**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-Q**

** **
| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

 

**For The Quarterly Period Ended March 31, 2002**

 

**Or**

** **
| **o** | **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**

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**HEARME**

(Exact Name of Registrant asSpecified in Its Charter)

** **
| **Delaware**

(State or Other Jurisdiction of Incorporation or Organization) | **94–3217317**

(IRS Employer Identification No.) |
|------------------------------------------------------------------------------|--------------------------------------------------------|

 

**c/o Burr, Pilger & Mayer LLP**

**600 California Street, Suite 1300**

**San Francisco, California 94108**

**(415) 677-4524**

(Address, Including Zip Code andTelephone Number, Including Area Code, of the Registrant’s Principal ExecutiveOffices)

 

Former Addresses:  **6200Stoneridge Mall Road, Third Floor, Pleasanton, CA 94588**

**685 ClydeAvenue, Mountain View, CA 94043**

(Former name or former address,if changed since last year)

 

 

                Indicate by check mark whetherthe registrant (1) has filed all reports required by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý  No o

 

                The number of outstanding sharesof common stock, $0.00005 par value, outstanding as of the close of business onNovember 26, 2001, the date on which the Company closed its stock transferbooks and discontinued recording transfers, was 28,402,908.

 

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**FORM 10-Q REPORT**

 

**TABLE OF CONTENTS**

 
| PART I —  | FINANCIAL INFORMATION                                                                                                      |   |
|----------------|----------------------------------------------------------------------------------------------------------------------------|--------|
| Item  1.       | Condensed  Consolidated Financial Statements (unaudited)                                                                   |   |
|           | Condensed  Consolidated Statements of Net Assets in Liquidation as of March 31, 2002 and  December 31, 2001                |   |
|           | Condensed  Consolidated Statement of Changes in Net Assets in Liquidation for the  three-month period ended March 31, 2002 |   |
|           | Notes to  Unaudited Condensed Consolidated Financial Statements                                                            |   |
|           |                                                                                                                       |   |
| Item 2.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                |   |
|           |                                                                                                                       |   |
| Item  3.       | Quantitative  and Qualitative Disclosures About Market Risk                                                                |   |
|           |                                                                                                                       |   |
| PART II — | OTHER INFORMATION                                                                                                          |   |
| Item 1.        | Legal Proceedings                                                                                                          |   |
| Item 2.        | Changes in Securities and Use of  Proceeds                                                                                 |   |
| Item 3.        | Defaults upon Senior Securities                                                                                            |   |
| Item 4.        | Submission of Matters to a Vote of  Security Holders                                                                       |   |
| Item 5.        | Other Information                                                                                                          |   |
| Item 6.        | Exhibits and Reports on Form 8-K                                                                                           |   |
|           |                                                                                                                       |   |
|           |                                                                                                                       |   |
|           |                                                                                                                       |   |
|           |                                                                                                                       |   |
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|           |                                                                                                                       |   |
|           |                                                                                                                       |   |

 

 

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**PART I - FINANCIAL INFORMATION**

 

 

**ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)**

 

**HEARME**

**CONDENSED CONSOLIDATED STATEMENTS OF NET ASSETS INLIQUIDATION**

**(in thousands)**

 

 
|                                                             |   | **March 31, 2002** |    | **December 31, 2001** |   |
|------------------------------------------------------------------|--------|--------------------|---------|-----------------------|--------|
|                                                             |   | (unaudited)        |    |                  |   |
| **ASSETS**                                                       |   |               |    |                  |   |
| Cash and cash equivalents                                        |   | $                  | 2,338   |                  | $      | 9,851 |   |
| Accounts receivable                                              |   | —             |    | 20                    |   |
| Patents and intellectual property                                |   | —             |    | 20                    |   |
| Property and equipment                                           |   | —             |    | 50                    |   |
| Other assets                                                     |   | 71                 |    | 183                   |   |
| Total assets                                                     |   | $                  | 2,409   |                  | $      | 10,124 |   |
|                                                             |   |               |    |                  |   |
| **LIABILITIES**                                                  |   |               |    |                  |   |
| Accounts payable.                                                |   | $                  | 23      |                  | $      | 75 |   |
| Other current liabilities.                                       |   | —             |    | 102                   |   |
| Reserve for estimated future costs during period of  liquidation |   | 2,234              |    | 4,743                 |   |
| Notes payable                                                    |   | —             |    | 91                    |   |
| Total liabilities                                                |   | $                  | 2,257   |                  | $      | 5,011 |   |
|                                                             |   |               |    |                  |   |
| Net assets in liquidation                                        |   | **$**              | **152** |                  | $      | 5,113 |   |

 

 

 

 

**HEARME**

**CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NETASSETS IN LIQUIDATION**

**(in thousands)**

 
|                                                                              |   | **Three Months**   |   |
|-----------------------------------------------------------------------------------|--------|--------------------|--------|
|                                                                              |   | **Ended**          |   |
|                                                                              |   | **March 31, 2002** |   |
|                                                                              |   | (unaudited)        |   |
|                                                                              |   |               |   |
| Net assets in liquidation as of December 31, 2001                                 |   | $                  | 5,113  |   |
|                                                                              |   |               |   |
| Changes in net assets in liquidation:                                             |   |               |   |
| Distribution to stockholders                                                      |   | (5,113             | )      |
| Net loss on sale of property and equipment and patents  and intellectual property |   | (2                 | )      |
| Increase in estimated future liabilities during period  of liquidation            |   | (27                | )      |
| Increase in accounts payable and other liabilities                                |   | (20                | )      |
| Net gain from repayment of notes receivable                                       |   | 113                |   |
| Interest and other income                                                         |   | 88                 |   |
| Total changes in net assets in liquidation                                        |   | $                  | (4,961 | ) |
|                                                                              |   |               |   |
| Net assets in liquidation as of March 31, 2002                                    |   | $                  | 152    |   |

 

*The accompanying notes are an integral part of thesecondensed consolidated financial statements.*

 

 

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**HearMe**

**NOTES** TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS

**(UNAUDITED)**

 

***1.  Basis of Presentation***

 

                The accompanying unauditedcondensed consolidated financial statements of HearMe and its wholly ownedsubsidiaries (the “Company”), have been prepared in conformity with generallyaccepted accounting principles for interim financial information for a companyin voluntary liquidation and with the rules of the Securities and ExchangeCommission.  Accordingly, certaininformation and footnote disclosures normally included in complete financialstatements prepared in accordance with generally accepted accounting principleshave been condensed, or omitted.  In theopinion of the Company’s management, the statements include all adjustments(which are of a normal and recurring nature) necessary for the fairpresentation of the results of the interim period presented.  These financial statements should be read inconjunction with the Company’s audited financial statements for the year endedDecember 31, 2001 included in the Company’s Annual Report on Form 10–Kfiled with the Securities and Exchange Commission.  The results of operations for any interim period are notnecessarily indicative of the results of operations for any other interimperiod or for a full fiscal year.

 

                As a result of the Company’splans to cease operations, the Company adopted the liquidation basis ofaccounting effective October 23, 2001. Assets are consequently stated at their estimated net realizable valuesand liabilities are stated at their anticipated settlement amounts. Theliquidation basis of accounting requires the Company to accrue an estimate forall liabilities related to expenses to be incurred during the wind down period.The estimated net realizable values of assets represent management’s bestestimate of the recoverable value of the assets, net of selling expenses, andwithout consideration for the effect that the settlement of any associatedlitigation may have on the net realizable value of the assets.  The assets are reported at their netrealizable value until they are sold or liquidated.  There can be no assurance, however, that the Company will besuccessful in selling the assets at their estimated net realizable value.  Upon adoption of the liquidation basis ofaccounting, the Company recorded a reserve for estimated future costs duringperiod of liquidation of approximately $5.9 million for costs to be incurredand potential liabilities, claims and contingencies during the liquidationperiod, which is expected to be completed by the end of 2004.  The changes in the reserve balance fromDecember 31, 2001 through March 31, 2002 are detailed below (in thousands):

 

|                                      |   | **December 31,**

**2001** |   | **Increase in**

**Estimated**

**Future Expenses** |   |   |   | **March 31,**

**2002** |   |
|-------------------------------------------|--------|----------------------------|--------|-----------------------------------------------------|--------|--------|--------|-------------------------|--------|
|                                      |   |                       |   |                                                |   |   |
| **Estimated Future Liquidation Expenses** |   |                       |   | **Cash Paid**                                       |   |   |
|                                      |   |                       |   |                                                |   |   |   |                    |   |
| Contract settlement                       |   | $                          | 1,437  |                                                | $      | 101    |   | $                       | (740   | ) | $ | 798 |   |
| Insurance                                 |   | 1,164                      |   | (32                                                 | )      | (772   | )      | 360                     |   |
| Legal                                     |   | 778                        |   | 17                                                  |   | (199   | )      | 596                     |   |
| Employee related expenses                 |   | 772                        |   | (59                                                 | )      | (705   | )      | 8                       |   |
| Management fee                            |   | 500                        |   | —                                              |   | (36    | )      | 464                     |   |
| Other expenses                            |   | 92                         |   | —                                              |   | (84    | )      | 8                       |   |
|                                      |   | $                          | 4,743  |                                                | $      | 27     |   | $                       | (2,536 | ) | $ | 2,234 |   |

 

 

***2. Liquidating Distributions***

 

                As of April 1, 2002, the Companyvacated all facilities and have no employees. The Company has engaged Burr, Pilger and Mayer LLP to manage its winddown process, and on March 26, 2002, the Company announced the election ofStephen Mayer as the sole director of the Company and as President, ChiefExecutive Officer and Chief Financial Officer.

 

                The Board of Directors has notestablished a firm timetable for future distributions to stockholders, if any,although the Company does not currently expect to make more than a singleliquidating distribution at or near the end of the three-year wind-down periodmandated under Delaware law. The Board of Directors is, however, currentlyunable to predict the precise nature, amount or timing of any futuredistributions in connection with the Company’s wind down.  The actual nature, amount and timing of alldistributions will be determined by the Board of Directors, in its sole discretion.  An initial cash distribution of $0.18 pershare totaling approximately $5,113,000 was made to stockholders of record asof the final record date on or about March 12, 2002.  The proportionate interests of all of the stockholders of theCompany have been fixed on the basis of their respective stock holdings at theclose of business on the final record date, November 26, 2001, and aftersuch date, any distributions made by the Company shall be made solely tostockholders of record on the close of business on the final record date, exceptto reflect permitted transfers.

 

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*3.Commitments and Contingencies*

* *

                On November 19, 2001, the Company was served with acomplaint filed by Michael Ring and Frank Ring against the Company and GameSpyin the New York Supreme Court (the trial court), County of New York, allegingbreach of a written lease relating to a facility in New York, New York whichhad been assigned to GameSpy and seeking damages of approximately$197,000.  In December 2001, the Companyremoved this matter to Federal District Court in New York.  The Company has conducted an investigationinto this matter and believes that the Company has meritorious defenses to thisclaim.  Consequently, on December 14,2001, the Company denied the allegations in the Company’s  Answer and Counterclaim.  Althoughthe Company intends to vigorously defend this claim, the Company does notbelieve its ultimate resolution will have a materially adverse effect on theCompany’s financial condition and funds available for distribution indissolution.

 

                In addition, the Companycontinues to be subject to possible claims by third parties and related legalproceedings, including claims of alleged infringement of third–partyintellectual property rights against the Company’s licensees or the Company, orclaims related to the Company’s dissolution or related actions or matters.  Third party claims like these, even if notmeritorious, could result in the expenditure of significant financial andmanagerial resources and could materially and adversely affect the Company’sbusiness, financial condition and funds available for distribution in adissolution.

 

 

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

 

                This Management’s Discussion andAnalysis of Results of Operations and Financial Condition and other parts ofthis Form 10-Q contain forward–looking statements that involve risksand uncertainties.  Words such as“anticipates,” “believes,” “plans,” “expects,” “future,” “intends” and similarexpressions identify forward–looking statements.  These statements are not guarantees offuture performance and are subject to certain risks and uncertainties thatcould cause actual results to differ materially from those expressed orforecasted. Factors that might cause such a difference include, but are notlimited to, those discussed in the section entitled “Certain Risks” and thoseappearing elsewhere in this Form 10-Q. Readers are cautioned not to place undue reliance on these forward–lookingstatements, which reflect management’s analysis only as of the datehereof.  We assume no obligation toupdate these forward–looking statements to reflect actual results orchanges in factors or assumptions affecting forward–looking statements.

 

**Overview**

 

                We ceased our ongoing business operations on October22, 2001 when our stockholders approved the Plan.  We were a provider of VoIP application technologies thatdelivered increased productivity and flexibility in communications via nextgeneration communications networks. The Company was incorporated and commencedoperations in January 1995.  Frominception through September 1996, our activities primarily consisted ofrecruiting employees and raising capital, performing product and technologydevelopment, engaging in marketing activities and negotiating strategicrelationships.  In April 1999, wecommenced licensing of our real-time interactive voice–enabledtechnology.

 

                On October 22, 2001, ourstockholders approved the Plan of Liquidation and Dissolution (the"Plan").  As a result, theliquidation basis of accounting and financial statement presentation has beenadopted subsequent to October 22, 2001.

 

                Our Board ofDirectors has not established a firm timetable for future distributions tostockholders, if any, although we do not currently expect to make more than asingle liquidating distribution at or near the end of the three-year wind-downperiod mandated under Delaware law.  OurBoard of Directors is, however, currently unable to predict the precise nature,amount or timing of any future distributions in connection with our winddown.  The actual nature, amount andtiming of all distributions will be determined by our Board of Directors, inits sole discretion.   An initial cashdistribution of $0.18 per share totaling approximately $5,113,000 was made tostockholders of record as of the final record date on or about March 12,2002.  The proportionate interests ofall of the stockholders of the Company have been fixed on the basis of theirrespective stock holdings at the close of business on the final record date,November 26, 2001, and after such date, any distributions made by theCompany shall be made solely to stockholders of record on the close of businesson the final record date, except to reflect permitted transfers.

 

**Changes in NetAssets in Liquidation**

 

### ***Three Months Ended March 31, 2002***

 

                *Distribution to Stockholders.*  An initial cash distribution of $0.18 pershare totaling approximately $5,113,000 was made in March 2002 to stockholdersof record as of the final record date.

 

                *Net Loss on Sale of Property andEquipment and Patents and Intellectual Property.*  From January 1, 2002 through March 31, 2002,we received $21,000 from the sale of various patents and other intellectualproperty and realized a gain of $1,000 for the amount received in excess of thenet book value.  From January 1, 2002through March 31, 2002, we received $47,000 in cash and realized a loss on thewrite-down of HearMe’s remaining property and equipment in the amount of $3,000.

 

 

5

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*                Increase in Estimated FutureLiabilities during the period of Liquidation.*  From January 1, 2002 through March 31, 2002 we paid $2,536,000 incash to settle liabilities included in the estimate of future liabilitiesestablished upon adoption of the liquidation basis of accounting and increasedthe reserve by $27,000 to more closely reflect our expectation of our futurecosts.

 

                *Increase in Accounts Payable and OtherLiabilities.*  During the periodJanuary 1, 2002 through March 31, 2002, we paid $268,000 of accounts payableand other liabilities, including notes payable, recorded at December 31, 2001.We paid $23,000 of the estimated future liabilities during liquidationsubsequent to the period ended March 31, 2002. This amount has been reclassified to accounts payable at March 31, 2002.During the period January 1, 2002 through March 31, 2002 we reclassified $3,000of the amount due under notes payable to estimated future liabilities duringliquidation.

 

*                Net Gain from Repayment of NotesReceivable.*  We received$224,000 in repayment of notes receivable during March 2002 directly from thenote holders.  These recoveries andsubsequent revaluation of the balance on the notes receivable resulted in a netgain of $113,000 for the period January 1, 2002 through March 31, 2002.

 

*                Interest and other income.*  From January 1, 2002 through March 31, 2002we earned $38,000 on the short-term investment of cash and received additional$50,000 in other miscellaneous cash refunds and payments.

 

 

**Certain Risks**

 

**                If our contingency reserve isinadequate to cover expenses and liabilities through the wind-down process,stockholders may be liable to creditors of the Company for amounts previouslyreceived.**

 

                A Certificate of Dissolution wasfiled on November 26, 2001 with the Secretary of State of the State of Delawaredissolving the Company.  Pursuant to theDelaware General Corporation Law, we will continue to exist for three yearsafter the dissolution becomes effective or for such longer period as theDelaware Court of Chancery shall direct, for the purpose of prosecuting anddefending suits against the Company and enabling the Company gradually to closeour business, to dispose of our property, to discharge our liabilities and todistribute to our stockholders any remaining assets.  We have established a contingency reserve for payment of ourexpenses and liabilities during this three-year period.  Under the Delaware General Corporate Law, inthe event the contingency reserve created by us is inadequate for payment ofour expenses and liabilities during this three-year period, each stockholdercould be held liable for payment to our creditors of such stockholder’s prorata share of amounts owed to creditors in excess of the contingencyreserve.  The liability of anystockholder would be limited to the amounts previously received by suchstockholder from the Company (and from any liquidating trust or trusts) asdistributions.  Accordingly, in suchevent a stockholder could be required to return all such distributionspreviously made to such stockholder.  Insuch event, a stockholder could receive nothing from the Company.  Moreover, in the event a stockholder haspaid taxes on amounts previously received, a repayment of all or a portion ofsuch amount could result in a stockholder incurring a net tax cost if thestockholder’s repayment of an amount previously distributed does not cause acommensurate reduction in taxes payable. There can be no assurance that the contingency reserve established bythe Company will be adequate to cover all expenses and liabilities.

 

                If we were held by a court tohave failed to make adequate provision for our expenses and liabilities or ifthe amount ultimately required to be paid in respect of such liabilitiesexceeded the amount available from the contingency reserve and the assets ofthe liquidating trust or trusts, a creditor of the Company could seek aninjunction against the making of distributions under our wind down on the groundthat the amounts to be distributed were needed to provide for the payment ofour expenses and liabilities. Any such action could delay or substantiallydiminish the cash distributions to be made to stockholders and/or interestholders.

 

**                Our Final Record Date wasNovember 26, 2001, on which date we determined the proportionate interestof each stockholder and after which we are unable to record transfers of commonstock on our books.**

 

                We closed our stock transferbooks and discontinued recording transfers of common stock at the close ofbusiness on November 26, 2001, and filed the Certificate ofDissolution.  Thereafter, certificatesrepresenting the common stock are not assignable or transferable on the books ofthe Company except by will, intestate succession or operation of law.  The proportionate interests of all of thestockholders of the Company are fixed on the basis of their respective stockholdings at the close of business on the final record date, and, after thefinal record date, any distributions made by the Company shall be made solelyto the stockholders of record at the close of business on the final recorddate, except as may be necessary to reflect subsequent transfers recorded onthe books of the Company as a result of any assignments by will, intestatesuccession or operation of law.  For anyother trades after November 26, 2001, the seller and purchaser of the stockwill need to negotiate and rely on “due-bill” contractual obligations betweenthemselves with respect to the allocation of stockholder proceeds arising fromownership of the shares.

 

 

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**                Our common stock has beendelisted from the Nasdaq Stock Market.**

 

                On August 14, 2001, the common stock wasdelisted from the Nasdaq National Market, due to its low trading price pershare. With this delisting, the ability of stockholders to buy and sell sharesmay be materially impaired.  OnAugust 15, 2001, the common stock commenced trading on the OTC BulletinBoard.  We closed our stock transferbooks and discontinued recording transfers of common stock at the close ofbusiness on November 26, 2001, and filed the Certificate ofDissolution.  Thereafter, certificatesrepresenting the common stock are not assignable or transferable on the books ofthe Company except by will, intestate succession or operation of law.  For any other trades after November 26,2001, the seller and purchaser of the stock will need to negotiate and rely on“due-bill” contractual obligations between themselves with respect to theallocation of stockholder proceeds arising from ownership of the shares.

 

**                Afterour wind down and initial distribution to stockholders there may be no cash todistribute to our stockholders and if there is cash to distribute, the timingof any such distribution is uncertain.**

 

                Our Board of Directors has notestablished a firm timetable for future distributions to stockholders, if any,although we do not currently expect to make more than a single liquidatingdistribution at or near the end of the three-year wind-down period mandatedunder Delaware law.  Our Board ofDirectors is, however, currently unable to predict the precise nature, amountor timing of any future distributions in connection with our wind down.  The actual nature, amount and timing of alldistributions will be determined by our Board of Directors, in its solediscretion.  An initial cashdistribution of $0.18 per share totaling approximately $5,113,000 was made tostockholders of record as of the final record date on or about March 12,2002.  The proportionate interests ofall of the stockholders of the Company have been fixed on the basis of theirrespective stock holdings at the close of business on the final record date,November 26, 2001, and after such date, any distributions made by theCompany shall be made solely to stockholders of record on the close of businesson the final record date, except to reflect permitted transfers.

 

                Uncertainties as to the ultimateamount of our liabilities make it impracticable to predict the aggregate netvalue ultimately distributable to stockholders.  Claims, liabilities and expenses from operations (includingoperating costs, management fees, taxes, legal and accounting fees andmiscellaneous expenses) will continue to be incurred.  These expenses will reduce the amount of assets available forultimate distribution to stockholders. However, no assurances can be given that available cash will be adequateto provide for the Company’s obligations, liabilities, expenses and claims andto make cash distributions to stockholders. If such available cash is not adequate to provide for our obligations,liabilities, expenses and claims, we may not be able to distribute any furthercash to our stockholders.

 

**                Our inability to reachprofitability and our resulting dissolution could give rise to securities classaction claims against us, which could deplete the proceeds that are to bedistributed to stockholders.**

 

                Securities class action claimshave been brought against companies in the past where the market price of theCompany’s securities has fallen due to an inability of the Company to achieveoperational profitability.  Any suchlitigation could be very costly and divert our remaining resources from beingavailable for distribution to our stockholders.  Any adverse determination in this kind of litigation could alsodeplete our cash position, and reduce proceeds that would otherwise bedistributed to our stockholders.

 

**                We may not be able to settle allof our obligations to creditors.**

 

                We have certain current andfuture obligations to creditors.  Theseinclude, without limitation, long term contractual obligations associated withfacilities leases and business agreements with customers and other thirdparties.  As part of the wind downprocess, we have negotiated the termination of most of our obligations tocreditors, including most of our long-term facilities leases. We are working tonegotiate settlements of all of our remaining obligations to creditors.  We cannot guarantee that we will be able tosettle such obligations with each creditor. If we are unable to reach an agreement with a creditor concerning along-term obligation, that creditor may choose to bring a lawsuit against us.  Such litigation could delay or even preventus from completing our intended wind down plan.  Moreover, amounts required to settle such long-term obligationswill reduce the amount of remaining capital available for any distribution tostockholders.

 

**                We willcontinue to incur the expenses of complying with public company reportingrequirements.**

 

                We have an obligation tocontinue to comply with the applicable reporting requirements of the SecuritiesExchange Act of 1934, as amended, even though compliance with such reportingrequirements is economically burdensome. In order to curtail expenses, we have requested relief from theSecurities and Exchange Commission from the reporting requirements under theExchange Act.  We anticipate that, ifsuch relief were granted, we would continue to file current reports onForm 8-K to disclose material events relating to our liquidation anddissolution along with any other reports that the Securities and ExchangeCommission might require.  However,there can be no assurances that such relief will be granted.

 

 

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**ITEM 3. QUANTITATIVE****AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

                We are exposed to the impact ofinterest rate changes and changes in the market values of our investments.  To date all of our contracts have beendenominated in U.S. dollars and have not been subject to currency risks.

 

**Interest RateRisk**

 

                Our exposure to market rate riskfor changes in interest rates relates primarily to the Company’s cash and cashequivalents. We have not used derivative financial instruments in ourinvestment portfolio.  We invest ourexcess cash in money market accounts and, by policy, limit the amount of creditexposure to any one issuer.  The moneymarket accounts invest in diversified portfolios of high quality, short-termdebt securities and/or U.S. dollar denominated obligations.  We protect and preserve our invested fundsby limiting default, market and reinvestment risk.

 

**PART II - OTHER****INFORMATION**

 

**ITEM 1.  LEGALPROCEEDINGS****:**

 

                On November 19, 2001, we were served with a complaintfiled by Michael Ring and Frank Ring against the Company and GameSpy in the NewYork Supreme Court (the trial court), County of New York, alleging breach of awritten lease relating to a facility in New York, New York which had beenassigned to GameSpy and seeking damages of approximately $197,000.  In December 2001, the Company removed thismatter to Federal District Court in New York. We have conducted an investigation into this matter and believe that wehave meritorious defenses to this claim. Consequently, on December 14, 2001, we denied the allegations in ourAnswer and Counterclaim.  Although we intend to vigorously defend thisclaim, we do not believe its ultimate resolution will have a materially adverseeffect on our financial condition and funds available for distribution in adissolution.

 

                In addition, we continue to besubject to possible claims by third parties and related legal proceedings,including claims of alleged infringement of third–party intellectualproperty rights against our licensees or us, or claims related to the Company’sdissolution or related actions or matters. Third party claims like these, even if not meritorious, could result inthe expenditure of significant financial and managerial resources and couldmaterially and adversely affect our business, financial condition and fundsavailable for distribution in a dissolution.

 

 

**ITEM 2****.  CHANGES INSECURITIES AND USE OF PROCEEDS**

None.

 

**ITEM 3****.  DEFAULTS UPONSENIOR SECURITIES**

None.

 

**ITEM 4****.  SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

None.

 

**ITEM 5****.  OTHER INFORMATION**

None.

 

**ITEM 6.****  EXHIBITS AND REPORTSON FORM 8-K**

 

                                                **(a)**           None.

 

                                                **(b)           Reportson Form 8-K.**

 

                On January 2, 2002, the Companyfiled a report on Form 8-K with respect to the sale of certain assets to PalTalk.

 

                On February 27, 2002, theCompany filed a report on Form 8-K with respect to the announcement of a cashdistribution

                to stockholders of $0.18 pershare.

 

                On April 1, 2002, the Companyfiled a report on Form 8-K with respect to the announcement that HearMe hadengaged                 Burr, Pilger and Mayer LLPto manage its wind down process.

 

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**SIGNATURES**

 

                Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized. 

 
|                     | **HearMe** |                                          |
|--------------------------|------------|-----------------------------------------------|
|                     |       |                                          |
|                     |       |                                          |
|                     | By:        | /s/ Stephen D. Mayer                          |
| Date:  May 15, 2002 |       | Stephen D.  Mayer, President, Chief           |
|                     |       | Executive  Officer and Chief                  |
|                     |       | Financial  Officer                            |
|                     |       | (Principal  Accounting and Financial Officer) |
|                          |            |                                               |  |

 

 

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