenues
for the period ended March 31, 2000. General and administrative costs decreased
primarily as a result of a lower headcount and lower fees for professional
services.  As a percentage of net
revenues, we currently anticipate that general and administrative expenses will
approximate 50% to 60% during 2001. however, anticipated spending levels may
vary as a result of future business activities.

Amortization
of intangibles. As part of the
Resounding acquisition, we recorded amortization of intangible assets
consisting primarily of goodwill in the amount of $2.8 million for the period
ended March 31, 2000.  There was no
amortization of goodwill or intangibles during the period ended March 31,
2001.  During the fourth quarter ended
December 31, 2000, we performed an impairment assessment of the identifiable
intangibles and enterprise level goodwill recorded upon the acquisitions of
AudioTalk and Resounding, which we completed in April 2000 and October 1999,
respectively.  Our assessment was
performed primarily due to the significant decline in our stock price since the
date the shares issued in each acquisition were valued.  Goodwill significantly exceeded our market
capitalization prior to the impairment charge, and the overall decline in our
industry growth rates indicated that this trend may continue for an indefinite
period. As a result of our review, we recorded a $97.1 million impairment
charge, net of the related deferred tax liability, to write off our remaining
enterprise level goodwill and intangible assets.  The charge was determined based upon our estimated discounted
cash flows using a discount rate of 25%. The assumptions supporting our cash
flows (including the discount rate) were determined using our best estimates.

Loss
from discontinued operations.On
December 13, 2000, the Company signed a definitive agreement to sell its Live
Communities business unit, including the Mplayer.com voice-enabled Internet
games community and affiliated advertising network to GameSpy Industries, Inc
(GameSpy), an online games company.  The
transaction was completed on January19, 2001, pursuant to which the Company
received $500,000 in cash, a short-term note receivable for $4,521,000 and
2,404,890 shares of GameSpy common stock valued at an aggregate of
$1,400,000.  Prior periods financial
statements have been restated to reflect the discontinuation of the Live
Communities business unit.

Interest
and other income (expense), net.Interest and other income (expense), net includes interest income earned on the
short–term investment of cash offset by a write-off of certain of the Company's
long-term investments and interest expense primarily related to capital lease
and debt obligations.

Liquidity and Capital Resources

HearMe invests excess cash in debt
instruments that are highly liquid, of high–quality investment grade and
predominantly have maturities of less than one year with the objective of
making such funds readily available for operating purposes. At March 31, 2001,
the Company had cash and cash equivalents and investments in marketable debt
securities totaling $20.3 million compared to $30.5 million at December 31,
2000.

For the period ended March 31,
2001, net cash used in operating activities was primarily a result of funding
ongoing operations of our research and development and sales and marketing
efforts and the payment of liabilities of $3.3 million incurred by the
divestiture of the Live Communities business unit. For the period ended March
31, 2000, net cash used in operating activities was primarily a result of
funding ongoing operations.

Net cash used in investing
activities was $0.9 million for the period ended March 31, 2001 compared to
$1.2 million for the period ended March 31, 2000. Amounts used in 2001 were
primarily for capital expenditures, which have generally been comprised of
purchases of computer hardware and software and the net purchase of short-term
investments. Amounts used in 2000 were for purchases of property and capital
equipment.

Net cash used in financing
activities for the period ended March 31, 2001 was $3.4 million as compared to
net cash provided by financing activities for the period ended March 31, 2000
of $0.2 million. The major use of cash in financing activities during the
period ended March 31, 2001 was for payments on the term loan of $1.7 million
as a result of the sale of Live Communities to GameSpy and $1.7 million for the
repurchase of redeemable common stock subject to put rights.

In May 2000, the Company entered
into a term loan with a financial institution and drew down funds of $2.9
million under this agreement.  Amounts borrowed
under this agreement are collateralized by substantially all our assets, bear
interest at the prime rate plus 1 percent and are scheduled to mature in
September 2003.  $1.7 million of this
loan was repaid during the quarter ended March 31, 2001.

The
Company has incurred significant losses since inception.  In the period ended March 31, 2001, the
Company incurred losses from continuing operations of $4.8 million and used
$7.1 million in its operating activities. 
Management expects that operating losses and negative cash flows will
continue at least through Fiscal 2001 as the Company continues to market its
VoiceSERVER product and increase its customer base.  Management anticipates that existing sources of liquidity and
anticipated revenue will satisfy projected working capital and other cash
requirements through at least the first quarter of Fiscal 2002.  If the Company fails to develop revenues
from sales of its key product to generate adequate funding from operations, it
will be required to either reduce its operating expenses and/or seek additional
debt or equity financing or a combination of both.  Such financing may not be available on acceptable terms or at
all.

On
January 19, 2001, we completed the sale of our Live Communities business unit,
including the Mplayer.com voice-enabled Internet site and the affiliated
advertising network, to GameSpy Industries. 
Consideration for the sale consisted of $500,000 in cash, a short-term
note receivable for $4,521,000 and 2,404,890 shares of GameSpy common stock.

On
April 23, 2001, the Company announced that it intends to focus business
operations to further increase operating efficiencies and to address only the
most strategic market opportunities.  
At the same time, it announced that it would streamline operations and
reduced headcount by about 50 employees in order to preserve its cash balances.
The company expects to record a charge of between $5 million and $6 million, a
portion of which has no cash impact, during the second quarter of 2001 as a result
of the announced restructuring plans.

Certain Business Risks

We have a limited operating history
making it difficult or impossible for us to predict future results of
operations.

We were founded in January 1995 and
have a limited operating history.  We
did not begin generating revenue from VoIP licensing until fiscal 2000.  Due to this limited operating history, it is
difficult or impossible for us to predict future results or operations.  As a result, future revenue performancemay
not be comparable to our recent revenue performance.  We believe that comparing different periods of our operating
results is not meaningful, as the results for any period may not be an
indication of our future performance. 
Some of the risks and difficulties that we face as an early stage
company in a new and rapidly evolving market include our:

ability
to increase demand for our products and services; and

ability
to develop and extend the HearMe brand.

We had substantial losses since our
inception and our operating losses may increase in the future.  Accordingly, we cannot assure you that we
will ever become or remain profitable.

We have an accumulated deficit of
$264 million as of March 31, 2001 and our history of losses may continue in the
future.

We
have had substantial losses since our inception and our operating losses may
increase in the future.  If our revenues
fail to grow at anticipated rates, our operating expenses increase without a
commensurate increase in our revenues or we fail to adjust operating expense
levels accordingly, our business, results of operations and financial condition
will be adversely affected.  As of March
31, 2001, we had an accumulated deficit of $264 million.

We
have not yet become profitable on a quarterly or annual basis and we anticipate
that we will continue to incur net losses for the foreseeable future.  The extent of these losses will be
contingent, in part, on the amount of growth in our revenues from technology
licensing.  Currently, the timing of
growth in revenues cannot be predicted and accordingly we cannot assure you
that we will ever become or remain profitable.

We may
not be able to obtain sufficient funds to grow our business.

We intend to continue to grow our
business.  Due to our limited operating
history and the nature of our industry, our future capital needs are difficult
to predict.  Therefore, we may require
additional capital to fund unanticipated opportunities, strategic alliances,
potential acquisitions, changing business conditions, or unanticipated competitive
pressures.  Obtaining additional
financing will be subject to a number of factors, including market conditions,
our operating performance and investor sentiment.  These factors may make the timing, amount, terms and conditions
of additional financings unattractive to us. 
If we are unable to raise additional capital, our growth could be
impeded.

Our stock price, like that of many
companies in the Internet industry, has been and may continue to be extremely
volatile, and we may be delisted from the Nasdaq National Market System.

The market price of our common
stock ahs declined significantly in recent months, and we expect that it will
continue to be subject to significant fluctuations as a result of variations in
our quarterly operating results an the overall decline in the Nasdaq stock
market.  These fluctuations have been,
and may continue to be, exaggerated because an active trading market has not
developed for our stock.  Thus,
investors may have difficulty selling shares of our stock at a desirable price,
or at all.  Our stock is currently
trading below the $1 per share requirement for continued listing on the Nasdaq
National Market.  If our stock price
does not reach $1, we may be delisted from the Nasdaq National Market.  Our business, results of operations and
financial condition may be adversely affected if we are delisted from the
Nasdaq National Market.

Revenues from
licensing our Voice over Internet Protocol Technology have accounted for a
minimal portion of our revenues to date.

Historically,
we received most of our revenues from sales and license agreements for products
and services other than our Voice over Internet Protocol Technology.  Therefore, the move away from these other
revenue sources could have a material adverse effect on our revenues and
quarterly results of operations.  We
believe that a customer's decision to license our technology is relatively
discretionary and, for large-scale users, often involves a significant
long-term commitment of resources.

Our
customers often take a long time to evaluate our products and services and many
people are involved in the sales process. 
The long sales and implementation cycles for our products and services
and the timing of these sales may cause license and service revenues and
operating results to vary significantly from period to period.  We spend a lot of time educating and
providing information to our prospective customers regarding the use and
benefits of our products and services. 
Even after deciding to license our products, our customers tend to
deploy our products slowly and deliberately depending on the expertise of the
customer, the size of deployment, the complexity of the customer's system
architecture, the quantity of hardware and software involved and the degree of
hardware and software integration necessary to deploy our products.

We
develop, market and sell products for emerging markets, making it difficult or
impossible for us to predict future results of operations and requiring us to
engage in non-revenue generating market development activities.

Following
the divestiture of our Live Communities/Mplayer division, we are now focused
exclusively on the market for VoIP technology. 
This market is emerging and it is unclear how long it will take for this
market to develop and whether this will ever become a large market.  If potential customers do not purchase our
software platforms or VoIP applications, our business, results of operations
and financial condition will be adversely affected.  In addition, we may have to invest in market development
activities, requiring us to work with potential customers to educate them about
the potential benefit of our software platforms and VoIP applications.  These market development activities do not
generate revenue and may not ever lead to sales and revenue generation for us.

If the Internet does not continue
to grow as a medium for voice communications, our business will suffer.

The technology that allows voice
communications over the Internet is still in its early stages of development.  Historically, the sound quality of Internet
calls was poor.  As the industry has
grown, sound quality has improved, but the technology requires additional
refinement.  Additionally, the
Internet's capacity constraints may impede the acceptance of Internet
telephony.  Callers could experience
delays, errors in transmissions or other interruptions in service.  Making telephone calls over the Internet
must also be accepted as an alternative to traditional telephone service.  Because the Internet telephony market is new
and evolving, predicting the size of this market and its growth rate is
difficult.  If our market fails to
develop, then we will be unable to grow our customer base and our opportunity
for profitability will be harmed.

We develop technology and products
for customers who are currently experiencing economic hardship in their own
businesses that may impact their decision to purchase our products and
technology.

We
market and sell our software platforms and VoIP applications to customers in the
telecommunications industry.  This
industry is currently experiencing a downturn as evidenced by the many
companies in this sector that have announced lower profits than originally
expected for the first quarter of 2001. 
This market downturn may result in our potential customers taking more
time to make purchase decisions.  If
potential customers delay, postpone or cancel their decisions to purchase VoIP
software platforms and applications, our business, results of operations and
financial condition will be adversely affected.

We develop products for a highly
fragmented market with the potential for significant competition from much
larger companies with significantly more economic resources than we have.

We
develop and market VoIP software platforms and applications for an emerging
market.  The potential for competition
in this market from large companies in the telecommunications services and
telecommunications equipment industry is significant.  If these large companies develop competing products or if these
large companies develop alternate substitute products to our VoIP software
platforms and applications, our business, results of operations and financial
condition will be adversely affected.

Our quarterly operating results may
not be an indication of our future performance because our results of
operations are subject to significant fluctuations.

Our quarterly operating results may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside of our control. 
These fluctuations make it difficult to predict our financial
performance and may adversely affect the trading price of our common
stock.  These factors include:

demand
for and market acceptance of our products and services;budgeting
cycles of customers;amount
and timing of capital expenditures by our customers and other costs relating to
the expansion of our operations and future acquisitions;engineering
or development fees that we may pay for enhancements to our products; andgeneral
economic conditions.As a strategic response to changes
in the competitive environment, we may from time to time make certain pricing,
service or marketing decisions or business combinations that could have a
material adverse effect on our business, results of operations and financial
condition.

Due to our relatively short
operating history in the VoIP industry, we have limited meaningful historical
financial data upon which to base our planned operating expenses.  Accordingly, our expense levels are based in
part on our expectations as to future revenues from software licensing fees and
any consulting fees that we may generate. 
We cannot be certain that we will be able to accurately predict our
revenues, particularly in light of the emerging nature of the VoIP market, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as a medium for voice traffic.

We depend heavily on our strategic
partners and our business will be materially affected if any strategic partner
discontinues its relationship for any reason.

Although
we view our strategic relationships with networking companies, service
providers, system integrators and other technology companies as a key factor in
our overall business strategy, we cannot be certain that we will be successful
in developing new strategic relationships or that our strategic partners will
view such relationships as significant to their own business or that they will
continue their commitment to us in the future. 
Our business, results of operations and financial condition and our
stock price may be materially adversely affected if any strategic partner
discontinues its relationship with us for any reason.  Additionally, any party to a strategic agreement with us may fail
to perform its contractual obligations and we cannot be certain that we could
enforce any such agreement.  We do not
generally establish minimum performance requirements for our strategic partners
but instead rely on their voluntary efforts. 
In addition, most of these agreements may be terminated by either party
with little notice.  Therefore, we
cannot be certain that these relationships will be successful.

Any acquisitions we make could
result in dilution, unfavorable accounting charges and difficulties in managing
successfully our business.

As part of our business strategy,
we review acquisition prospects that would complement our existing business or
enhance our technological capabilities. 
We have engaged in acquisitions in the past, including our acquisition
of AudioTalk Networks Inc. in April 2000, and expect to continue to do so in
the future.  Future acquisitions by us
could result in potentially dilutive issuances of equity securities, large and
immediate write-offs, the incurrence of debt and contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
materially and adversely affect our results of operations.  Furthermore, acquisitions entail numerous
risks and uncertainties, including:

difficulties
in the assimilation of operations, personnel, technologies, products and the
information systems of the acquired companies;

diversion
of management's attention from other business concerns;

risks
of entering geographic and business markets in which we have no or limited
prior experience; and

potential
loss of key employees and customers of acquired organizations.

Other risks associated with
acquisitions include those relating to the correct assessment of the relative
percentages of in-process research and development expense which can be
immediately written off as compared to the amount which must be amortized over
the appropriate life of the asset, the failure to successfully develop and
integrate acquired in-process technology resulting in the impairment of amounts
capitalized as intangible assets, unanticipated expenses related to technology
integration and the maintenance of uniform standards, controls, procedures and
policies.  We may not be successful in
addressing these risks or any other problems encountered with such
acquisitions.

We develop and market
communications products for customers that are subject to regulation.

Some of our communications products
customers are subject to varying degrees of federal, state and local
regulation.  The jurisdiction of the
Federal Communications Commission (FCC) extends to the communications
industry, including broadband access. 
Although FCC regulations and other governmental regulations have not
impacted our operations to date, there can be no assurance that future regulations
adopted by the FCC or other regulatory bodies will not have a material impact
in the future.

Industry standards for the Voice
over Internet Telephony technology are evolving and, if the standards were to
deviate from those used in our products, our sales will suffer.

Our products are based upon
industry standards that are currently evolving, including Session Initiation
Protocol (SIP) and H.323.  Our success
depends in part upon the adoption of these industry standards by potential
customers and partners in the eCRM and VoIP Calling markets.  There can be no assurance that this adoption
will occur and if this adoption does not occur our operating and financial
results may be materially adversely affected. 
In addition, there can be no assurance that other protocols may evolve
as accepted standards and that we are successful in migrating our products to
be compatible with these new standards. 
If this occurs, our business, operating results and financial condition
would be materially adversely affected.

We may not be able to protect against
or respond in an appropriate manner to unauthorized access, computer viruses
and other disruption problems.

Despite
the implementation of security measures, our products may be vulnerable to
unauthorized and illegal access, computer viruses and other disruptive
problems.  Eliminating computer viruses
and alleviating other security problems may require interruptions, delays or
cessation of service to our customers, which could have a material adverse
effect on our business, results of operations and financial condition.  A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions in
our Internet operations.  Internet
service providers and online service providers have in the past experienced and
may in the future experience interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others.  We may be required
to expend significant capital or other resources to protect against the threat
of security breaches or to alleviate problems caused by breaches.  Although we intend to continue to implement
industry-standard security measures, we cannot be certain that measures we
implement will not be circumvented in the future.

Our
products are new and face rapid technological changes, and if we do not respond
appropriately, we would be adversely affected.

Our
future success depends upon our ability to enhance our current products and
services and to develop and introduce new products and services that will
achieve market acceptance in the emerging eCRM and VoIP Calling markets.  If we do not adequately respond to the need
to develop and introduce new products or services, then our business, operating
results and financial condition will be adversely affected.

The market for our products is
characterized by:

rapid
technological advances,

evolving
standards in the Internet, communications and software markets,

changes
in customer requirements and

frequent
new product and service introductions and enhancements.

We cannot be certain that we will
be successful at integrating new technology into our HearMe Technology Products
on a timely basis.  In addition, the
integration of new technology may degrade the responsiveness and speed of our
HearMe Technology Products and we cannot be certain that, once integrated, the
new technology will function as expected. 
Major product enhancements and new products and services often require
long development and testing periods to achieve market acceptance.  In addition, our software products are
complex and, despite vigorous testing and quality control procedures, may
contain undetected errors or "bugs" when first introduced or
updated.  Any inability to timely
deliver quality products and services could have a material adverse effect on
our business, results of operations and financial condition.

We will increasingly depend on
others to properly distribute our HearMe Technology products and services.

We currently sell the vast majority
of our HearMe Technology Products and services through our internal sales
staff.  If demand for our products and
services increases, however, we will need to enter into reseller arrangements
with service providers, system integrators, enterprise applications resellers
and OEM partners to distribute our products and technologies.  If we do not adequately develop and maintain
a network of resellers and OEMs, our business, results of operations and
financial condition could be adversely impacted.  Resellers and OEMs frequently have exclusive sales territories
pursuant to individually negotiated contracts, which may limit our ability to
build and expand our network of resellers and OEMs.  In addition, some resellers and OEMs may offer products of one or
more of our competitors and they may emphasize our competitors' products at the
expense of our products.

Some of the provisions of our
charter documents may have anti-takeover effects that could prevent a change in
our control.

Some of the provisions of our
Amended and Restated Certificate of Incorporation and bylaws could make it more
difficult for a third party to acquire us, even if a change of control would be
beneficial to our stockholders.

ITEM
3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

HearMe is exposed to the impact of
interest rate changes and changes in the market values of its investments.  To date all of HearMes contracts have been
denominated in U.S. dollars and have not been subject to currency risks.

Interest Rate Risk

HearMes exposure to market rate
risk for changes in interest rates relates primarily to the Companys
investment portfolio.  HearMe has not
used derivative financial instruments in its investment portfolio.  We invest our excess cash in debt
instruments of the U. S. Government and its agencies and in high–quality
corporate issuers and, by policy, limit the amount of credit exposure to any
one issuer.  HearMe protects and
preserves its invested funds by limiting default, market and reinvestment risk.

Investments in both fixed rate and
floating rate interest earning instruments carry a degree of interest rate
risk.  Fixed rate securities may have
their fair market value adversely impacted due to a rise in the interest rates,
while floating rate securities may produce less income than expected if
interest rates fall.  Due in part to
these factors, the Companys future investment income may fall short of
expectations due to changes in interest rates or the Company may suffer losses
in principal if forced to sell securities that have declined in market value
due to changes in interest rates.

PART II: OTHER
INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is not currently aware
of any legal proceedings or claims that the Company believes are likely to have
a material adverse effect on the Company's financial position, results of
operations or cash flows.  From time to
time we have been and expect to continue to be, subject to legal proceedings
and claims by third parties in the ordinary course of business, including
claims of alleged infringement of third–party trademarks and other
intellectual property rights against our licensees or us.  Third party claims like these, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources and could materially and adversely affect our business,
financial condition, results of operations and cash flows.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) Recent Sales of Unregistered
Securities.

None

(d) Use of Proceeds from Sales of Registered Securities.

On May 4, 1999, the Company completed an initial public
offering of its common stock, $0.00005 par value. The managing underwriters in
the offering were BancBoston Robertson Stephens, Thomas Weisel Partners LLC,
Warburg Dillon Read LLC and Wit Capital Corporation (the
"Underwriters"). The shares of common stock sold in the offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (the "Registration Statement") (Reg. No.
333-72437) that was declared effective by the SEC on April 28, 1999. The
offering commenced on April 29, 1999, on which date, 3,900,000 shares of Common
Stock registered under the Registration Statement were sold at a price of
$18.00 per share. The Underwriters also exercised an overallotment option of
585,000 shares, which closed on June 2, 1999. All 585,000 overallotment shares
were sold at a price of $18.00 per share. The aggregate price of the offering
amount registered and sold was $80,730,000. 
In connection with the offering, the Company paid an aggregate of
$5,651,100 in underwriting discounts and commissions to the Underwriters. In
addition, the following table sets forth the other material expenses incurred
in connection with the offering.



AMOUNT PAIDSecurities
  and Exchange Commission registration fee
  $50,000NASD
  filing fee
  5,500Nasdaq
  National Market listing fee
  95,000Printing
  and engraving expenses
  245,000Legal
  fees and expenses
  361,500Accounting
  fees and expenses
  189,700Blue
  Sky qualification fees and expenses
  3,000Transfer
  Agent and Registrar fees
  5,500Miscellaneous
  fees and expenses
  233,800Total
  $1,189,000After deducting the underwriting
discounts and commissions and the offering expenses described above, the
Company received net proceeds from the offering of approximately $73,900,000.
As of March 31, 2001, $20.3 million of the net proceeds were invested in cash
and cash equivalents and short term investments and approximately $53.6 million
has been used for working capital and general corporate purposes, including the
funding of product development and expansion of its sales and marketing
organization. In addition, the Company may use a portion of the net proceeds
for further development of its product lines through acquisitions of products,
technologies and businesses. None of the Company's net proceeds of the offering
were paid directly or indirectly to any director, officer, general partner of
the Company or their associates, persons owning 10% or more of any class of
equity securities of the Company, or an affiliate of the Company.

ITEM
3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

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

(a) Exhibits

None

(b) Reports on Form 8-K

On February 2, 2001, the Company filed a report on Form 8-K with respect
to Item 2 thereunder.

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





HEARME

By:  /s/ LINDA R. PALMOR
  Date:
  May 10, 2001Linda
  R. PalmorChief
  Financial Officer(Principal
  Accounting and Financial Officer)