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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

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

For The Fiscal Year Ended December 31, 2001

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 as Specified in Its Charter)

Delaware(State or Other Jurisdiction of Incorporation or Organization)

94-3217317(IRS Employer Identification No.)


6200 STONERIDGE MALL RD, THIRD FLOOR
PLEASANTON, CALIFORNIA 94588
(925) 399-6182(Address, Including Zip Code and Telephone Number, Including Area Code, of the Registrant's Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class



Name of each exchange on which registeredNone



None


Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.00005 par value

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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. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

The
aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $4,049,330 as of February 26, 2002, based upon the closing
sale price on such date reported by over-the-counter quotation services. Shares of common stock held by each officer and director and by each person who owns 5% or more of the
outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.

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

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FORM 10-K REPORT    TABLE OF CONTENTS

|           |  |                                                                                       |  |   
|---------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I     |  |                                                                                       |  |   
|Item 1.    |  | Business                                                                              |  | 3 
|Item 2.    |  | Properties                                                                            |  | 10
|Item 3.    |  | Legal Proceedings                                                                     |  | 10
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 10
|PART II    |  |                                                                                       |  |   
|Item 5.    |  | Market for the Registrant's Common Equity and Related Stockholder Matters             |  | 12
|Item 6.    |  | Selected Financial Data                                                               |  | 14
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 15
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 24
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 25
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 55
|PART III   |  |                                                                                       |  |   
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 55
|Item 11.   |  | Executive Compensation                                                                |  | 57
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 64
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 65
|PART IV    |  |                                                                                       |  |   
|Item 14.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 67
|Signatures |  | 71                                                                                   

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PART I.

The discussion in this annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could
differ materially from those discussed in the forward-looking statements as a result of several factors, including those set forth under "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

ITEM 1. BUSINESS:

HearMe ("we" or "the Company") ceased ongoing business operations on October 22, 2001 when our stockholders approved a Plan of Liquidation and Dissolution
(the "Plan"). We were a provider of Voice over Internet Protocol (VoIP) application technologies that delivered increased productivity and flexibility in communications via next generation
communications networks.

We
were incorporated and commenced operations in January 1995 under the name Mpath Interactive, Inc. 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 November 1995,
we entered into an agreement with PSINet, Inc. for the deployment of a low-latency network, which provided a platform for launching and operating the Mplayer.com service. Testing of
the Mplayer.com service began in February 1996 and the service was launched commercially in October 1996. In November 1996, we obtained Catapult Entertainment, Inc.
("Catapult") in order to obtain its enabling network technology. In January 1999, we launched HearMe.com, our second live community service. During the period from January 1995 through
December 1998, we raised gross proceeds of approximately $34.9 million from the sale of equity securities to venture capital investors and strategic partners. In January 1999, we
raised approximately an additional $20.0 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 an initial public offering. A portion of the proceeds from this offering was 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. In October 1999, we acquired Resounding Technology, Inc. ("Resounding")
through the merger of a
wholly-owned subsidiary of the Company with and into Resounding. In April 2000, we acquired AudioTalk Networks, Inc. ("AudioTalk") through the merger of a wholly-owned subsidiary of the
Company with and into AudioTalk.

Until
January 2001, we generated our revenues from two business units, Technology Products (formerly known as Mpath Foundation) and Live Communities. In January 2001, we
completed the divestiture of our Live Communities business unit, including the Mplayer.com service and the affiliated advertising network, in a sale of assets to GameSpy Industries, Inc.
("GameSpy"), an online games company. 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 in 2000.

Wind Down and Cessation of Business Operations

In April 2001, we announced that we were focusing our business operations to further increase operating efficiencies and address only the most strategic
market opportunities.

On
July 10, 2001, we received a Nasdaq Staff Determination letter indicating that we had failed to comply with the minimum bid price requirement for continued listing on the
Nasdaq National Market. In response, we initially requested a hearing before the Nasdaq Listing Qualifications Panel to appeal

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the Staff Determination based on our plan to achieve compliance with the minimum bid listing requirement through a 1-for-10 reverse stock split.

Over
the course of 2001, our Board of Directors and management were engaged in a concerted effort to explore various strategic alternatives for our future, including our sale. We
contacted over 30 prospects, of which we met with 15. These efforts did not result in the identification of a party that was prepared to provide capital or acquire the Company. The Board of Directors
concluded that an orderly wind down of the Company was the course of action that most likely offered the highest return to stockholders and that to continue operations of the business at that time
would reduce assets and cash that might ultimately be returned to the stockholders.

On
July 30, 2001, we announced our decision to pursue an orderly wind down and cessation of our business operations and sale of our assets. On August 8, 2001, we reduced
our headcount by approximately 25 employees, and on August 10, 2001, the Board unanimously adopted the Plan. The Board of Directors authorized management to immediately cease efforts to license
our technology under our standard formats, and commence efforts to terminate our commercial agreements and relationships, exit our commercial obligations, settle our liabilities, collect accounts and
notes receivable, sell certain assets and generally wind down our business and operations.

The
decision of the Board of Directors was reached after no viable alternatives to acquire the Company or to enter into suitable strategic partnerships were received. In arriving at this
conclusion, our Board of Directors considered a number of factors, including alternatives to the proposal and the future prospects of the Company. Our Board of Directors concluded that the Plan was in
the best interests of the Company and our stockholders.

Prior
to the meeting of our Board of Directors on August 10, 2001, our Board had received comparisons of our net asset value to the prices at which our common stock was trading at
different points in time and analyzed the results of management's investigation of various acquisition, investment and strategic partnering opportunities. Our Board of Directors was informed
continuously of our business affairs and financial condition, and had convened numerous meetings and engaged in detailed discussions to consider these issues. Further, our Board was continuously
informed of management's efforts to consummate strategic business combinations or other alternatives to maximize stockholder value. Our Board determined that it would not be advisable to continue to
operate the Company on an independent basis indefinitely given the uncertainty regarding our future revenue growth and the economic downturn in the communications industry and the associated reduction
in capital expenditures by certain of our potential customers.

Based
on this information, our Board of Directors believed that a distribution to the stockholders of our net assets would return the greatest likely value, when adjusted for risk, to
our stockholders as compared to other alternatives and that dissolution would prevent further erosion of stockholders' equity through continuing net losses and market declines. There could be no
assurance that the liquidation value per share of Common Stock in the hands of the stockholders would equal or exceed the price or prices at which the Common Stock were recently traded or might have
traded in the future. However, our Board of Directors believed that it was in the best interests of the Company and our stockholders to distribute to the stockholders our net available assets pursuant
to the Plan.

On
August 13, 2001, we announced that we were canceling our plans concerning a 1-for-10 reverse stock split in light of our decision to pursue an orderly
wind down and cessation of our business operations. In addition, we withdrew our appeal of the Nasdaq staff's determination that we has failed to comply with the minimum bid price required for
continued listing on the Nasdaq National Market. On August 14, 2001, following this announcement, trading of the common stock on the Nasdaq National Market stopped and on August 15,
2001, the common stock commenced trading on the NASD's Over-the-Counter ("OTC") Bulletin Board.

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On
October 22, 2001, the stockholders of the Company approved the Plan. As a result of the stockholder approval of the Plan, the liquidation basis of accounting and financial
statement presentation has been adopted subsequent to October 22, 2001. Following adoption of the Plan, we ceased our business operations and focused our efforts on winding up our business and
affairs in accordance with the Plan.

On
November 26, 2001, we filed a Certificate of Dissolution with the Secretary of State of Delaware dissolving the Company. Pursuant to the Delaware General Corporation Law, we
will continue to exist for three years after the dissolution becomes effective or for such longer period as the Delaware Court of Chancery shall direct, for the purpose of prosecuting and defending
suits against the Company and enabling us to gradually to close our business, to dispose of our property, to discharge our liabilities and to distribute to our stockholders any remaining assets. At
the close of business on November 26, 2001, we closed our stock transfer books and discontinued recording transfers of common stock. Thereafter, certificates representing the common stock were
no longer assignable or transferable on the books of the Company. Accordingly, the proportionate interests of all of the stockholders of the Company were fixed on the basis of their respective stock
holdings at the close of business on November 26, 2001, and any distributions made by the Company after this date will be made solely to the stockholders of record at the close of business on
November 26, 2001.

As
of December 19, 2001 we had completed the sale of substantially all of our assets. In December 2001, we sold certain software, technology, patent rights, trademarks,
domain names and equipment, consisting of substantially all of our remaining technology and intellectual property assets, to PalTalk Holdings, Inc. ("PalTalk"). We have negotiated the
termination of most of our obligations to creditors. We are working to negotiate settlements of our remaining obligations to creditors, including with respect to the lease of our former facility in
New York, but may not be successful in these efforts.

We
have vacated all facilities and relocated our headquarters to a 1,000 square foot office space contracted under a service agreement, which converts to a
month-to-month basis in April 2002. We can be contacted at 6200 Stoneridge Mall Rd, 3rd Floor, Pleasanton, CA 94588 or by telephone at
925-399-6182.

Employees

As a result of our decision to pursue an orderly wind down and cessation of our business operations and sale of our assets, we have terminated our employment
relationships with most of our employees. As of March 14, 2002,we had three employees. We have retained Burr, Pilger & Mayer LLP ("BPM"),
to assist in the management of the continued wind-down of HearMe. It is currently contemplated that during the second quarter of 2002 all of our existing employees, officers and directors
will resign and that a representative from BPM will be appointed to serve as our sole officer and director to oversee the liquidation and dissolution process.

Products

Prior to deciding to wind down our business operations, we offered a line of technology products that enabled service providers and equipment vendors to develop,
integrate and deploy enhanced VoIP
applications. We developed products for three distinct market segmentsVoIP Calling, Conferencing, and Customer Relationship Management.

The
VoiceSERVER was at the core of our technology. The VoiceSERVER was a software based VoIP application platform that enabled value-added applications and IP services to interact with
next generation and legacy telephony devices.

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In
addition to licensing the VoiceSERVER, we offered specific ready-to-run applications that were built on the core application platformConference
Creator, HearMe SoftPHONE, and ClickAgent eCRM.



Our VoiceSERVER platform was composed of two distinct components: the TalkSERVER middleware and the Multipoint Control Unit ("MCU"). The TalkSERVER was the place
where the application logic and platform were situated. The MCU handled call signaling and media manipulation. The HearMe MCU used a patented architecture that combined true centralized mixing with
the ability to multiplex streams in a distributed mixing environment.

Marketing and Sales

Prior to deciding to wind down our business operations, we had focused our marketing efforts on defining and creating products that drove deployment of VoIP
enhanced services. We marketed our products through both direct and indirect distribution channels in domestic and international markets to reach as many customer segments as possible and broaden the
customer penetration of our VoIP technologies.

Customers

Prior to winding down our business operations, we licensed our technology to technology providers (hardware, software, systems suppliers), service providers
(ITSPs, telecom carriers, wireless carriers, ASPs and ISPs), systems integrators and enterprises. In 2001, Entel accounted for 22% of total revenues. In 2000, Evoke accounted for 22% of total
revenues. In 1999, CSK Sega and Electronic Arts accounted for 30% and 13% of total revenues, respectively.

Competition

Prior to making our decision to wind down our business operations, our VoIP technologies faced competition from other VoIP software vendors and from customers who
wanted to develop VoIP solutions in-house. Our VoIP technologies for VoIP Calling had two primary groups of competitors. In the eCalling market, we competed with
Voice-over-IP companies providing real-time one-to-one communications such as Net2Phone, DeltaThree, DialPad.com, and MediaRing. We also
competed with software and hardware vendors providing real-time many-to-many, or live group communications solutions such as Lipstream Networks, Latitude
Communications, Voyant Technologies, CUseeMe Networks, and eYak. In the eCRM market, our VoIP technologies competed with companies that offer a software-based solution, such as WebDialogue, Lipstream
and eStara, Inc., as well as hardware providers such as Aspect Communications, Cisco, Lucent Technologies and Nortel Networks.

Proprietary Rights

Prior to making our decision to wind down our business operations, our success depended in part on our ability to protect our proprietary software and other
intellectual property. To protect our proprietary rights, we relied generally on patent, copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties and
license agreements with consultants, vendors and customers, although we had not signed such agreements in every case. Despite efforts to protect our proprietary rights, unauthorized third parties
could copy or otherwise obtain and use our products or technology, or develop similar technology. Other parties may breach confidentiality agreements and other protective contracts we have entered
into. As a result we may not become aware of, or have adequate remedies in the event of, such a breach. Since the decision to pursue an orderly

6

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wind down and cessation of our business operations and sale of our assets was made, we have sold substantially all of our patents and other intellectual property.

Prior
to making our decision to wind down our business operations, we also relied on certain technology and content that we licensed from third parties, including software that was
integrated with our internally developed software and used in our products and Web site, to perform key functions. Although we are generally indemnified against claims that such third-party technology
or content infringes the proprietary rights of others, such indemnification is not always available for all types of intellectual property rights and in some cases the scope of such indemnification is
limited. Even if we receive broad indemnification, third-party indemnitors are not always well capitalized and may not be able to indemnify the Company in the event of infringement, resulting in
substantial exposure to the Company.

Infringement
or invalidity claims arising from the incorporation of third-party technology or content and claims for indemnification from our customers resulting from such claims, may be
asserted or
prosecuted against the Company. As a result of such claims, even if they are not meritorious, we could incur expenditures of significant financial and managerial resources in addition to potential
product redevelopment costs and delays, all of which could materially and adversely affect our business and financial condition.

Certain Risks

If our contingency reserve is inadequate to cover expenses and liabilities through the wind-down process, stockholders may be
liable to creditors of the Company for amounts previously received.

A
Certificate of Dissolution was filed on November 26, 2001 with the State of Delaware dissolving the Company. Pursuant to the Delaware General Corporation Law, we will continue
to exist for three years after the dissolution becomes effective or for such longer period as the Delaware Court of Chancery shall direct, for the purpose of prosecuting and defending suits against
the Company and enabling the Company gradually to close our business, to dispose of our property, to discharge our liabilities and to distribute to our stockholders any remaining assets. We have
established a contingency reserve for payment of our expenses and liabilities during this three-year period. Under the Delaware General Corporate Law, in the event the contingency reserve
created by us is inadequate for payment of our expenses and liabilities during this three-year period, each stockholder could be held liable for payment to our creditors of such
stockholder's pro rata share of amounts owed to creditors in excess of the contingency reserve. The liability of any stockholder would be limited to the amounts previously received by such stockholder
from the Company (and from any liquidating trust or trusts) as distributions. Accordingly, in such event a stockholder could be required to return all such distributions previously made to such
stockholder. In such event, a stockholder could receive nothing from the Company. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of
such amount could result in a stockholder incurring a net tax cost if the stockholder's repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. There
can be no assurance that the contingency reserve established by the Company will be adequate to cover all expenses and liabilities.

If
we were held by a court to have failed to make adequate provision for our expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities
exceeded the amount available from the contingency reserve and the assets of the liquidating trust or trusts, a creditor of the Company could seek an injunction against the making of distributions
under our wind down on the ground that the amounts to be distributed were needed to provide for the payment of our expenses and liabilities. Any such action could delay or substantially diminish the
cash distributions to be made to stockholders and/or interest holders.

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Our Final Record Date was November 26, 2001, on which date we determined the proportionate interest of each stockholder and after which we are unable to
record transfers of common stock on our books.

We
closed our stock transfer books and discontinued recording transfers of common stock at the close of business on November 26, 2001, and filed the Certificate of Dissolution.
Thereafter, certificates representing the common stock are not assignable or transferable on the books of the Company except by will, intestate succession or operation of law. The proportionate
interests of all of the stockholders of the Company is fixed on the basis of their respective stock holdings at the close of business on the final record date, and, after the final record date, any
distributions made by the Company shall be made solely to the stockholders of record at the close of business on the final record date, except as may be necessary to reflect subsequent transfers
recorded on the books of the Company as a result of any assignments 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 the allocation of stockholder proceeds arising from ownership of the
shares.

Our common stock has been delisted from the Nasdaq Stock Market.

On
August 14, 2001, the common stock was delisted from the Nasdaq National Market, due to its low trading price per share. With this delisting, the ability of stockholders to buy
and sell shares may be materially impaired. On August 15, 2001, the common stock commenced trading on the OTC Bulletin Board. We closed our stock transfer books and discontinued recording
transfers of common stock at the close of business on November 26, 2001, and filed the Certificate of Dissolution. Thereafter, certificates representing the common stock are not assignable or
transferable on the books of the 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 the allocation of stockholder proceeds arising from ownership of the shares.

After our wind down and initial distribution to stockholders there may be no cash to distribute to our stockholders and if there is cash to distribute, the timing
of any such distribution is uncertain.

Our
Board of Directors has not established a firm timetable for future distributions to stockholders, if any. An initial cash distribution of $0.18 per share totaling approximately
$5,113,000 was made to stockholders of record as of the final record date on or about March 12, 2002. The liquidation is expected to be concluded by the end of 2004 by a final liquidating
distribution of remaining cash, if any, either directly to the stockholders or to a liquidating trust. The proportionate interests of all of the stockholders of the Company have been fixed on the
basis of their respective stock holdings at the close of business on the final record date, November 26, 2001, and after such date, any distributions made by the Company shall be made solely to
stockholders of record on the close of business on the final record date, except to reflect permitted transfers. Our Board of Directors is, however, currently unable to predict the precise nature,
amount or timing of any future distributions in connection with our wind down. The actual nature, amount and timing of all distributions will be determined by our Board of Directors, in its sole
discretion, and will depend in part upon our ability to negotiate settlements of our obligations with creditors.

Uncertainties
as to the ultimate amount of our liabilities make it impracticable to predict the aggregate net value ultimately distributable to stockholders. Claims, liabilities and
expenses from operations (including operating costs, salaries, management fees, taxes, legal and accounting fees and miscellaneous office expenses) will continue to be incurred. These expenses will
reduce the amount of assets available for ultimate distribution to stockholders. However, no assurances can be given that available cash will be adequate to provide for the Company's obligations,
liabilities, expenses and claims and to make cash distributions to stockholders. If such available cash is not adequate to provide for our

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obligations, liabilities, expenses and claims, we may not be able to distribute any further cash, to our stockholders.

Our inability to reach profitability and our resulting dissolution could give rise to securities class action claims against us, which could deplete the proceeds
that are to be distributed to stockholders.

Securities
class action claims have been brought against companies in the past where the market price of the Company's securities has fallen due to an inability of the Company to achieve
operational profitability. Any such litigation could be very costly and divert our remaining resources from being available for distribution to our stockholders. Any adverse determination in this kind
of litigation could also deplete our cash position, and reduce proceeds that would otherwise be distributed to our stockholders.

The proceeds from any sale of our assets may be less than anticipated.

Stockholder
approval of our wind down plan constitutes approval of any sale of assets of the Company. Sales of our assets have been made on such terms as approved by our Board of
Directors. The prices at which we were able to sell our various assets at depended largely on factors beyond our control, including, without limitation, the condition of financial markets, the
availability of financing to prospective purchasers of the assets, United States and foreign regulatory approvals, public market perceptions, and limitations on transferability of certain assets.

We may not be able to settle all of our obligations to creditors.

We
have certain current and future obligations to creditors. These include, without limitation, long term contractual obligations associated with facilities leases and business
agreements with customers and other third parties. As part of the wind down process, we have negotiated the termination of many of our obligations to creditors, including most of our
long-term facilities leases. We are working to negotiate settlements of all of our remaining obligations to creditors. We cannot guarantee that we will be able to settle such obligations
with each creditor. If we are unable to reach an agreement with a creditor concerning a long-term obligation, that creditor may choose to bring a lawsuit against us. Such
litigation could delay or even prevent us from completing our intended wind down plan. Moreover, amounts required to settle such long-term obligations will reduce the amount of remaining
capital available for any distribution to stockholders.

We will continue to incur the expenses of complying with public company reporting requirements.

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

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ITEM 2. PROPERTIES

Until January 2002, the Company leased our corporate offices, consisting of approximately 28,800 square feet of office building space located in Mountain
View, California. On January 18, 2002, we terminated the lease of this facility and paid a one-time lease termination fee of $600,000 and forfeited our rights to a deposit refund of
$104,000. We now contract our corporate offices under a service agreement, which converts to a month-to-month basis in April 2002, consisting of approximately 1,000
square feet of office building space located in Pleasanton, California.

ITEM 3. LEGAL PROCEEDINGS:

On May 30, 2001, eFront Media, Inc. filed a complaint against the Company and GameSpy in California Superior Court in Orange County alleging breach
of written contract and seeking damages of approximately $820,000. The contract in question had been assigned to GameSpy as part of the sale of our Live Communities business unit, which closed on
January 19, 2001. The complaint alleged damages for failure to make payments under the contract after the agreement was assigned to GameSpy. GameSpy agreed to defend and indemnify us against
this claim in accordance with the terms of the Asset Purchase Agreement relating to the sale of the Live Communities business unit. On November 28, 2001, the Company and GameSpy entered into a
settlement agreement with eFront Media Inc. that did not provide for any payments to be made by us. In December 2001, this litigation was dismissed in accordance with the settlement
agreement.

On
November 19, 2001, we were served with a complaint filed by Michael Ring and Frank Ring against the Company and GameSpy in the New York Supreme Court (the trial court), County
of New York, alleging breach of a written lease relating to a facility in New York, New York which had been assigned to GameSpy and seeking damages of approximately $197,000. In December 2001,
the Company removed this matter to Federal District Court in New York. We have conducted an investigation into this matter and believe that we have meritorious defenses to this claim. Consequently, on
December 14, 2001, we denied the allegations in our Answer and Counterclaim. Although we intend to vigorously defend this claim, we are not able at this time to estimate the possibility of loss
or range of loss, if any, which might result from the eventual outcome of this litigation.

In
addition, we continue to be subject to possible claims by third parties and related legal proceedings, including claims of alleged infringement of third-party intellectual property
rights against our licensees
or us, or claims related to the Company's dissolution or related actions or matters. 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 and funds available for distribution in a dissolution.

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

At our Annual Meeting of Stockholders held on October 22, 2001, the following proposals were adopted by the margins indicated below. There were 28,820,813
shares of common stock entitled to vote at the meeting and a total of 23,443,335 shares were present in person or by proxy.



In Favor

Number of Shares Withheld

Abstained15,161,620

513,174

264,877


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Number of SharesIn Favor

WithheldPaul Matteucci

22,000,927

1,442,408Brian Apgar

22,243,858

1,199,477James Schmidt

22,917,611

525,724Robert Csongor

21,959,624

1,483,711William McCall

22,955,483

487,852Jeremy Verba

21,961,868

1,481,467




In Favor

Number of Shares Withheld

Abstained23,131,418

175,352

136,565


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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS:

Prior to April 1999 there was no public market for our common stock. From the commencement of our initial public offering on April 29, 1999 through
August 14, 2001, our common stock was traded on the Nasdaq National Market System under the symbol "HEAR." On August 14, 2001, the common stock was delisted from the Nasdaq National
Market, due to its low trading price per share. With this delisting, the ability of stockholders to buy and sell shares has been materially impaired. On August 15, 2001, the common stock
commenced trading on the OTC Bulletin Board under the symbol "HEAR.OB." We closed our stock transfer books and discontinued recording transfers of common stock at the close of business on
November 26, 2001. Thereafter, certificates representing the common stock are not assignable or transferable on the books of the Company except by will, intestate succession or operation of
law. Our stock has subsequently continued to trade under the symbol "HEARZ.OB" through the over-the-counter quotation services under "due-bill" contractual
obligations between the seller and purchaser of the stock, who negotiate and rely on themselves with respect to the allocation of stockholder proceeds arising from ownership of the shares.

The
following table sets forth the range of high and low closing sales prices for each period indicated.

2000

2000High

LowFirst Quarter

$
29.500

$
17.000Second Quarter

$
20.000

$
4.125Third Quarter

$
8.688

$
3.500Fourth Quarter

$
4.063

$
0.625


2001

2001High

LowFirst Quarter

$
1.938

$
0.469Second Quarter

$
0.830

$
0.300Third Quarter

$
0.410

$
0.050Fourth Quarter

$
0.100

$
0.070


We
had approximately 373 stockholders of record as of November 26, 2001. We made our first liquidating distribution to stockholders of record as of the final record date on or
about March 12, 2002 of $0.18 per share totaling approximately $5,113,000. Other than this initial distribution, we have not declared or paid any cash dividends on our common stock or preferred
stock and anticipate that any further liquidating distributions made by us shall be made solely to stockholders of record on the close
of business on the final record date, except to reflect permitted transfers. The actual nature, amount and timing of all distributions will be determined by our Board of Directors, in its sole
discretion, and will depend in part upon our ability to convert our remaining assets into cash and negotiate settlements of our obligations with creditors.

On
May 4, 1999, we 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

12

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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, we paid an aggregate of $5,651,000 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

$
1,189,000


After
deducting the underwriting discounts and commissions and the offering expenses described above, we received net proceeds from the offering of approximately $73.9 million. As
of December 31, 2001, $9.9 million of the net proceeds were invested in cash and cash equivalents and short term investments and approximately $64 million has been used for
working capital and general corporate purposes, including the funding of product development and expansion of our sales and marketing organization. None of our net proceeds of the offering were paid
directly or indirectly to any director, officer, general partner of HearMe or our associates, persons owning 10% or more of any class of equity securities of the Company, or an affiliate of the
Company.

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ITEM 6.    SELECTED FINANCIAL DATA:

(in thousands, except per share amounts)

October 23,
2001
through
December 31,
2001STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION DATA:Net assets in liquidation, beginning of period

$
4,853Changes in net assets in liquidation


260Net assets in liquidation, end of period

$
5,113


|                                                                   |  | January 1
through
October 22, |         | Year Ended December 31, |  
|------------------------------------------------------------------ |  | ----------------------------- | ------- | ----------------------- | -
|
|STATEMENTS OF OPERATIONS DATA:                                     |  |                               |         |                         |  
|Net revenues                                                       |  | $                             | 4,225   |                         | $
|Gross profit                                                       |  |                               | 2,426   |                         |  
|Total operating expenses                                           |  |                               | 27,590  |                         |  
|Net loss from continuing operations                                |  |                               | (25,296 | )                       |  
|Net loss from discontinued operations                              |  |                               |        |                         |  
|Net loss per share from continuing operationsbasic and diluted    |  | $                             | (0.89   | )                       | $
|Net loss per share from discontinuing operationsbasic and diluted |  |                               |        |                         | $
|Shares used in per share calculationbasic and diluted             |  |                               | 28,516  |                         |  

|                               |  | As of December 31,
|------------------------------ |  | ------------------
|
|BALANCE SHEET DATA:            |  |                   
|Cash and cash equivalents      |  | $                 
|Short term investments         |  |                   
|Working capital (deficit)      |  |                   
|Total assets                   |  |                   
|Long term notes payable        |  |                   
|Net assets in liquidation      |  |                   
|Stockholders' equity (deficit) |  |                   

The
above data have been derived from the audited consolidated financial statements of the Company and have been adjusted to reflect the continuing operations of the Company and to
report the results
of the Live Communities business unit disposal, which was completed on January 19, 2001 as a discontinued operation in 2000 and 1999. As a result of the stockholder approval of the Plan, the
liquidation basis of accounting and financial statement presentation has been adopted subsequent to October 22, 2001.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION:

This Management's Discussion and Analysis of Results of Operations and Financial Condition and other parts of this Form 10-K 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," under Part I, and those appearing
elsewhere in this Form 10-K. 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

We ceased our ongoing business operations on October 22, 2001 when our stockholders approved the Plan. We were a provider of VoIP application technologies
that delivered increased productivity and flexibility in communications via next generation communications networks. The Company was 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 1999, we commenced licensing of our real-time interactive voice-enabled technology.

Until
January 2001, we generated our revenues from two business units, Technology Products (formerly known as Mpath Foundation) and Live Communities. On January 19, 2001,
we completed the divestiture of the Live Communities business unit, including the Mplayer.com service and the affiliated advertising network, to GameSpy. As a result of the divestiture, the condensed
consolidated financial statements have been restated to present the results of the Live Communities business as discontinued operations since inception.

In
April 2001, we announced that the Company was focusing our business operations to further increase operating efficiencies and address only the most strategic market
opportunities.

On
July 10, 2001, we received a Nasdaq Staff Determination letter indicating that we had failed to comply with the minimum bid price requirement for continued listing on the
Nasdaq National Market. In response, we initially requested a hearing before the Nasdaq Listing Qualifications Panel to appeal the Staff Determination based on our plan to achieve compliance with the
minimum bid listing requirement through a 1-for-10 reverse stock split.

On
July 30, 2001, we announced our decision to pursue an orderly wind down and cessation of our business operations and sale of our assets. Our Board of Directors and Management
had been engaged in a concerted effort for the preceding several months to explore various strategic alternatives for the future of the Company, including the sale of the Company. We contacted over 30
prospects, of which we met with 15. These efforts did not result in the identification of a party that was prepared to provide capital or acquire the Company. Our Board of Directors concluded that an
orderly wind down of the Company was the course of action that would most likely offer the highest return to stockholders and that to continue operations of the business would reduce assets and cash
that may ultimately be returned to the stockholders. However, no assurance can be given that an orderly winding-down of our operations will actually increase stockholder value or result in
any remaining capital for distribution to stockholders. Moreover, the timing of any possible distribution is uncertain. We have recognized little revenue following this announcement, other than
revenue recognized from the licensing of source code

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and the sale of certain assets. We may not be able to negotiate a settlement of all of our remaining obligations to creditors.

On
August 10, 2001, our Board of Directors unanimously adopted the Plan.

On
August 13, 2001, the Company announced that we were canceling our plans concerning a 1-for-10 reverse stock split in light of our decision to pursue an
orderly wind down and cessation of our business operations. In addition, we withdrew our appeal of the Nasdaq staff's determination that we had failed to comply with the minimum bid price required for
continued listing on the Nasdaq National Market. On August 14, 2001, following this announcement, trading of the common stock on the Nasdaq National Market stopped, and on August 15,
2001, the common stock commenced trading on the OTC Bulletin Board.

On
October 22, 2001, our stockholders approved the Plan. As a result, the liquidation basis of accounting and financial statement presentation has been adopted subsequent to
October 22, 2001.

Prior
to adopting the liquidation basis of accounting, we have derived revenues from licensing fees for technology, including VoiceSERVER and SoftPHONE products. These products were
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. In addition to licensing fees, we
derived incremental revenues from professional services, maintenance and upgrade fees. We recognized product revenue upon shipment if a signed contract existed, the fee was fixed and determinable,
collection of resulting receivables was probable and product returns were reasonably estimable. For contracts with multiple obligations (e.g., maintenance, unspecified upgrades), we allocated revenue
to each component of the contract based on objective evidence of its fair value, which was specific to the Company, or for products not being sold separately, the price established by management. We
recognized revenue allocated to maintenance fees for ongoing customer support and unspecified upgrades ratably over the period of the maintenance contract or upgrade period. Under the residual method,
the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

Prior
to adopting the liquidation basis of accounting, cost of net revenues consisted primarily of network operating expenses in connection with our customer support network.

Prior
to adopting the liquidation basis of accounting, our operating expenses consisted of research and development expenses, sales and marketing expenses and general and administrative
expenses. Research and development expenses consisted principally of salaries and compensation paid to employees and consultants engaged in research and development activities and product testing.
Sales and marketing expenses consisted principally of salaries paid to employees in sales and marketing activities, promotional materials and programs, public relations costs and travel. General and
administrative expenses consisted 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 were expensed as incurred.

Our
Board of Directors has not established a firm timetable for future distributions to stockholders, if any. An initial cash distribution of $0.18 per share totaling approximately
$5,113,000 was made to stockholders of record as of the record final record date on or about March 12, 2002. The liquidation is expected to be concluded by the end of 2004 by a final
liquidating distribution of remaining cash, if any, either directly to the stockholders or to a liquidating trust. The proportionate interests of all of the stockholders of the Company have been fixed
on the basis of their respective stock holdings at the close of business on the final record date, November 26, 2001, and after such date, any distributions made by the Company shall be made
solely to stockholders of record on the close of business on the final record date, except to reflect permitted transfers. Our Board of Directors

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is, however, currently unable to predict the precise nature, amount or timing of any future distribution in connection with our wind down. Our Board of Directors will determine the actual nature,
amount and timing of all distributions, in its sole discretion.

We
anticipate making any additional distributions over the three-year period following the filing of the Certificate of Dissolution in Delaware, either to our stockholders or
to a liquidating trust. All
distributions will be made to stockholders of record based on their respective holdings as of the Final Record Date, which was November 26, 2001.

Changes in Net Assets in Liquidation

October 23, 2001 to December 31, 2001

Decrease in Fair Value of Patents and Other Intellectual Property.From October 23, 2001 to December 31, 2001,
we entered into new or upgraded licenses and sold patents and other intangible assets to 6 customers. The decrease was due to $198,000 not being realized from the sale of licenses, patents and other
intangibles, as certain agreements were not entered into, offset by a realized gain of $100,000 for a new license that was entered into during the same period and also offset by a recovery of bad debt
in the amount of $21,000.

Increase in Fair Value of Property and Equipment.From October 23, 2001 to December 31, 2001, we sold property
and equipment, realizing a gain of $20,000 from the sale of such assets in excess of their estimated fair value on October 22, 2001.

Decrease in Estimated Future Liabilities During Liquidation.From October 23, 2001 to December 31, 2001, we
have wound down our business operations and negotiated settlements with some of our creditors, including facilities leases. A gain of $235,000 was realized from the reduction of our obligations to
creditors and other future liabilities during liquidation as compared to the estimated fair value of such liabilities on October 22, 2001.

Interest and other income.From October 23, 2001 through December 31, 2001 we earned $82,000 on the
short-term investment of cash.

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Results of Operations

Period from January 1 through October 22, 2001 Compared to the Year Ended December 31, 2000

Net revenues.Net revenues decreased from $13.9 million for the year ended December 31, 2000 to
$4.2 million for the period ended October 22, 2001. The majority of our revenues were derived from licensing our VoiceSERVER platform, licensing of source code and maintenance fees
recognized on these and prior licensing deals. Attributable in part to our announced plans to wind down operations, we entered into licenses with only 17 new customers during the period ended
October 22, 2001. We ceased generating revenue from maintenance fees, when we eliminated support to our customers on August 31, 2001. With our approved Plan, revenues are no longer
recorded after October 22, 2001. We have sold our patents and other intangibles related to the VoIP and Mplayer technologies. The value expected to be realized from future sale of patents and
other intangibles related to our remaining technologies is represented by the fair value presentation of such assets in the Consolidated Statement of Net Assets included elsewhere herein.

Cost of net revenues.Our cost of net revenues was $1.8 million for the period ended October 22, 2001 as
compared to $1.7 million for the year ended December 31, 2000. Cost of net revenues consisted primarily of network operating expenses in conjunction with providing hosting to certain
customers. The flattening in cost of revenues relative to the increase in overall customer base was attributable to our move towards licensing our software to customers and third-party service
providers who hosted their own support services. With our decision to wind down normal business operations, we ceased providing any network operations support for customers on August 31, 2001.
We are no longer engaged in activities that generate cost of net revenues. With our approved Plan, costs of net revenues are no longer recorded after October 22, 2001.

Research and development.Research and development expenses were $6.3 million for the period ended October 22,
2001 compared to $11.0 million for the year ended December 31, 2000. Research and development expenses consisted primarily of employee compensation costs relating to developing and
enhancing the features and functionality of our VoIP technology. The decrease in research and
development expenses was primarily due to a decrease in salary expense in 2001, as we reduced the size of the engineering team in the restructuring effort announced in April 2001 and during the
wind down of business operations commencing in August 2001. We are no longer engaged in any research and development activities. With our approved Plan, research and development expenses are no
longer recorded after October 22, 2001.

Sales and marketing.Sales and marketing expenses were $5.8 million for the period ended October 22, 2001
compared to $18.2 million for the year ended December 31, 2000. Sales and marketing expenses consisted primarily of advertising and other marketing-related expenses, compensation and
employee-related expenses, sales commission and travel costs. Sales and marketing expenses decreased in the period ended October 22, 2001 as compared to the year ended December 31, 2000
primarily due to the cost of nonrecurring outbound advertising and marketing campaigns during the early part of Fiscal 2000 and to a decrease in headcount as part of the restructuring effort announced
in April 2001 and during the wind down of business operations commencing in August 2001. We are no longer engaged in any sales and marketing activities. With our approved Plan, sales and
marketing expenses are no longer recorded after October 22, 2001.

General and administrative.General and administrative expenses were $7.2 million for the period ended
October 22, 2001 compared to $11.9 million for the year ended December 31, 2000. General and administrative costs decreased primarily as a result of a lower headcount and lower
fees for professional services as a result of the restructuring to a smaller organization as announced in April 2001 and from the wind down of business operations commencing in
August 2001. With our approved Plan, general and administrative expenses are no longer recorded after October 22, 2001.

18

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Estimated future costs during the period of liquidation are expected to decrease compared to general and administrative expenses incurred in the period ended October 22, 2001 due to
substantially lower headcount and the move of our corporate headquarters to smaller office space in January 2002.

In-process research and development.As part of the AudioTalk acquisition in 2000, we recorded
in-process research and development projects for the development of certain hardware-based voice products as well as other specialized technologies totaling $0.6 million in 2000.
The value was determined by estimating the expected cash flows from the projects once commercially viable, applying a percentage of completion to the calculated value and then discounting the net cash
flows back to their present value. No such amounts were recorded in 2001 relating to in-process research and development.

Amortization of Intangibles.In connection with the AudioTalk and Resounding acquisitions, we recorded amortization of
intangible assets consisting primarily of goodwill in the amount of $40.6 million in the year ended December 31, 2000. There was no amortization of goodwill or intangibles during the
period ended October 22, 2001. During the fourth quarter ended December 31, 2000, we performed an impairment assessment of the identifiable intangibles and enterprise level goodwill
recorded in connection with the acquisitions of AudioTalk and Resounding, which we had 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 indicate that this trend may continue for an indefinite period. As a result of our review in December 2000, 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.

Write-down of GameSpy Assets.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. Consideration for the sale consisted of $0.5 million in cash, a
short-term note receivable for $4.5 million and 2,404,890 shares of GameSpy common stock, valued at $1.4 million. On October 8, 2001, we entered into a definitive
agreement with GameSpy, pursuant to which we have received a cash payment of $2.4 million from GameSpy in satisfaction of all amounts due to the Company from GameSpy pursuant to the note
receivable and the agreement between the parties. In connection with this agreement, we have transferred all of the shares of common stock of GameSpy held by the Company to GameSpy or its affiliates.
In September 2001, we wrote down the GameSpy investment by $1.4 million to zero and the note by $1.9 million to reflect its realizable value of $2.4 million.

Restructuring Costs.On April 23, 2001, we announced that we were focusing the business operations to further
increase-operating efficiencies and address only the most strategic market opportunities. To ensure financial flexibility, we announced our plans to streamline operations with decreased spending in
marketing and administrative expenses and a reduction in headcount of about 50 employees. During the period ended October 22, 2001, we recorded a charge of $0.7 million for expenses
related to termination of leases and legal costs associated with the April restructuring. The severance costs were paid in April 2001 and the remaining costs were paid by October 22,
2001.

Concurrent
with the restructuring, we entered into retention agreements with our remaining employees, pursuant to which the employees would receive bonuses aggregating
$2.3 million. In addition, notes receivable from certain employees in connection with previous stock exercises, together with associated interest and tax liabilities, aggregating
$2.4 million, would be forgiven. The employees were required to stay through either October 31 or November 30, 2001 in order to earn the bonuses

19

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and have their notes forgiven, though these payments were generally accelerated due to involuntary termination of the employees. As of December 31, 2001, we have paid the retention bonuses and
we have forgiven the notes receivable as provided under the retention agreements.

Write-down of Stockholder Notes.During the quarter ended September 30, 2001, we performed an assessment
of the carrying value of stockholder notes. Based upon this review, a write down of $1.2 million was recorded. Any recovery or gain related to these notes will be recognized when it is
realized. We currently intend to continue collection efforts as these notes come due and to continue to evaluate potential alternatives relating to the collection or settlement of these notes.

Impairment of Property and Equipment.During the quarter ended September 30, 2001, we performed an assessment of the
carrying value of our property and equipment. Based upon this review a write down of $2.9 million was recorded to adjust the carrying value to the fair value of approximately $286,000. Any
recovery or gain related to these fixed assets will be recognized when it is realized.

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 interest expense primarily related to capital lease and debt obligations and a write-off of certain of our long-term
investments. During the period ended October 22, 2001, we performed an assessment of the carrying value of some of our long-term investments. Based upon this review, a write down
for "other than temporary impairment" of $0.8 million relating to our investments in Centrecom, Inc. and iGroove.com, Inc. was recorded within interest and other income (expense),
net. Any recovery or gain related to these investments will be recognized when it is realized. The change in interest and other income (expense), net from period to period is primarily due to a
decrease in the cash balance available to earn interest.

Loss from discontinued operations.On January 19, 2001 we completed the divestiture of our Live Communities business
unit, including the Mplayer.com voice-enable Internet games community and affiliated advertising network to GameSpy. Prior period financial statements have been restated to reflect the discontinuation
of the Live Communities business unit as discontinued operations.

Year Ended December 31, 2000 compared to the Year Ended December 31, 1999

Net revenues.Our total net revenues increased by 96% from $7.1 million for the year ended December 31, 1999 to
$13.9 million for the year ended December 31, 2000. This increase was primarily driven by growth in licensing fees earned from our VoIP based products. During the year we earned revenues
from a total of 101 customers, of which 76 licensed our voice products. This compared to our 18 technology licensing customers during 1999.

Cost of net revenues.Cost of net revenues for Technology Products consists primarily of network operating expenses in
conjunction with providing services to certain Technology Products customers. Our cost of net revenues were $1.7 million for the year ended December 31, 2000, or 12% of net revenues, as
compared to $1.1 million or 16% of net revenues for the year ended December 31, 1999. Cost of net revenues decreased as a percentage of net revenues primarily due to the decrease in
hosted services provided to our customers. The absolute increase in cost of net revenues was due to server costs associated with hosting services provided to our Voice Network customers during 2000.

Research and development.Research and development expenses were $11.0 million, or 79% of net revenues for the year
ended December 31, 2000 compared to $6.5 million or 92% of net revenues for
the year ended December 31, 1999. Research and development expenses consisted primarily of employee compensation relating to developing and enhancing the features and functionality of our voice
technology products. The increase in research and development expenses was primarily due to an increase in salary expense in 2000 as additional engineers were hired to support the development of

20

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our VoIP-based products and additional consulting fees and software expenditures associated with these projects.

Sales and marketing.Sales and marketing expenses were $18.2 million for the year ended December 31, 2000 or
131% of net revenues compared to $3.5 million or 49% of net revenues for the year ended December 31, 1999. In 2000, sales and marketing expenses consisted primarily of advertising and
other marketing-related expenses, compensation and employee-related expenses, sales commission and travel costs. Sales and marketing expenses increased as a percentage of net revenues from 1999 to
2000 primarily due to the outbound advertising and marketing campaigns that were run during 2000 to promote our brands. The absolute increase in sales and marketing expenses was due to the branding
campaign and to an increase in headcount in the Technology Products marketing and sales force.

General and administrative.General and administrative expenses were $11.9 million, or 86% of net revenues for the
year ended December 31, 2000, compared to $6.0 million or 84% of net revenues for the year ended December 31, 1999. General and administrative costs increased primarily due to
higher salary expenses resulting from additional headcount in the finance, administrative and operations area required to support the expanded activities of the Company and higher legal expenses
during 2000.

In-process research and development.As part of the AudioTalk acquisition, we recorded in-process
research and development projects for the development of certain hardware-based voice products as well as other specialized technologies totaling $0.6 million. The value was determined by
estimating the expected cash flows from the projects once commercially viable, applying a percentage of completion to the calculated value as defined below and then discounting the net cash flows back
to their present value. This compared to the write-off of in-process research and development of $0.9 million incurred in 1999 relating to the acquisition of Resounding.

Amortization of Intangibles.As part of the AudioTalk and Resounding acquisitions, we recorded amortization of intangible
assets consisting primarily of goodwill in the amount of $41.3 million in 2000.

Impairment of Goodwill.During the 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 was 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 might 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.

Interest and other income (expense), net.Interest and other income (expense), net includes interest income earned on the
short-term investment of cash and interest expense primarily related to capital lease and debt obligations.

Loss from discontinued operations.The loss from the Live Communities business unit decreased from $13.9 million for
the year ended December 31, 1999 to $9.3 million for the year ended December 31, 2000. Net revenues from Live Communities increased by 65% from $8.4 million for the year
ended December 31, 1999 to $13.9 million for the year ended December 31, 2000. This increase was primarily driven by growth in advertising revenues associated with the growth of
traffic across the expanded Mplayer Entertainment Network. Live Communities cost of net revenues increased from $4.5 million in the year ended December 31, 1999 to $6.9 million,
or 50% of revenues in the year

21

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ended December 31, 2000, due to higher bandwidth and depreciation costs associated with the expanded traffic on the Mplayer.com site and higher costs associated with the Mplayer Entertainment
Network. The cost of net revenues primarily consisted of the cost of operating the network infrastructure and royalties paid to third party content providers and advertising affiliates. Operating
expenses of the Live Communities business unit decreased from $17.9 million, or 213% of revenues in the year ended December 31, 1999 to $16.8 million or 120% of revenues in the
year ended December 31, 2000 as the unit cut its operating costs during the year through reductions in headcount and program costs.

Loss on disposal of discontinued operations.We incurred a loss on disposal of the Live Communities business unit totaling
$7.5 million. This loss mainly resulted from net expenses incurred from running this business unit through January 2001, together with certain transition costs.

Liquidity and Capital Resources

We invest excess cash in money market accounts with the intent to make such funds readily available for potential distributions to stockholders. At
December 31, 2001, net assets in liquidation were $5.1 million, and we had cash and cash equivalents totaling $9.9 million compared to cash and cash equivalents and investments in
marketable debt securities of $30.5 million at December 31, 2000. For the period from January 1, 2001 through October 22, 2001, cash used in operating activities was
$18.4 million compared to cash used in operating activities of $36.4 million and $17.7 million for the years ended December 31, 2000 and 1999, respectively.

For
the period from January 1, 2001 through October 22, 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 $7.2 million incurred by the divestiture of the Live Communities business unit and $3.4 million under
retention packages. For the years ended December 31, 2000 and 1999, net cash used in operating activities was primarily a result of funding ongoing expansion of our research and development and
sales and marketing efforts and the resulting larger infrastructure and support functions.

Net
cash provided by investing activities was $11.2 million for the period from January 1, 2001 through October 22, 2001 compared to $26.4 million provided by
investing activities for the year ended December 31, 2000 and $45.1 million used in investing activities for the year ended December 31, 1999. Amounts provided in 2001 were
primarily from the net sale of short-term investments and property and equipment offset by capital expenditures, which have generally been comprised of purchases of computer hardware and
software. Amounts provided in 2000 were primarily from the net sale of short-term investments offset by payments for the AudioTalk acquisition and purchases of property and capital
equipment.

Net
cash used in financing activities for the period from January 1, 2001 through October 22, 2001 was $4.7 million as compared to net cash provided by financing
activities for the year ended December 31, 2000 of $3.8 million and $90.0 million for the year ended December 31, 1999. The major use of cash in financing activities during
the period ended October 22, 2001 was for payments on the term loan of $2.9 million in connection with the sale of Live Communities to GameSpy and $1.9 million for the repurchase
of redeemable common stock subject to put rights. In May 2000, we entered into a term loan with a financial institution and initially drew down funds of $2.9 million under this
agreement. This amount was repaid during 2000 and 2001.

On
April 23, 2001, we announced that we were focusing business operations to further increase-operating efficiencies and address only the most strategic market opportunities. To
ensure financial flexibility, we announced our plans to streamline operations with decreased spending in marketing and administrative expenses and a reduction in headcount of about 50 employees.
During the period from January 1, 2001 through October 22, 2001, we recorded a charge of $0.7 million as a result of the

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announced restructuring plans comprising $0.1 million of legal costs, $0.2 million of assets to be retired, $0.3 million of severance costs and $0.1 million of costs to
terminate agreements early. The severance costs were paid in April 2001 and the remaining costs were paid by October 22, 2001.

Concurrent
with the restructuring, we entered into retention agreements with our remaining employees, pursuant to which the employees would receive bonuses aggregating
$2.3 million. In addition, notes receivable from certain employees in connection with previous stock exercises, together with associated interest and tax liabilities, aggregating
$2.4 million, would be forgiven. The employees were required to stay through either October 31 or November 30, 2001 in order to earn the bonuses and have their notes forgiven,
though these payments were generally accelerated due to involuntary termination of the employees. As of December 31, 2001, we have paid the retention bonuses and we have forgiven the notes
receivable as provided under the retention agreements. We announced our decision to pursue an
orderly wind down and cessation of our business operations and sale of our assets, which has accelerated the payment of retention bonuses under the retention agreements for the majority of the
employees and caused a portion of the remaining outstanding notes receivable to be forgiven. In September 2001, in connection with the liquidation process, we entered into additional retention
agreements with certain key executives and employees. Among other things, these agreements amended certain arrangements so that the bonus payments would be earned and paid in weekly installments
rather than a lump sum. In addition, pursuant to these retention agreements, in the event that more than an aggregate of $1.5 million is available for distribution to stockholders pursuant to
the Plan, then certain officers of the Company will be entitled to bonuses equal in the aggregate to 12% of the amount in excess of $1.5 million. As we have made an initial liquidating
distribution to stockholders on March 12, 2002, of $0.18 per share totaling approximately $5,113,000, bonuses totaling $0.5 million were paid to such officers on March 5, 2002.

We
have incurred significant losses since inception. In the period from January 1, 2001 through October 22, 2001, we incurred losses from operations of $25.3 million
and used $18.4 million of cash in our operating activities. With our decision to wind down normal business operations, we cannot estimate the level of these losses in future periods.

During
the period from October 23, 2001 through December 31, 2001, net assets in liquidation increased primarily due to the reduction of estimated future liabilities during
liquidation resulting from our negotiation of settlements with some of our creditors, including facilities leases. Claims, liabilities and expenses from operations (including operating costs,
salaries, management fees, taxes, legal and accounting fees and miscellaneous office expenses) will continue to be incurred. These expenses will reduce the amount of assets available for ultimate
distribution to stockholders. No assurances can be given that available cash will be adequate to provide for our obligations, liabilities, expenses and claims and to 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 further cash, to our stockholders.

The
Board of Directors has not established a firm timetable for future distributions to stockholders, if any. Initial cash distributions of $0.18 per share totaling $5,113,000 were made
to stockholders of record as of the final record date on or about March 12, 2002. The liquidation is expected to be concluded by the end of 2004 by a final liquidating distribution of remaining
cash, if any, either directly to the stockholders or to a liquidating trust. The proportionate interests of all of the stockholders of HearMe have been fixed on the basis of their respective stock
holdings at the close of business on the final record date, November 26, 2001, and after such date, any distributions made by HearMe shall be made solely to stockholders of record on the close
of business on the final record date, except to reflect permitted transfers. The Board of Directors is, however, currently unable to predict the precise nature, amount or timing of any future
distributions in connections with HearMe's wind down. The Board of Directors will determine the actual nature, amount and timing of all distributions, in its sole discretion.

23

---

Recent Accounting Pronouncements:

SFAS No. 143

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS
No. 143"), which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when
they are incurred and displayed as liabilities on the balance sheet. In addition, the asset's retirement costs are to be capitalized as part of the asset's carrying amount and subsequently allocated
to expense over the asset's useful life. We believe that the adoption of SFAS No. 143 will not have a significant impact on our financial statements.

SFAS No. 144

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"),
which is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Statement develops one accounting model for long-lived
assets that are to be disposed of by sale, as well as addressing the principal implementation issues. We believe that the adoption of SFAS No. 144 will not have a significant impact on our
financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

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

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to the Company's cash and cash equivalents. We have not used derivative financial
instruments in its investment portfolio. We invest our excess cash in money market accounts and, by policy, limit the amount of credit exposure to
any one issuer. The money market accounts invest in diversified portfolios of high quality, short-term debt securities and/or U.S. dollar denominated obligations. We protect and preserve
our invested funds by limiting default, market and reinvestment risk.

24

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

|Index to Consolidated Financial Statements                                                                                                                                                 |  | Page
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Accountants                                                                                                                                                          |  | 26  
|Consolidated Statement of Net Assets in Liquidation at December 31, 2001                                                                                                                   |  | 27  
|Consolidated Balance Sheet at December 31, 2000                                                                                                                                            |  | 28  
|Consolidated Statement of Changes in Net Assets in Liquidation for the period from October 23, 2001 through December 31, 2001                                                              |  | 29  
|Consolidated Statements of Operations for the period from January 1, 2001 through October 22, 2001 and for each of the two years in the period ended December 31, 2000                     |  | 30  
|Consolidated Statements of Stockholder's Equity (Deficit) for the period from January 1, 2001 through October 22, 2001 and for each of the two years in the period ended December 31, 2000 |  | 31  
|Consolidated Statements of Cash Flows for the period from January 1, 2001 through October 22, 2001 and for each of the two years in the period ended December 31, 2000                     |  | 32  
|Notes to Consolidated Financial Statements                                                                                                                                                 |  | 33  
|Financial Statement Schedules:                                                                                                                                                             |  |     
|II Valuation and Qualifying Accounts for the period from January 1, 2001 through October 22, 2001 and for the years ended December 31, 2000 and 1999                                       |  | 54  
|All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.                            |  |     
|Supplementary Financial Data:                                                                                                                                                              |  |     
|Quarterly Financial Data (unaudited) for the period from January 1, 2000 through October 22, 2001                                                                                          |  | 54  

25

---



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of HearMe

We have audited the accompanying consolidated balance sheet of HearMe and its subsidiaries as of December 31, 2000, the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the two years then ended and the consolidated statements of operations, stockholders' equity and cash flows for the period from
January 1, 2001 through October 22, 2001. In addition, we have audited the consolidated statement of net assets in liquidation as of December 31, 2001 and the related consolidated
statement of changes in net assets in liquidation for the period from October 23, 2001 through December 31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

As
described in Note 2 to the consolidated financial statements, on October 22, 2001, the stockholders of the Company approved a Plan of Liquidation and Dissolution and as
a result, the Company has changed its basis of accounting for periods subsequent to October 22, 2001 from the going concern basis to a liquidation basis.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of HearMe and its subsidiaries as of
December 31, 2000, the consolidated results of its operations and cash flows for the two years then ended and for the
period from January 1, 2001 through October 22, 2001, its consolidated net assets in liquidation as of December 31, 2001 and the changes in consolidated net assets in liquidation
for the period from October 23, 2001 through December 31, 2001, in conformity with accounting principles generally accepted in the United States of America applied on the basis described
in the preceding paragraph.

/s/
PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers
LLP
San Jose, California
March 12, 2002

26

---



HEARME        CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION        (in thousands)

|                                                                |                           | December 31, 2001
|--------------------------------------------------------------- | ------------------------- | -----------------
|ASSETS                                                          |                           |                  
|Cash and cash equivalents                                       |                           | $                
|Accounts receivable                                             |                           |                  
|Patents and intellectual property                               |                           |                  
|Property and equipment                                          |                           |                  
|Other assets                                                    |                           |                  
|                                                                |                           |                  
|                                                                | Total assets              |                  
|                                                                |                           |                  
|LIABILITIES                                                     |                           |                  
|Accounts payable                                                |                           | $                
|Other current liabilities                                       |                           |                  
|Reserve for estimated future costs during period of liquidation |                           |                  
|Notes payable                                                   |                           |                  
|                                                                |                           |                  
|                                                                | Total liabilities         |                  
|                                                                |                           |                  
|                                                                | Net assets in liquidation |                  
|                                                                |                           |                  

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

27

---



HEARME  CONSOLIDATED BALANCE SHEET  (in thousands, except per share data)

|                                                              |                                                                        | December 31, 2000                                                   |      
|------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------------------------------- | -----
|ASSETS                                                        |                                                                        |                                                                     |      
|Current assets:                                               |                                                                        |                                                                     |      
|                                                              | Cash and cash equivalents                                              |                                                                     | $    
|                                                              | Short-term investments                                                 |                                                                     |      
|                                                              | Accounts receivable, net of allowance for doubtful accounts of $686    |                                                                     |      
|                                                              | Prepaid expenses and other current assets                              |                                                                     |      
|                                                              | Net assets of business held for sale                                   |                                                                     |      
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total current assets                                                |      
|Restricted cash                                               |                                                                        |                                                                     | 220  
|Property and equipment, net                                   |                                                                        |                                                                     | 4,905
|Other assets                                                  |                                                                        |                                                                     | 1,309
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total assets                                                        |      
|                                                              |                                                                        |                                                                     |      
|LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY |                                                                        |                                                                     |      
|Current liabilities:                                          |                                                                        |                                                                     |      
|                                                              | Accounts payable                                                       |                                                                     | $    
|                                                              | Accrued payroll and related expenses                                   |                                                                     |      
|                                                              | Accrued expenses                                                       |                                                                     |      
|                                                              | Accrued expenses relating to sale of business                          |                                                                     |      
|                                                              | Deferred revenue                                                       |                                                                     |      
|                                                              | Current portion of notes payable and capital lease obligations         |                                                                     |      
|                                                              | Deferred rent                                                          |                                                                     |      
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total current liabilities                                           |      
|Notes payable, net of current portion                         |                                                                        |                                                                     | 187  
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total liabilities                                                   |      
|                                                              |                                                                        |                                                                     |      
|Commitments and contingencies (Note 8)                        |                                                                        |                                                                     |      
|Redeemable common stock                                       |                                                                        |                                                                     | 1,939
|Stockholders' equity:                                         |                                                                        |                                                                     |      
|                                                              | Common stock:                                                          |                                                                     |      
|                                                              |                                                                        | Par value: $0.00005                                                 |      
|                                                              |                                                                        | Authorized: 150,000 shares                                          |      
|                                                              |                                                                        | Issued and outstanding: 29,206 shares                               |      
|                                                              | Additional paid-in capital                                             |                                                                     |      
|                                                              | Accumulated other comprehensive income: unrealized gain on investments |                                                                     |      
|                                                              | Deferred stock-based compensation                                      |                                                                     |      
|                                                              | Notes receivable from stockholders                                     |                                                                     |      
|                                                              | Accumulated deficit                                                    |                                                                     |      
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total stockholders' equity                                          |      
|                                                              |                                                                        |                                                                     |      
|                                                              |                                                                        | Total liabilities, redeemable common stock and stockholders' equity |      
|                                                              |                                                                        |                                                                     |      

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

28

---



HEARME  CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION  (in thousands)

|                                                  |                                                                                           | Period from October 23
through
December 31, 2001 |      
|------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | -----
|Net assets in liquidation as of October 23, 2001  |                                                                                           | $                                                | 4,853
|                                                  |                                                                                           |                                                  |      
|Changes in net assets in liquidation:             |                                                                                           |                                                  |      
|                                                  | Decrease in fair value of property and equipment, patents and other intellectual property |                                                  |      
|                                                  | Decrease in estimated future liabilities during liquidation                               |                                                  |      
|                                                  | Interest and other income                                                                 |                                                  |      
|                                                  |                                                                                           |                                                  |      
|                                                  |                                                                                           | Total changes in net assets in liquidation       |      
|                                                  |                                                                                           |                                                  |      
|Net assets in liquidation as of December 31, 2001 |                                                                                           | $                                                | 5,113
|                                                  |                                                                                           |                                                  |      

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

29

---



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

|                                                                                                                       |                                                                                                                                                    | Period from
January 1
through October 22,
2001 |                                 | Year Ended December 31, |        
|---------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------- | ----------------------- | -------
|
|                                                                                                                       | Net revenues                                                                                                                                       |                                                | $                               | 4,225                   |        
|                                                                                                                       | Cost of net revenues                                                                                                                               |                                                |                                 | 1,799                   |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Gross profit                                                                                                           |                                                                                                                                                    |                                                | 2,426                           |                         |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Operating expenses:                                                                                                    |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Research and development (including retention costs of $549, $0 and $0 and non-cash compensation expense of $378, $804 and $878, respectively)     |                                                |                                 | 6,258                   |        
|                                                                                                                       | Sales and marketing (including retention costs of $691, $0 and $0 and non-cash compensation expense of $185, $386 and $372, respectively)          |                                                |                                 | 5,847                   |        
|                                                                                                                       | General and administrative (including retention costs of $2,160, $0 and $0 and non-cash compensation expense of $360, $777 and $861, respectively) |                                                |                                 | 7,204                   |        
|                                                                                                                       | In-process research and development                                                                                                                |                                                |                                 |                        |        
|                                                                                                                       | Restructuring costs                                                                                                                                |                                                |                                 | 701                     |        
|                                                                                                                       | Write-down of GameSpy note and investment                                                                                                          |                                                |                                 | 3,485                   |        
|                                                                                                                       | Write-down of stockholder notes                                                                                                                    |                                                |                                 | 1,233                   |        
|                                                                                                                       | Impairment of property and equipment                                                                                                               |                                                |                                 | 2,862                   |        
|                                                                                                                       | Amortization of goodwill and intangible assets                                                                                                     |                                                |                                 |                        |        
|                                                                                                                       | Impairment of goodwill and intangible assets, net                                                                                                  |                                                |                                 |                        |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       |                                                                                                                                                    | Total operating expenses                       |                                 |                         | 27,590 
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       |                                                                                                                                                    |                                                | Loss from continuing operations |                         |        
|Interest and other income                                                                                              |                                                                                                                                                    |                                                | 352                             |                         |        
|Interest and other expense                                                                                             |                                                                                                                                                    |                                                | (484                            | )                       |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Loss from continuing operations before income taxes                                                                    |                                                                                                                                                    |                                                | (25,296                         | )                       |        
|Provision for income taxes                                                                                             |                                                                                                                                                    |                                                |                                |                         |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Net loss from continuing operations                                                                                    |                                                                                                                                                    |                                                | (25,296                         | )                       |        
|Net loss from discontinued operations (including non-cash compensation expense of $0, $1,695 and $2,779, respectively) |                                                                                                                                                    |                                                |                                |                         |        
|Loss on disposition of discontinued operations                                                                         |                                                                                                                                                    |                                                |                                |                         |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Net loss                                                                                                               |                                                                                                                                                    | $                                              | (25,296                         | )                       | $      
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Other comprehensive loss:                                                                                              |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Unrealized gain (loss) on investments                                                                                                              |                                                |                                 | (15                     | )      
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       |                                                                                                                                                    | Comprehensive loss                             |                                 | $                       | (25,311
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Net loss from continuing operations per common share:                                                                  |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Basic and diluted                                                                                                                                  |                                                | $                               | (0.89                   | )      
|Net loss from discontinued operations per common share:                                                                |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Basic and diluted                                                                                                                                  |                                                | $                               |                        |        
|Net loss on disposition of discontinued operations per common share:                                                   |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Basic and diluted                                                                                                                                  |                                                | $                               |                        |        
|Net loss per common share:                                                                                             |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Basic and diluted                                                                                                                                  |                                                | $                               | (0.89                   | )      
|                                                                                                                       |                                                                                                                                                    |                                                |                                 |                         |        
|Weighted average shares outstanding:                                                                                   |                                                                                                                                                    |                                                |                                 |                         |        
|                                                                                                                       | Basic and diluted                                                                                                                                  |                                                |                                 | 28,516                  |        

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

30

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HEARME  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  (in thousands)

|                                                                             |  | Convertible
Preferred Stock |   |   |    |   |        |   |   |   |  |   |         |   |   |         |   |   |     
|---------------------------------------------------------------------------- |  | --------------------------- | - | - | -- | - | ------ | - | - | - |  | - | ------- | - | - | ------- | - | - | ----
|
|
|
|
|Balances at December 31, 1998                                                |  | 10,417                      |   |   | 1  |   | 3,834  |   |   |  |  |   | 63,157  |   |   | (11,263 | ) |   |    
|Issuance of Series E convertible preferred stock                             |  | 3,035                       |   |   |   |   |       |   |   |  |  |   | 18,797  |   |   |        |   |   |    
|Issuance of common stock warrants for services rendered                      |  |                            |   |   |   |   |       |   |   |  |  |   | 849     |   |   |        |   |   |    
|Exercise of common stock options for notes receivable                        |  |                            |   |   |   |   | 208    |   |   |  |  |   | 1,204   |   |   |        |   |   |    
|Repayment of notes receivable from stockholders                              |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|Repurchase of common stock options                                           |  |                            |   |   |   |   | (12    | ) |   |  |  |   | (12     | ) |   |        |   |   |    
|Exercise of common stock options for cash                                    |  |                            |   |   |   |   | 349    |   |   |  |  |   | 491     |   |   |        |   |   |    
|Issuance of common stock in public offering, net of offering cost of $6,840  |  |                            |   |   |   |   | 3,900  |   |   |  |  |   | 64,101  |   |   |        |   |   |    
|Conversion of preferred stock to common stock upon initial public offering   |  | (13,452                     | ) |   | (1 | ) | 13,452 |   |   | 1 |  |   |        |   |   |        |   |   |    
|Issue of common stock for overallotment, net of offering costs               |  |                            |   |   |   |   | 585    |   |   |  |  |   | 9,793   |   |   |        |   |   |    
|Common stock issued through Employee Stock Purchase Plan                     |  |                            |   |   |   |   | 71     |   |   |  |  |   | 675     |   |   |        |   |   |    
|Common stock issued upon acquisition of RTI                                  |  |                            |   |   |   |   | 1,586  |   |   |  |  |   | 21,031  |   |   |        |   |   |    
|Exercise of common stock options and warrants                                |  |                            |   |   |   |   | 135    |   |   |  |  |   | 700     |   |   |        |   |   |    
|Deferred stock based compensation                                            |  |                            |   |   |   |   |       |   |   |  |  |   | 1,580   |   |   | (1,580  | ) |   |    
|Unrealized gains on investments                                              |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   | 614 
|Amortization of deferred stock-based compensation                            |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   | 3,816   |   |   |    
|Stock-based compensation expense on acceleration of options upon termination |  |                            |   |   |   |   |       |   |   |  |  |   | 225     |   |   |        |   |   |    
|Net loss                                                                     |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|                                                                             |  |                             |   |   |    |   |        |   |   |   |  |   |         |   |   |         |   |   |     
|Balances at December 31, 1999                                                |  |                            |   |   |   |   | 24,108 |   |   | 1 |  |   | 182,591 |   |   | (9,027  | ) |   | 614 
|Common stock issued upon acquisition of AudioTalk                            |  |                            |   |   |   |   | 4,520  |   |   |  |  |   | 107,894 |   |   |        |   |   |    
|Common stock options granted in connection with acquisition of AudioTalk     |  |                            |   |   |   |   |       |   |   |  |  |   | 5,695   |   |   |        |   |   |    
|Exercise of common stock options                                             |  |                            |   |   |   |   | 313    |   |   |  |  |   | 536     |   |   |        |   |   |    
|Repurchase of common stock                                                   |  |                            |   |   |   |   | (104   | ) |   |  |  |   | (86     | ) |   |        |   |   |    
|Exercise of common stock warrant, net                                        |  |                            |   |   |   |   | 98     |   |   |  |  |   |        |   |   |        |   |   |    
|Amortization of deferred stock-based compensation                            |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   | 3,511   |   |   |    
|Deferred stock-based compensation                                            |  |                            |   |   |   |   |       |   |   |  |  |   | 395     |   |   | (395    | ) |   |    
|Repayment of notes receivable from stockholders                              |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|Common stock issued through Employee Stock Purchase Plan                     |  |                            |   |   |   |   | 271    |   |   |  |  |   | 1,137   |   |   |        |   |   |    
|Unrealized loss on investments                                               |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   | (599
|Stock-based compensation expense on acceleration of options upon termination |  |                            |   |   |   |   |       |   |   |  |  |   | 151     |   |   |        |   |   |    
|Cancellation of unamortized stock based compensation upon terminations       |  |                            |   |   |   |   |       |   |   |  |  |   | (2,407  | ) |   | 2,407   |   |   |    
|Net loss                                                                     |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|                                                                             |  |                             |   |   |    |   |        |   |   |   |  |   |         |   |   |         |   |   |     
|Balances at December 31, 2000                                                |  |                            |   |   |   |   | 29,206 |   |   | 1 |  |   | 295,906 |   |   | (3,504  | ) |   | 15  
|Exercise of common stock options                                             |  |                            |   |   |   |   | 90     |   |   |  |  |   | 8       |   |   |        |   |   |    
|Repurchase of common stock                                                   |  |                            |   |   |   |   | (631   | ) |   |  |  |   | (212    | ) |   |        |   |   |    
|Repurchase of common stock in settlement of payment of accounts receivable   |  |                            |   |   |   |   | (314   | ) |   |  |  |   | (157    | ) |   |        |   |   |    
|Forgiveness of stockholder notes receivable                                  |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|Write-down of stockholder notes receivable                                   |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|Repayment of notes receivable from stockholders                              |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|Amortization of deferred stock-based compensation                            |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   | 863     |   |   |    
|Common stock issued through Employee Stock Purchase Plan                     |  |                            |   |   |   |   | 50     |   |   |  |  |   | 26      |   |   |        |   |   |    
|Unrealized loss on investments                                               |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   | (15 
|Stock-based compensation expense on acceleration of options upon termination |  |                            |   |   |   |   |       |   |   |  |  |   | 60      |   |   |        |   |   |    
|Cancellation of unamortized stock-based compensation upon terminations       |  |                            |   |   |   |   |       |   |   |  |  |   | (2,641  | ) |   | 2,641   |   |   |    
|Net loss                                                                     |  |                            |   |   |   |   |       |   |   |  |  |   |        |   |   |        |   |   |    
|                                                                             |  |                             |   |   |    |   |        |   |   |   |  |   |         |   |   |         |   |   |     
|Balances at October 22, 2001                                                 |  |                            |   | $ |   |   | 28,401 |   | $ | 1 |  | $ | 292,990 |   | $ |        |   | $ |    
|                                                                             |  |                             |   |   |    |   |        |   |   |   |  |   |         |   |   |         |   |   |     

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

31

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HEARME  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)

|                                               |                                                                             |                                                                   |                                                      | Year Ended December 31, |      
|---------------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | -----
|
|
|Cash flows from operating activities:          |                                                                             |                                                                   |                                                      |                         |      
|                                               | Net loss                                                                    |                                                                   | $                                                    | (25, 296                | )    
|                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                                                   |                                                      |                         |      
|                                               |                                                                             | Depreciation and amortization                                     |                                                      |                         | 1,580
|                                               |                                                                             | Allowance for doubtful accounts                                   |                                                      |                         | 404  
|                                               |                                                                             | Non-cash interest expense on debt                                 |                                                      |                         |     
|                                               |                                                                             | Amortization of premium (discount) on investments                 |                                                      |                         | (57  
|                                               |                                                                             | Other than temporary impairment of long-term investments          |                                                      |                         | 760  
|                                               |                                                                             | Write-down of GameSpy note and investment                         |                                                      |                         | 3,485
|                                               |                                                                             | Write-off of purchased in-process research and development costs  |                                                      |                         |     
|                                               |                                                                             | Impairment of goodwill and intangible assets, net                 |                                                      |                         |     
|                                               |                                                                             | Loss on sale of property and equipment                            |                                                      |                         | 192  
|                                               |                                                                             | Loss on retirement of property and equipment                      |                                                      |                         | 576  
|                                               |                                                                             | Impairment of property and equipment                              |                                                      |                         | 2,862
|                                               |                                                                             | Stock-based employee compensation                                 |                                                      |                         | 923  
|                                               |                                                                             | Gain on redemption of redeemable common stock                     |                                                      |                         | (141 
|                                               |                                                                             | Warrant expense                                                   |                                                      |                         |     
|                                               |                                                                             | Retention cost related to stockholder notes                       |                                                      |                         | 1,667
|                                               |                                                                             | Write-down of stockholder notes                                   |                                                      |                         | 1,233
|                                               |                                                                             | Changes in operating assets and liabilities, net of acquisitions: |                                                      |                         |      
|                                               |                                                                             |                                                                   | Accounts receivable                                  |                         |      
|                                               |                                                                             |                                                                   | Interest and other receivables                       |                         |      
|                                               |                                                                             |                                                                   | Prepaid expenses and other current assets            |                         |      
|                                               |                                                                             |                                                                   | Net asset of business held for sale                  |                         |      
|                                               |                                                                             |                                                                   | Other assets                                         |                         |      
|                                               |                                                                             |                                                                   | Accounts payable                                     |                         |      
|                                               |                                                                             |                                                                   | Accrued payroll and related expenses                 |                         |      
|                                               |                                                                             |                                                                   | Accrued expenses                                     |                         |      
|                                               |                                                                             |                                                                   | Accrued expenses relating to restructuring           |                         |      
|                                               |                                                                             |                                                                   | Accrued expenses relating to sale of business        |                         |      
|                                               |                                                                             |                                                                   | Deferred revenue                                     |                         |      
|                                               |                                                                             |                                                                   | Deferred rent                                        |                         |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|Cash used in operating activities              |                                                                             |                                                                   | (18,447                                              | )                       |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|Cash flows from investing activities:          |                                                                             |                                                                   |                                                      |                         |      
|                                               | Purchase of short-term investments                                          |                                                                   |                                                      | (9,723                  | )    
|                                               | Proceeds from sale of short-term investments                                |                                                                   |                                                      | 18,162                  |      
|                                               | Purchase of long term investments                                           |                                                                   |                                                      |                        |      
|                                               | Purchase of certificate of deposit (restricted cash)                        |                                                                   |                                                      | (3                      | )    
|                                               | Proceeds from sale of certificate of deposit (restricted cash)              |                                                                   |                                                      | 215                     |      
|                                               | Acquisition, of subsidiaries net of cash acquired of $6,371 in 2000         |                                                                   |                                                      |                        |      
|                                               | Proceeds from sale of discontinued operations                               |                                                                   |                                                      | 2,936                   |      
|                                               | Acquisition of property and equipment                                       |                                                                   |                                                      | (593                    | )    
|                                               | Proceeds from disposal of property and equipment                            |                                                                   |                                                      | 164                     |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|                                               |                                                                             |                                                                   | Net cash provided by (used in) investing activities  |                         |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|Cash flows from financing activities:          |                                                                             |                                                                   |                                                      |                         |      
|                                               | Proceeds from notes payable                                                 |                                                                   |                                                      |                        |      
|                                               | Payments of notes payable                                                   |                                                                   |                                                      | (2,881                  | )    
|                                               | Payments under capital lease obligations                                    |                                                                   |                                                      |                        |      
|                                               | Payments for redeemable common stock and repurchase of common stock         |                                                                   |                                                      | (1,935                  | )    
|                                               | Proceeds from exercise of common stock options and warrants                 |                                                                   |                                                      | 8                       |      
|                                               | Proceeds from issuance of common stock through ESPP                         |                                                                   |                                                      | 26                      |      
|                                               | Proceeds from repayment of notes receivable from stockholders               |                                                                   |                                                      | 44                      |      
|                                               | Proceeds from issuance of preferred stock, net                              |                                                                   |                                                      |                        |      
|                                               | Acquisition of subsidiaries                                                 |                                                                   |                                                      |                        |      
|                                               | Proceeds from initial public offering, net of issuance costs                |                                                                   |                                                      |                        |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|                                               |                                                                             |                                                                   | Net cash (used in) provided by financing activities  |                         |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|                                               |                                                                             |                                                                   | Net (decrease) increase in cash and cash equivalents |                         |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|Cash and cash equivalents, beginning of period |                                                                             |                                                                   | 22,096                                               |                         |      
|                                               |                                                                             |                                                                   |                                                      |                         |      
|Cash and cash equivalents, end of period       |                                                                             | $                                                                 | 10,069                                               |                         | $    
|                                               |                                                                             |                                                                   |                                                      |                         |      

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

32

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    FORMATION AND BUSINESS OF THE COMPANY:

HearMe ("the Company") was incorporated in Delaware and commenced operations in January 1995 under the name Amber Software, Inc. In
April 1995, the Company changed its name to Mpath Interactive Inc. On September 28, 1999, the Company announced that it would commence doing business under the name HearMe and
changed its Nasdaq ticker symbol to HEAR. The Company changed its legal name to HearMe in January 2000.

Until
January 19, 2001, the Company generated revenues from two business units, Technology Products (formerly known as Mpath Foundation) and Live Communities. On
December 20, 2000, the Company announced that it 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.

HearMe
ceased its ongoing business operations on October 22, 2001 when its stockholders approved a Plan of Liquidation and Dissolution (the "Plan"). HearMe was a provider of Voice
over Internet Protocol (VoIP) application technologies that delivered increased productivity and flexibility in communication via next generation communications networks. On December 21, 2001,
HearMe sold substantially all of its remaining intellectual property assets to PalTalk Holdings, Inc., a subsidiary of A.V.M. Software, Inc., which owns PalTalk.com, a provider of
Internet-based voice/video communications. The assets sold to PalTalk consisted of certain software, technology, patent rights, trademarks, domain names and equipment and included substantially all of
HearMe's remaining technology and intellectual property assets.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

The consolidated financial statements for the years ended December 31, 2000 and 1999 and for the period from January 1, 2001 through
October 22, 2001 were prepared on the going concern basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Catapult, Resounding and AudioTalk. All significant intercompany balances and transactions have
been eliminated on consolidation.

As
a result of the Company's plans to cease operations, the Company adopted the liquidation basis of accounting, and effective October 23, 2001, assets are stated at their
estimated net realizable values and liabilities are stated at their anticipated settlement amounts. The liquidation basis of accounting requires the Company to accrue an estimate for all liabilities
related to expenses to be incurred during the wind down period. The estimated net realizable values of assets represents management's best estimate of the recoverable value of the assets, net of
selling expenses, and without consideration for the effect that the settlement of any associated litigation may have on the net realizable value of the assets. The assets are held at their net
realizable value until they are sold or liquidated. There can be no assurance, however, that the Company will be successful in selling the assets at their estimated net realizable value. Upon adoption
of the liquidation basis of accounting, the Company recorded a reserve for estimated future costs during period of liquidation of approximately $5.9 million for costs to be

33

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incurred and potential liabilities, claims and contingencies during the liquidation period, which is expected to be completed by the end of 2004, as detailed below (in thousands):

|Estimated Future Liquidation Expenses |  | October 23,
2001 |       | Reduction In
Estimated
Future Expenses |   | Cash Paid |   | December 31,
2001
|------------------------------------- |  | ---------------- | ----- | -------------------------------------- | - | --------- | - | -----------------
|Contract settlements                  |  | $                | 2,005 |                                        | $ | (235      | ) | $                
|Insurance                             |  |                  | 1,164 |                                        |   |          |   |                  
|Legal                                 |  |                  | 914   |                                        |   |          |   |                  
|Employee related expenses             |  |                  | 1,253 |                                        |   |          |   |                  
|Trust                                 |  |                  | 500   |                                        |   |          |   |                  
|Other expenses                        |  |                  | 93    |                                        |   |          |   |                  
|                                      |  |                  |       |                                        |   |           |   |                  
|                                      |  | $                | 5,928 |                                        | $ | (235      | ) | $                
|                                      |  |                  |       |                                        |   |           |   |                  

Cash and Cash Equivalents:

The Company considers all highly liquid investments with maturities of three months or less from the date of purchase, to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market value. Investments with maturities greater than three months, but less than one year at the time of purchase, are considered to be
short-term investments. Investments with maturity greater than one year at the time of purchase are classified as long-term investments within Other Assets. The Company
classifies its investments in certain debt securities as available-for-sale. Such investments are recorded at fair market value, based on quoted market prices and unrealized
gains and
losses are included in other comprehensive income. Realized gains and losses, which are calculated based on the specific identification method, are recorded in operations as incurred.

Restricted Cash:

At December 31, 2001 and 2000, cash balances of approximately $7,500 and $220,000, respectively, were restricted from withdrawal and held by a bank in the
form of certificates of deposit. These certificates of deposit serve as a deposit against the Company's credit card as of December 31, 2001 and served as collateral to a letter of credit issued
to the Company's landlord as a security deposit and as a deposit against the Company's credit card as of December 31, 2000.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and accounts receivable. The Company deposits its cash and cash equivalents with two major banks, which, at times, exceeds Federal insured limits. The Company has
not experienced any losses on its deposits of cash and cash equivalents. Management believes that these banks are financially sound and, accordingly, minimal credit risk exists.

With
respect to accounts receivable through October 22, 2001, the Company's customer base was dispersed across many different geographic areas and a variety of commercial
entities. The Company performed ongoing credit evaluations of its customers and generally did not require collateral from its customers. The Company periodically reviewed the need for allowances, for
potential credit losses and such losses have been within management's expectations. At December 31, 2000, 4 customers represented 14%, 14%, 12%, and 10%, respectively, of accounts receivable.
At December 31, 1999, 2 customers represented 16% and 12% respectively, of accounts receivable.

34

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The
following table summarizes net revenue from customers in excess of 10% of the total net revenue:

Period from
January 1
through
October 22,
2001

Year Ended
December 31,2000

1999Customer A

22
%


Customer B



22
%
Customer C (related party)





30
%Customer D





13
%


Fair Value of Financial Instruments:

The carrying amounts of notes payable approximate of fair value due to their short maturities.

Patents and Intellectual Property:

Beginning October 23, 2001, patents and intellectual property are recorded at their estimated net realizable value. When sales are made of licenses,
patents and other intellectual property, the carrying value is removed from the accounts and the resulting gain or loss is included in the statement of changes in net assets in liquidation for the
period.

Long Lived Assets:

The Company assesses the impairment of identifiable tangible assets, intangibles and related goodwill periodically in accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." An impairment
review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment
review include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the acquired
assets or the strategy for its overall business, significant negative industry or
economic trends, a significant decline in the Company's stock price for a sustained period, and the Company's market capitalization relative to its net book value. When the Company determines that the
carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on a
projected discounted cash flow method using a discount rate commensurate with the risks inherent in the Company's current business model.

Goodwill and Other Intangibles:

Through October 22, 2001, goodwill and other intangibles were carried at cost less accumulated amortization. The Company amortized goodwill and other
identifiable intangibles on a straight-line basis over their estimated useful lives, generally two to three years.

During
the fourth quarter ended December 31, 2000, the Company performed an impairment assessment of the identifiable intangibles and enterprise level goodwill recorded upon the
acquisitions of AudioTalk and Resounding, which the Company completed in April 2000 and October 1999, respectively. The Company's assessment was performed primarily due to the
significant decline in its stock price since the date the shares issued in each acquisition was valued. Goodwill significantly

35

---

exceeded the Company's market capitalization prior to the impairment charge, and the overall decline in the Company's industry growth rates indicate that this trend may continue for an indefinite
period. As a result of the Company's assessment, HearMe recorded a $97.1 million impairment charge, net of the related deferred tax liability, to reduce enterprise level goodwill to its
estimated fair value. The charge was determined based upon estimated discounted cash flows using a discount rate of 25%. The assumptions supporting the Company's cash flows including the discount rate
were determined using management's best estimates.

Property and Equipment:

Through October 22, 2001, property and equipment were stated at cost less accumulated depreciation. Depreciation was calculated using the
straight-line method over the estimated useful lives of the assets, generally three to five years. When property and equipment were retired or otherwise disposed of, the cost and related
accumulated depreciation were removed from the accounts and the resulting gain or loss was included in income. On September 30, 2001, as a result of announcing its plan to wind down operations,
the Company performed an assessment of the carrying value of its property and equipment. Based upon this assessment an impairment charge of $2,862,000 was recorded to write down the Property and
Equipment to its estimated net realizable value of approximately $286,000.

Beginning
October 23, 2001, property and equipment are stated at their estimated net realizable value. When property and equipment are retired or otherwise disposed of, the
carrying value is removed from
the accounts and the resulting gain or loss is included in the changes in net assets in liquidation for the period.

Impairment of Long-Term Investments:

During the quarter ended September 30, 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 expense. Any recovery or gain related to these investments will
be recognized when it is realized.

Revenue Recognition:



Through October 22, 2001, the Company derived revenues from licensing fees for its technology, including its VoiceSERVER product, which enabled customers
to create and deploy next generation communication solutions. The Company also derived incremental revenues from service, maintenance and upgrade fees.

The
Company adopted the provisions of Statement of Position 97-2, (SOP 97-2), "Software Revenue Recognition," as amended and Staff Accounting Bulletin
No. 101 (SAB 101) "Revenue Recognition." The Company recognized product revenue upon shipment if a signed contract existed, the fee was fixed and determinable, collection of resulting
receivables was probable and product returns were reasonably estimable. For contracts with multiple obligations (e.g., maintenance, unspecified upgrades), the Company allocated revenue to each
component of the contract based on objective evidence of its fair value, which was specific to the Company, or for products not being sold separately, the price established by management. The Company
recognized revenue allocated to maintenance fees for ongoing customer support and unspecified upgrades ratably over the period of the maintenance

36

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contract or upgrade period. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

In
addition, during 2001, the Company derived revenue from licensing of source code of its products. The Company recognized source code revenue upon shipment since no future obligation
exists.

The
Company recorded 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.

Research and Development Costs:

Through October 22, 2001, costs incurred in the research and development of new software products were expensed as incurred until technological feasibility
was established. Technological feasibility was reached when the products reached the beta stage. Products and enhancements have generally reached technological feasibility and have been released for
sale at substantially the same time so no costs were capitalized.

Advertising Costs:

Through October 22, 2001, costs related to advertising and promotions of products were charged to sales and marketing expense as incurred. There were no
advertising expenses incurred for the period from January 1, 2001 through October 22, 2001. Advertising expense for the years ended December 31, 2000 and 1999 was approximately
$8,120,000, and $2,378,000 respectively.

Stock-Based Compensation:

SFAS No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," defines a fair value based method of accounting for an employee stock option
or similar equity instrument. This statement gives entities a choice of recognizing related compensation expense by adopting the fair value method or measuring compensation using the intrinsic value
approach under APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has chosen to continue to use the measurement prescribed by APB Opinion No. 25 and its related
accounting interpretations for employee stock options and to make supplemental disclosures to show the effects of using the fair value-based measurement criteria. The Company accounts for options
granted to non-employees under SFAS No. 123 and Emerging Issues Task Force No. 96-18 (EITF 96-18), "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

Income Taxes:

Through October 22, 2001, deferred tax assets and liabilities were determined based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

37

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Comprehensive Income:

Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. During the period from
January 1, 2001 through October 22, 2001 and the years ended December 31, 2000 and 1999, the Company had unrealized gains (losses) on short-term investments of $(15),
$(599,000) and $614,000, respectively, resulting in a total comprehensive loss of $25,311,000, $181,488,000 and $24,467,000 in the respective periods.

Earnings per Share:

Basic earnings per share is calculated using the weighted average shares of common stock outstanding, reduced for shares subject to repurchase by the Company,
while diluted earnings per share reflects the potential dilution that could occur because of preferred stock and if stock options and warrants were exercised. Preferred stock, stock options and
warrants are excluded from the calculation if their effect would be antidilutive.

Segment Information:

The Company operates in one segment.

Reclassifications:

Certain prior year amounts have been reclassified for consistency with current year financial statement presentation. The reclassification has had no effect on
the amounts presented as net assets or working capital.

Recent Accounting Pronouncements:

SFAS No. 143

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is
effective for fiscal years beginning after June 15, 2002. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 requires, among other things, that the retirement obligations be recognized when they are incurred and
displayed as liabilities on the balance sheet. In addition, the asset's retirement costs are to be capitalized as part of the asset's carrying amount and subsequently allocated to expense over the
asset's useful life. The Company believes that the adoption of SFAS No. 143 will not have a significant impact on its consolidated financial statements.

SFAS No. 144

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which is effective for
fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Statement develops one accounting model for long-lived assets that are to be
disposed of by sale, as well as addressing the principal implementation issues. The Company believes that the adoption of SFAS No. 144 will not have a significant impact on its consolidated
financial statements.

3.    ACQUISITIONS:



On March 8, 2000, HearMe entered into an Agreement and Plan of Merger (the "Merger Agreement") with AudioTalk Networks, Inc. ("AudioTalk"), a
California corporation. The Merger

38

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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. The results of AudioTalk have been included in the consolidated 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, $5,700,000 in AudioTalk stock option costs (determined using the
Black-Scholes option pricing model), $10,000,000 in cash and $500,000 in estimated expenses of the transaction. The purchase price was allocated as follows: $5,368,000 to the estimated fair value of
AudioTalk net tangible assets purchased, $580,000 to purchased existing technology, $1,092,000 to establish deferred tax liabilities associated with certain intangibles acquired, $550,000 to purchased
in-process research and development, $900,000 to existing sales contracts, $1,250,000 to workforce-in-place and $116,544,000 to goodwill. The allocation of the
purchase price to intangibles was based upon an independent, third party appraisal and management's estimates.

At
the time of acquisition the intangible assets and goodwill acquired had estimated useful lives and estimated amortization for the remainder of the year ended December 31, 2000,
as follows:

Estimated
Amount

Useful Life

2000
AmortizationPurchased existing technology

$
550,000

2 years

$
217,500Workforce-in-place


1,250,000

3 years


468,800Existing sales contracts


900,000

2 years


695,000Goodwill


116,544,000

3 years


29,133,700Deferred tax liability


(1,092,000
)
2 years


(409,500
)


The
value assigned to purchased in-process research and development ("IPR&D") was determined by identifying research projects in areas for which technological feasibility had
not been established. These included projects for the development of a hardware-based real-time voice communication product as well as other specialized software technologies totaling
$550,000. The value was determined by estimating the expected cash flows from the projects once commercially viable, applying a percentage of completion to the calculated value as defined below and
then discounting the net cash flows back to their present value.

The
net cash flows from the identified projects were based on estimates of revenues, the related estimated cost of sales and operating expenses, estimated charges for use of assets by
the projects and income taxes from those projects. These estimates are based on the assumptions described below.

The
estimated revenues were based on management's projections of each in-process project. These projections were based on estimates of market size and growth, expected trends
in technology and the nature and expected timing of new project introductions by the Company and its competitors.

Projected
gross profits from AudioTalk's technology products were in line with comparable industry margins. The estimated charges for use of assets were consistent with AudioTalk's
historical cost structure, which is in line with industry averages at approximately 1.3% of revenues.

Discounting
the net cash flows back to their present value is based on the industry weighted average cost of capital ("WACC"). The industry WACC is approximately 20%. The discount rate
used in discounting the net cash flows from IPR&D is 25%, a 500 basis point increase from the industry WACC. This discount rate is higher than the industry WACC due to inherent uncertainties
surrounding the successful development of the IPR&D, market acceptance of the technology, the useful life of such

39

---

technology and the uncertainty of technological advances that could potentially impact the estimates described above.

The
percentage of completion for each project was determined using costs incurred to date on each project as compared to the remaining research and development to be completed to bring
each project technological feasibility. The percentage of completion varied by individual project ranging from 44% to 60%.

Unaudited
pro forma condensed results of operations for the combined company as if the transaction had occurred on January 1, 1999 are as follows (in thousands, except per share
data):

Year Ended
December 31,2000

1999Revenues

$
14,021

$
7,105Cost of revenues


1,674


1,118Gross profit


12,347


5,987Loss from operations


(177,801
)

(52,872
)Net loss

$
(191,547
)
$
(64,926
)Net loss per common share:Basic and diluted

$
(7.23
)
$
(3.71
)Weighted average shares outstanding:Basic and diluted


26,505


17,508


There
were no transactions between the Company and AudioTalk during the periods presented.

40

---

4.    GOODWILL AND INTANGIBLE ASSETS:

Goodwill and intangible assets, with useful lives ranging from 2-3 years, consist of the following at December 31, 2000 (in thousands):

Purchased existing technology

$
3,180Workforce in place


1,950Non-compete agreements/Existing sales contracts


2,200Goodwill


136,159Deferred tax liability


(2,932
)140,557Accumulated amortization


(43,477
)Impairment of goodwill and intangible assets


(97,080
)


5.    DISCONTINUED OPERATIONS:

December 18, 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. ("GameSpy"), 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 by HearMe at an aggregate of $1,400,000. On
October 8, 2001, the Company entered into a definitive agreement with GameSpy, pursuant to which the Company received a cash payment of $2,436,000 from GameSpy in satisfaction of all amounts
due to the Company. In connection with this agreement the Company has agreed to transfer all of the shares of common stock of GameSpy held by the Company
to GameSpy or its affiliates. In September 2001, the Company wrote down the GameSpy note and investment by $3,485,000 to their realizable value of $2,436,000.

The
net assets of the Live Communities business unit were classified as current assets at December 31, 2000. Prior years' financial statements were restated to reflect the
discontinuation of the Live Communities business unit, and the anticipated loss on disposition was recorded in 2000. The $7,510,000 loss on disposition of discontinued operations recorded in 2000
consisted primarily of accrued expenses totaling $8,225,000, less the gain on the sale of $490,000 and the reserve of $225,000.

Summary
operating results of the discontinued operations, including the loss on disposition, are as follows (in thousands):

Year ended December 31,2000

1999Revenues from Live Communities

$
13,948

$
8,422Loss from operations through December 13, 2000


(9,349
)

(13,910
)Loss on disposition


(7,510
)

Net loss from discontinued operations

$
(16,859
)
$
(13,910
)


6.    RETENTION AND RESTRUCTURING COSTS:

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 outlined its plans to streamline operations with decreased spending in marketing and administrative expenses and a
reduction in headcount of about 50 employees. As a result of the announced restructuring plans, the Company recorded a charge of $0.7 million during the

41

---

period from January 1, 2001 through October 22, 2001 comprising $0.1 million of legal costs, $0.2 million of assets to be retired, $0.3 million of severance costs
and $0.1 million of costs to terminate agreements early. All of these restructuring costs were paid by December 31, 2001.

Concurrent
with this restructuring, the Company entered into retention agreements with its remaining employees, pursuant to which the employees would receive bonuses aggregating
$2.3 million. In addition, notes receivable from certain employees in connection with previous stock option exercises, together with associated interest and tax liabilities, aggregating
$2.4 million, would be forgiven. The employees were required to stay through either October 31 or November 30, 2001 in order to earn the bonuses and have their notes forgiven,
though these payments would be accelerated assuming the involuntary termination of the employees. The Company paid $2.1 million of the bonuses prior to October 22, 2001 and
$0.2 million from October 23, 2001 through December 31, 2001. As of December 31, 2001, we have forgiven the notes receivable as provided under the retention agreements.

In
September 2001, in connection with the liquidation process, the Company entered into additional retention agreements with certain key executives and employees. Among other
things, these agreements amended certain arrangements so that the bonus payments would be earned and paid in weekly installments rather than as a lump sum. In addition, pursuant to these retention
agreements, in the event that more than an aggregate of $1.5 million is available for distribution to stockholders pursuant to the Plan, then certain officers of the Company will be entitled to
bonuses equal in the aggregate to 12% of the amount in excess of $1.5 million. As the Company has made an initial liquidating distribution in excess of $1.5 million, bonuses totaling
$0.5 million were paid to such officers in March 2002.

7.    PROPERTY AND EQUIPMENT:

During 2001, most of the Company's property and equipment were either sold or abandoned as part of the Company's activities to wind down its business operations.

Property
and equipment, with useful lives ranging from 3-5 years, consisted of the following (in thousands):

December 31,
2000Software

$
672Computer equipment


6,840Furniture and fixtures


706Leasehold improvements


1,5419,759Less accumulated depreciation and amortization


(4,854
)$
4,905


Depreciation
and amortization expense was $1,580,000, $2,754,000 and $1,454,000 for the period from January 1, 2001 through October 22, 2001 and the years ended
December 31, 2000 and 1999, respectively.

As
of December 31, 2001, there were no assets held under capital lease. The cost and accumulated amortization of assets held under capital lease as of December 31, 2000 was
approximately $1,547,000.

42

---

8.    COMMITMENTS AND CONTINGENCIES:

Contingencies:

On May 30, 2001, eFront Media, Inc. filed a complaint against the Company and GameSpy in California Superior Court in Orange County alleging breach
of written contract and seeking damages of approximately $820,000. The contract in question had been assigned to GameSpy as part of the sale of the Company's Live Communities business unit, which
closed on January 19, 2001. The complaint alleges damages for failure to make payments under the contract after the agreement was assigned to GameSpy. GameSpy agreed to defend and indemnify
HearMe against this claim in accordance with the terms of the Asset Purchase Agreement relating to the sale of the Live Communities business unit. On
November 28, 2001, HearMe and GameSpy entered into a settlement agreement with eFront Media Inc. that did not provide for any payments to be made by HearMe. This litigation was dismissed
in accordance with the settlement agreement, in December 2001.

On
November 19, 2001, HearMe was served with a complaint filed by Michael Ring and Frank Ring against HearMe and GameSpy in the New York Supreme Court (the trial court), County of
New York, alleging breach of a written lease relating to a facility in New York, New York which had been assigned to GameSpy and seeking damages of approximately $197,000. In December 2001,
HearMe removed this matter to Federal District Court in New York. HearMe has conducted an investigation into this matter and believes that it has meritorious defenses to this claim. Consequently, on
December 14, 2001, HearMe denied the allegations in its Answer and Counterclaim. Although the company intends to vigorously defend this claim, we are not able at this time to estimate the
possibility of loss or range of loss, if any that might result. The Company has accrued a liability for the estimated loss that might result from this complaint.

Lease commitments:

During 2001, the Company terminated one of the leases of its corporate offices and most of its sales offices. The remaining operating lease agreements existing at
December 31, 2001 expired at various dates through 2005. In January 2002, the Company signed a settlement agreement to terminate the lease of our remaining corporate office facility
located at 685 Clyde Ave in Mountain View, California. There is a dispute, which has led to litigation with respect to the lease for our former facility in New York. The Company entered into a service
agreement for its new corporate offices, which converts to a month-to-month commitment in April 2002, and hence no five-year lease commitment disclosure is
provided. Rent expense for the period from January 1, 2001 through October 22, 2001 and the years ended December 31, 2000 and 1999, was approximately $767,000, $679,000 and
$623,000 respectively.

9.    NOTES PAYABLE:

In May 2000, the Company entered into a term loan with a financial institution whereby amounts borrowed under this agreement are collateralized by
substantially all the Company's assets, bear interest at the prime rate plus 1 percent and are scheduled to mature in September 2003. As of December 31, 2000 the balance of the
term loan was approximately $2,655,000 and was no longer available for any future drawdowns. In January 2001, the bank required the Company to repay $1,500,000 of the principal as a result of
the divestiture of the Live Communities business unit. On August 2, 2001, the Company paid off the remaining $804,000 balance under this loan agreement.

In
April 2001, the Company entered into a term loan agreement for financing the Director's and Officers liability insurance for $422,000, at an interest rate of 7.08% payable over
a 10-month period. The remaining balance of $91,000 outstanding under the note at December 31, 2001 is included in the Consolidated Statement of Net Assets in Liquidation.

43

---

Total
notes payable outstanding are as follows (in thousands):

December 31,2001

2000Term loan

$


$
2,655Directors' and officers' insurance note


91


91


2,655Less current portion


(91
)

(2,468
)Total long term notes payable




$
187


10.    REDEMPTION AND REPURCHASE 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. Such Put Rights expired in October 2001. During the year ended
December 31, 2000, put rights for a total of 6,103 shares were exercised whereby the Company repurchased the shares for approximately $61,000. During the period from January 1, 2001
through October 22, 2001, put rights for a total of 193,414 shares were exercised whereby the Company repurchased the shares for a total of approximately $1,935,410.

11.    STOCKHOLDERS' EQUITY:

Preferred Stock:

The Company had authorized a total of 5,000,000 shares of undesignated preferred stock through October 22, 2001.

Common Stock:

In May 1999, the Company completed its initial public offering and issued 3,900,000 shares of its common stock to the public at a price of $18.00 per
share. The Company received net proceeds of approximately $64.1 million in cash. As of the closing date of the offering, all of the preferred stock outstanding was converted into an aggregate
of 13,529,343 shares of common stock. In June 1999, the Company issued an additional 585,000 shares of its common stock at a price of $18.00 per share for net proceeds of approximately
$9.8 million, relating to the underwriters' thirty-day option to purchase these shares in connection with the initial public offering.

From
January 1995 through April 1999 the Company issued 2,397,000 shares of its common stock to the founders and key employees of the Company under restricted stock
purchase agreements in exchange for full recourse notes receivable of $2,487,000 bearing interest at rates ranging from 5.2% to 6.8% per annum.

44

---

Listing and Trading of the Company's Common Stock:

On July 10, 2001, the Company received a Nasdaq Staff Determination letter indicating that it had failed to comply with the minimum bid price requirement
for continued listing on the Nasdaq National Market (Nasdaq Marketplace Rule 4450 (a)(5)). In response, HearMe requested a hearing before the Nasdaq Listing Qualifications Panel to appeal the
Staff Determination. As part of this effort, HearMe asked the Panel to review the Staff Determination based on the Company's plan to achieve compliance with the minimum bid listing requirement through
a 1-for-10 reverse stock split that the Company had intended to submit to a vote of the stockholders at its Annual Meeting originally scheduled to be held on July 31,
2001. On July 31, 2001, the Annual Meeting was adjourned until August 30, 2001 due to the Company's July 30, 2001 announcement that it intended to pursue an orderly wind down and
cessation of the Company's business operations and sale of its assets. On August 14, 2001, following the Company's announcement of the election not to pursue the
1-for-10 reverse stock split that the Company previously proposed to submit for stockholder approval and withdrawal of the Company's request for review of a NASD staff
determination to discontinue trading of the common stock on the Nasdaq National Market, the common stock was delisted from the Nasdaq National Market. On August 15, 2001, the common stock
commenced trading on the NASD's Over-the-Counter ("OTC") Bulletin Board.

The
Board of Directors established the Company's Final Record Date was November 26, 2001. On the Final Record Date, the Company filed a Certificate of Dissolution with the
Secretary of State of Delaware, and the Company closed its stock transfer books.

Notes Receivable From Stockholders:

During the period from inception through December 31, 1998 the Company issued 3,189,000 shares of common stock to founders and key employees, through stock
issuances and common stock option exercises, in exchange for notes receivable from stockholders of $1,020,000. The notes bear interest rates ranging from 4.5% to 6.2% per annum and are repayable
between July 2001 and April 2002.

In
the year ended December 31, 1999, the Company issued 207,500 options for shares of its common stock to three key employees of the Company. All of the options were exercised
immediately in exchange for notes receivable of $1,312,000 bearing interest rates ranging from 4.64% to 4.99% per annum and which are repayable between July 2001 and April 2002. In the
same year ended December 31, 1999, three of the notes receivable from key employees totaling approximately $2,000 were repaid.

Under
the terms of the notes receivable agreements, the Company has the option to repurchase, at the holder's original purchase price, all or any portion of the purchased shares in which
the founders and key employees have not acquired a vested interest, should the individuals cease to be employed. The Company's right to repurchase such shares generally lapses 25% on the first
anniversary date of the purchase of the common stock and thereafter ratably over three years. At December 31, 2001, none of the shares of the founders common stock and 3,063 shares of common
stock arising from the exercise of options were subject to the Company's right of repurchase.

In
the year ended December 31, 2000, in connection with the acquisition of AudioTalk's assets and liabilities, the Company assumed approximately $337,000 of notes receivable from
stockholders. The notes bear interest rates ranging from 4.84% to 6.56% per annum and are repayable between February 2005 and October 2008. In the year ended December 31, 2000,
six of the notes receivable from key employees totaling approximately $130,000 were repaid and four of the notes receivable were canceled at termination of employment, totaling approximately $45,000.
During 2001, five of the notes receivable from key employees totaling approximately $44,000 were repaid and three of the notes receivable were canceled on termination of employment, totaling
approximately $8,000.

45

---

In
April, 2001 concurrent with its restructuring, as described in Note 6, the Company entered into retention agreements with its remaining employees, pursuant to which notes
receivable from certain employees in connection with previous stock option exercises, together with associated interest and tax liabilities, aggregating $2.4 million, would be forgiven.

During
the quarter ended September 30, 2001, the Company performed an assessment of the carrying value of the remaining stockholder notes receivable. Based upon this assessment, a
write down of $1,223,000 was recorded. Any recovery or gain related to these notes will be recognized when it is realized. The Company currently intends to continue collection efforts as these notes
come due. When collections are made, any resulting gain or loss will be included in the statement of changes in net assets in liquidation for the period.

Warrants:

The Company entered into an agreement with a national Internet Service Provider in 1995 to provide the equipment necessary for the Company's services. In
connection with this agreement, the Company agreed to issue warrants to purchase 120,000 shares of common stock, although the warrant was not issued until an agreement as to its terms was finalized on
February 12, 1999. The warrants entitle the holder to purchase 12,000 shares of common stock at $0.21 per share and 108,000 shares at $1.03 per share. The fair value of these warrants, as
determined using the Black-Scholes model, was calculated to be approximately $849,000 and expensed as cost of revenues in the first quarter of 1999. In
October 2000, these warrants were exercised in a net transaction resulting in the issuance of 98,331 shares of common stock.

The
Company issued a warrant to purchase up to 52,250 shares of common stock at a price of $60 per share (subject to adjustments under certain circumstances) in connection with the
issuance of notes payable by Catapult prior to its acquisition by the Company. As the fair value of these warrants was determined to be immaterial at the date of issuance, no charge was recorded. The
warrant expired unexercised on December 31, 2000. The Company had reserved 52,250 shares of common stock for the exercise of this warrant.

On
February 11, 1999, the Company entered into a Letter of Understanding with Yahoo! Inc. ("Yahoo!"), which outlines an arrangement to license to Yahoo! certain technology.
As part of this arrangement, the Company issued Yahoo! a warrant to purchase 192,000 shares of common stock at an exercise price of $10.29 per share, which Yahoo! could exercise upon certain
milestones being met. The final valuation of this warrant would not be established until all of the milestones have been met. This warrant expired unexercised on February 11, 2001.

1995 Stock Option/Stock Issuance Plan:

During 1995, the Company adopted the 1995 Stock Option/Stock Issuance Plan (the Plan). The Plan was divided into an Option Grant Program under which employees may
be granted options to purchase common stock and a Stock Issuance Program under which employees may be issued shares of common stock directly, either through the immediate purchase of such shares or
for services rendered to the Company. Options were granted at an exercise price determined by the board of directors and were fully exercisable on date of grant, subject to repurchase (at the original
price) by the Company. The repurchase right lapsed for 25% of the shares upon completion of one year of service and the balance in successive equal monthly installments over three years. Options
expired ten years after issuance.

On
November 26, 2001, the Company's 1995 Stock Option/Stock Issuance Plan terminated when the Certificate of Dissolution was filed with the Secretary of the State of Delaware and
hence no more stock option exercises are permitted.

46

---

1999 Stock Incentive Plan:

In February 1999, the Company's Board of Directors approved the 1999 Stock Incentive Plan. A total of 2,500,000 shares of common stock were originally
reserved for issuance under this plan, which is subject
to annual increases. The annual increase for the year ended December 31, 2000 was 1,200,000, bringing total shares reserved to 3,700,000. The annual increase for the year ended
December 31, 2001 was 1,460,349, bringing total shares reserved to 5,160,349. This plan provided for the grant of incentive and nonstatutory stock options and restricted stock to employees,
directors and consultants. The Board of Directors determined the terms of the options and restricted stock grants on the date of issuance.

On
November 26, 2001, the Company's 1999 Stock Incentive Plan terminated when the Certificate of Dissolution was filed with the Secretary of the State of Delaware and hence no
more stock option exercises are permitted.

1999 Directors' Stock Option Plan:

In February 1999, the Company's Board of Directors approved the 1999 Directors' Stock Option Plan (the "Directors' Plan"). A total of 300,000 shares of
common stock were reserved for issuance under the Directors' Plan. The Directors' Plan provides for an initial grant of an option to purchase 30,000 shares of common stock to each person who becomes a
non-employee director after the effective date of the Directors' Plan. These options vest and become exercisable 25% annually upon the first, second, third and fourth anniversaries of the
date of grant. The Directors' Plan also calls for annual grants upon each annual meeting of options to purchase 7,500 common shares, which option becomes exercisable and vested in full upon the fourth
anniversary of the date of grant. Options must be granted at the fair market value on the date of grant and have a term of the lesser of ten years or the term of the optionees' service as a director.
As of November 26, 2001 shares authorized under the Director's plan were 300,000.

On
November 26, 2001, the Company's 1999 Directors' Stock Option Plan terminated when the Certificate of Dissolution was filed with the Secretary of the State of Delaware and
hence no more stock option exercises are permitted.

1999 Employee Stock Purchase Plan:

In February 1999, the Company's Board of Directors approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 750,000 shares of
common stock have been reserved for issuance under the Purchase Plan, which is subject to annual increases. The Purchase Plan allows for eligible employees to purchase a limited number of shares of
the Company's common stock at 85% of the fair market value during certain plan-defined dates.

Effective
September 30, 2001, the Board of Directors of the Company terminated the Company's 1999 Stock Purchase Plan.

47

---

Other Stock Option Grants:

Activity under the Company's stock option plans, including options granted in connection with the above Catapult, Resounding and AudioTalk acquisitions, is as
follows:

|                            |                                                         | Options
Available for
Grant |            | Number of
Shares
Outstanding |            | Weighted
Average
Exercise
Price
|--------------------------- | ------------------------------------------------------- | --------------------------- | ---------- | ---------------------------- | ---------- | -------------------------------
|Balances, December 31, 1998 |                                                         | 329,288                     |            | 1,785,897                    |            | $                              
|                            | Options additionally reserved                           |                             | 3,489,500  |                              |            |                                
|                            | Options granted(1)                                      |                             | (3,297,299 | )                            | 3,297,299  |                                
|                            | Shares repurchased                                      |                             | 11,526     |                              |            |                                
|                            | Options canceled                                        |                             | 318,274    |                              | (318,274   | )                              
|                            | Options exercised                                       |                             |            |                              | (556,628   | )                              
|                            |                                                         |                             |            |                              |            |                                
|Balances, December 31, 1999 |                                                         | 851,289                     |            | 4,208,294                    |            | $                              
|                            | Options additionally reserved(2)                        |                             | 1,497,601  |                              |            |                                
|                            | Options granted(2)                                      |                             | (2,856,349 | )                            | 2,856,349  |                                
|                            | Options canceled(3)                                     |                             | 1,040,924  |                              | (1,732,353 | )                              
|                            | Options exercised                                       |                             |            |                              | (311,633   | )                              
|                            |                                                         |                             |            |                              |            |                                
|Balances, December 31, 2000 |                                                         | 533,465                     |            | 5,020,657                    |            | $                              
|                            | Options additionally reserved                           |                             | 1,460,349  |                              |            |                                
|                            | Options granted                                         |                             | (2,941,500 | )                            | 2,941,500  |                                
|                            | Options canceled                                        |                             | 3,749,208  |                              | (4,174,317 | )                              
|                            | Options exercised                                       |                             |            |                              | (89,876    | )                              
|                            | Options canceled on plan termination, November 26, 2001 |                             | (2,801,522 | )                            | (3,697,964 | )                              
|                            |                                                         |                             |            |                              |            |                                
|Balances, December 31, 2001 |                                                         |                            |            |                             |            |                                
|                            |                                                         |                             |            |                              |            |                                

---

Note (1)In
connection with the acquisition of Resounding Technology, 152,308 options to purchase shares were issued below fair market value and are included in the
number above. The weighted average exercise price for these options is $0.72 with a weighted average fair market value of $13.25.

Note (2)In
connection with the acquisition of AudioTalk, 297,601 options to purchase shares were issued and are included in the additionally reserved and granted
options amounts set out above. The weighted average exercise price for these options is $8.46.

Note (3)Canceled
options have been adjusted to reflect the expiration of options under the 1995 Stock Option Plan and the AudioTalk Stock Option Plan, which do not
roll back as available for grant.

At
December 31, 2001, 3,063 shares remain subject to the Company's right of repurchase, although the Company closed its stock transfer books on the Final Record Date.

All
option plans were terminated when the Certificate of Dissolution was filed with the Secretary of State on November 26, 2001 and all outstanding options were cancelled.

There
were no vested options at December 31, 2001. Options to purchase 2,242,779 and 2,216,849 shares were vested at December 31, 2000 and 1999 respectively.

Through
October 22, 2001, the Company recorded compensation expense related to certain stock options issued with exercise prices below the fair market value of the related common
stock. The Company recorded compensation expense in the approximate amount of $863,000, $3,511,000 and $3,816,000 in 2001, 2000 and 1999, respectively. Upon the termination of the majority of the
Company's workforce, the Company wrote off the remaining deferred stock-based compensation balance related to such stock options.

48

---

Pro Forma Stock-Based Compensation:

The Company accounts for employee stock options under APB Opinion No. 25. Had the Company determined compensation expense under SFAS No. 123, the
effect on the Company's net loss would have been as follows (in thousands, except per share amounts):

Period from
January 1
through
October 22,
2001Years ended December 31,2000

1999Net loss:As reported

$
(25,296
)
$
(180,889
)
$
(25,081
)Pro forma

$
(29,130
)
$
(185,070
)
$
(28,195
)Net loss per sharebasic and diluted:As reported

$
(0.89
)
$
(6.82
)
$
(1.60
)Pro forma

$
(1.02
)
$
(6.98
)
$
(1.80
)


These
pro forma results are not necessarily indicative of results that would have been expected in the future as additional grants were made each year and options vested over several
years. Prior to the Company's initial public offering, the fair value of each option grant was determined on the date of grant using the minimum value method. Subsequent to the offering, the fair
value was determined using the Black-Scholes option pricing model. The weighted average grant date fair value of the options granted or modified for the period from January 1, 2001 through
October 22, 2001 and the years ended December 31, 2000 and 1999 was $0.79, $7.46, and $13.73, respectively.

The
following weighted average assumptions were used in the above calculations:

2001

2000

1999Risk free interest rate

4.43
%
6.15
%
5.47
%Expected life

4 years

4 years

3 yearsVolatility

60.0
%
60.0
%
60.0
%Dividend yield

0.0
%
0.0
%
0.0
%


12.    NET LOSS PER SHARE:

A reconciliation of the numerator and denominator of basic and diluted net loss per share is provided as follows (in thousands, except per share amounts):

Period from
January 1 through
October 22,
2001

Year Ended December 31,2000

1999NumeratorBasic and Diluted:Net loss

$
(25,296
)
$
(180,889
)
$
(25,081
)DenominatorBasic and Diluted:Weighted average common shares outstanding


28,516


26,505


15,673Basic and Diluted net loss per share

$
(0.89
)
$
(6.82
)
$
(1.60
)


Options
and warrants to purchase common and preferred shares, unvested common shares subject to repurchase by the Company and preferred securities are not included in the diluted loss
per share calculations as their effect is antidilutive for all periods presented. These dilutive securities included

49

---

common stock equivalents relating to unvested common stock and options and warrants to purchase common and preferred shares (as calculated using the treasury method) as of December 31, 2001,
2000 and 1999, as follows:

December 31,2001

2000

1999Unvested common stock

3,063

883,659

1,218,275Options



5,020,657

4,208,294Warrants



192,000

233,523


13.    EMPLOYEE BENEFIT PLAN:

The Company created a 401(k) Plan to provide tax deferred salary deductions for all eligible employees. Participants could make voluntary contributions to the
401(k) Plan up to 20% of their compensation, not to exceed the annual 402(g) limitation for any plan year. The Company's matching contribution is discretionary as determined by the Board of Directors.
During 2001, 2000 and 1999, the Company did not contribute to the Plan.

Effective
September 15, 2001, the Board of Directors of the Company terminated the 401(k) Plan.

14.    INCOME TAXES:

No current provision or benefit for federal or state income taxes has been recorded for the period from January 1, 2001 through October 22, 2001 and
for the years ended December 31, 2000 and December 31, 1999 as the Company has incurred net operating losses since inception and has no carryback potential. Upon the adoption of the
liquidation basis of accounting on October 22, 2001, the Company ceased to record any deferred tax assets or liabilities.

At
December 31, 2000, the Company had federal and state net operating loss carryforwards of approximately $163,717,000, available to offset future regular and alternative minimum
taxable income. The Company's net operating loss carryforwards expire on various dates after 2001, if not utilized. The federal credit, if not utilized, will expire on various dates after the year
2009. Due to changes in the
Company's ownership in 1995 and 1997, future utilization of a portion of the net operating loss carryforwards will be subject to certain limitations of annual utilization as defined by the Tax Reform
Act of 1986.

The
components of the net deferred tax assets at December 31, 2000 comprised (in thousands):

Net operating loss carryforwards

$
38,742Tax credit carryforwards


1,812Accruals and reserves


851Discontinued operations


2,682Property plant and equipment


5,007Deferred tax liability from acquisitions


49,094Less valuation allowance


(49,094
)Net deferred tax assets

$



Due to uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net
deferred tax assets.

50

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The
difference between the statutory rate of approximately 34% and the Company's effective tax rate is due primarily to the valuation allowance established to offset the deferred tax
assets. The provision for income taxes is different than the amount computed using the applicable statutory federal income tax rate with the difference the years ended December 31, 2000 and
1999 as follows:

2000

1999Provision computed at federal statutory rate

(34
)%
(34
)%State taxes

(6
)
(6
)Tax credit carryforwards



(2
)Change in valuation allowance

10

35Impairment of goodwill related to tax-free acquisitions

29

Other permanent differences

1

10Other

1

(3
)Provision for income taxes

0
%
0
%


15.    RELATED PARTY TRANSACTIONS:

One of the Company's former major customers is also an investor. The Company had revenue transactions in the normal course of business with this customer
totaling, $782,000 and $2,110,800 in the years ended December 31, 2000 and 1999, respectively. There were no transactions with this customer for the year ended December 31, 2001.

16.    SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (in thousands):

|                                                                             |  | Period from
January 1 through
October 22,
2001 |       | Year Ended December 31,
|---------------------------------------------------------------------------- |  | ---------------------------------------------- | ----- | -----------------------
|
|Cash paid for interest                                                       |  | $                                              | 77    |                        
|Supplemental disclosure of non-cash investing and financing activities:      |  |                                                |       |                        
|Net assets exchanged in sale of Live Communities to GameSpy                  |  | $                                              | 6,395 |                        
|Note issued in connection with insurance premium                             |  | $                                              | 412   |                        
|Issuance of common stock in connection with acquisition of AudioTalk and RTI |  | $                                              |      |                        
|Exercise of common stock options for notes receivable                        |  | $                                              |      |                        
|Repurchase of common stock in settlement of notes receivable                 |  | $                                              |      |                        
|Cancellation of common stock in settlement of accounts receivable            |  | $                                              | (157  | )                      
|Financing cost in conjunction with common stock warrant                      |  | $                                              |      |                        
|Compensation accrued for options granted                                     |  | $                                              |      |                        
|Forgiveness of notes receivable from stockholders                            |  | $                                              | 969   |                        

17.    SUBSEQUENT EVENTS:

Liquidating Distribution to Stockholders.

On or about March 12, 2002, the Company made an initial liquidating distribution to stockholders of record as of November 26, 2001 of $0.18 per
share totaling approximately $5,113,000.

51

---

Retention Bonus Payout:

As the Company was able to make an initial liquidating distribution in excess of $1.5 million, it paid out retention bonuses totaling $0.5 million
on March 5, 2002.

Lease Termination:

On January 18, 2002, HearMe signed a lease termination settlement agreement with The Martin Group, for its facility located at 685 Clyde Avenue in Mountain
View, California, terminating the lease effective January 18, 2002 in consideration of the payment by HearMe of a fee of $600,000 along with the forfeiture of the deposit in the amount of
$104,000 and the transfer by HearMe to The Martin Group of all furnishings at this location.

52

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REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors and Stockholders of HearMe

Our
audits of the consolidated financial statements referred to in our report dated March 12, 2002 appearing on page 26 also included an audit of the financial statement schedule
listed in Item 14[a]2 of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial statements.

/s/
PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers
LLP
San Jose, California
March 12, 2002

53

---



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS

For
the period from January 1, 2001 through October 22, 2001 and for the years ended December 31, 2000 and 1999: (in thousands)

|Allowances for Doubtful Accounts |  | Balance at the beginning of the year |  | Additions charged to costs and expenses |  | Charged to other accounts |   | Deductions |   | Balance at the end of the period
|-------------------------------- |  | ------------------------------------ |  | --------------------------------------- |  | ------------------------- | - | ---------- | - | --------------------------------
|2001                             |  | 686                                  |  | 404                                     |  |                          |   | (1,039     | ) | 51                              
|2000                             |  | 415                                  |  | 1,171                                   |  | (160                      | ) | (740       | ) | 686                             
|1999                             |  | 20                                   |  | 398                                     |  |                          |   | (3         | ) | 415                             

Quarterly Financial Data (unaudited)

The following tables set forth unaudited consolidated statements of operations data for the seven quarters ended September 30, 2001 and for the period from
October 1, 2001 through October 22, 2001. This data has been derived from unaudited interim consolidated financial statements prepared on the same basis as our audited consolidated
financial statements contained in this report and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such
information when read in conjunction with our consolidated financial statements and notes to our consolidated statements appearing elsewhere in this report. Earnings per share amounts for each quarter
are required to be computed independently and may not equal the amount computed for the total year.

|                                                         |  |   |        | Three Months Ended |  
|-------------------------------------------------------- |  | - | ------ | ------------------ | -
|
|
|
|Consolidated statement of operations:                    |  |   |        |                    |  
|Net revenues                                             |  | $ | 1,231  |                    | $
|Gross profit                                             |  |   | 1,093  |                    |  
|Income (loss) from continuing operations                 |  |   | 599    |                    |  
|Loss from discontinued operations                        |  |   |       |                    |  
|Loss on disposal of discontinued operations              |  |   |       |                    |  
|                                                         |  |   |        |                    |  
|Net income (loss)                                        |  | $ | 599    |                    | $
|                                                         |  |   |        |                    |  
|Net income (loss) per common share:                      |  |   |        |                    |  
|Basic and diluted                                        |  | $ | 0.02   |                    | $
|Shares used in per share calculationsbasic and diluted: |  |   | 28,562 |                    |  

54

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Our
executive officers and their positions and ages as of March 14, 2002 are shown in the table below:

|Name           |  | Age |  | Position                                       
|-------------- |  | --- |  | -----------------------------------------------
|James Schmidt  |  | 49  |  | President, Chief Executive Officer and Director
|Joyce Keshmiry |  | 56  |  | Chief Financial Officer                        

James Schmidt, President, Chief Executive Officer and Director, joined HearMe in December 1998. Mr. Schmidt has served as
HearMe's President and Chief Executive Officer since August 2001. He initially served as the Vice President, Engineering, and Executive Vice President, Engineering prior to his appointment as
Chief Technology Officer in September 2000. From December 1986 to December 1998, Mr. Schmidt worked for Adaptec Inc., a data storage company, where he served in a
number of positions, including Vice President and Chief Information Officer, Vice President, Process Development and Infrastructure and Vice President, Engineering. Mr. Schmidt received both a
B.S. degree in Electrical Engineering and an M.S. degree in Electrical Engineering from Wichita State University.

Joyce Keshmiry,Chief Financial Officer, joined HearMe in November 1996. She initially served as Corporate Controller. In
August 2001, Ms. Keshmiry was appointed Chief Financial Officer. From September 1995 to November 1996, Ms. Keshmiry worked for Catapult Entertainment, Inc., a
developer and marketer of a subscription-based service that was acquired by HearMe in 1996, where she served as Corporate Controller. From 1989 to 1995, Ms. Keshmiry served as the Corporate
Controller of Interactive Network Inc., a subscription-based service. From 1984 to 1989, Ms. Keshmiry held a number of financial positions with Data General Corp., a hardware and
software company. Ms. Keshmiry received a B.A. degree in Business Administration from St. Mary's College in Moraga, California.

Our
directors and their ages as of March 14, 2002 and certain other information about them are set forth below:

|Name of Nominee      |  | Age |  | Principal Occupation                              |  | Director Since
|-------------------- |  | --- |  | ------------------------------------------------- |  | --------------
|Paul Matteucci       |  | 46  |  | Venture Partner, US Venture Partners              |  | 1995          
|Brian Apgar          |  | 47  |  | CEO, First IP Networks                            |  | 1995          
|James Schmidt        |  | 49  |  | Chief Executive Officer of the Company            |  | 2001          
|Robert Csongor       |  | 39  |  | Former Chief Executive Officer, HearMe            |  | 2000          
|William McCall(1)(2) |  | 41  |  | Managing Partner of CEA Media and Technology Fund |  | 1997          
|Jeremy Verba(1)      |  | 38  |  | General Manager, AOL by Phone                     |  | 2000          

---

55

---

The
names of former directors who served during 2001, their ages as of March 14, 2002, and certain other information about them are set forth below:

|Name of Former Directors |  | Age |  | Principal Occupation                                               |  | Director Since
|------------------------ |  | --- |  | ------------------------------------------------------------------ |  | --------------
|David A. Brown(2)        |  | 57  |  | Retired Management Consultant to various high technology companies |  | 1995          

---

There
are no family relationships among any of the directors or executive officers of the Company.

Paul Matteucci,Chairman, was a co-founder of the Company and was Chief Executive Officer from May 1995 until
September 2000. He became a Director in May 1995. Mr. Matteucci joined US Venture Partners, a venture capital fund, in February 2001 as a venture partner. From
December 1994 to May 1995, Mr. Matteucci was a Resident Entrepreneur at Institutional Venture Partners, a venture capital firm. From July 1986 to December 1994,
Mr. Matteucci held various positions at Adaptec, Inc., a data storage company, including Vice President and General Manager. Prior to joining Adaptec, Inc., Mr. Matteucci
held positions with Texas Instruments, a semiconductor and digital signal processing company. Mr. Matteucci currently serves as a director for numerous private companies including FaceTime
Communications Inc., Homestead.com Incorporated and HelloBrain.com. Mr. Matteucci received a M.B.A. from Stanford University and an M.A. from Johns Hopkins School of Advanced
International Studies. Mr. Matteucci received his undergraduate degree from the University of Pacific in Stockton, California.

Brian Apgar,has served as a Director since he co-founded HearMe in January 1995. He also served as Chief Entrepreneur,
President, Vice President, Development, General Manager, and Chief Operating Officer until June 2000. Mr. Apgar is currently CEO of First IP Networks. From October 1993 to
January 1995, Mr. Apgar served as a Resident Entrepreneur and in other consulting capacities for several venture capital firms, including Merrill Pickard Anderson & Eyre, Sigma
Partners and Institutional Venture Partners Mr. Apgar holds a B.A. in Physics from Princeton University.

James Schmidt, has served as a Director of the Company since August 2001. Mr. Schmidt has served as HearMe's Chief Executive
Officer since August 2001 and its Chief Technology Officer since September 2000. Mr. Schmidt joined HearMe in December 1998 and prior to September 2000 had served as
its Vice President, Engineering and Executive Vice President, Engineering. From December 1986 to December 1998, Mr. Schmidt worked for Adaptec Inc., a data storage company,
where he served in a number of positions, including Vice President and Chief Information Officer, Vice President, Process Development and Infrastructure and Vice President, Engineering.
Mr. Schmidt currently sits as a Board of Director Advisor for The Genesis Group. Mr. Schmidt received both a B.S. degree in Electrical Engineering and an M.S. degree in Electrical
Engineering from Wichita State University.

Robert Csongor, has served as a Director since September 2000. Mr. Csongor previously served as Chief Executive Officer of
HearMe from September 2000 to August 2001. Mr. Csongor joined the Company in August 1996. He initially served as Director of Product Marketing and also as Vice President,
Business Development and Marketing and as Executive Vice President and General Manager. From January 1995 to August 1996, he served as Director of Marketing at NVIDIA Corporation, a
semiconductor company. From August 1986 to January 1995, Mr. Csongor served in various capacities at Adaptec, Inc., a data storage company including as Director of
Marketing. Mr. Csongor holds a B.S. in Electrical Engineering from Villanova University.

William McCallhas served as a Director of the Company since November 1997. In May 2000, Mr. McCall became the
Managing Partner of CEA Media and Technology Fund, a venture capital fund. Previously Mr. McCall served as Director, New Media Development of Cox Enterprises, a media

56

---

company, from March 1997 to April 2000. From November 1994 to March 1997, Mr. McCall was a director of TCI Technology Ventures, the interactive division of TCI, a
cable company. Mr. McCall holds a B.A. in History from Connecticut College.

Jeremy Verbahas served as a Director of the Company since September 2000. Mr. Verba previously served as President and
Chief Operating Officer of HearMe from November 1999 through January 2001. Since May 2001, Mr. Verba has served as Vice President and General Manager of AOL by Phone. From
April 1999 to November 1999, Mr. Verba served as Executive Vice President, Live Communities of HearMe. Previous to HearMe, Mr. Verba co-founded and served as
president of E! Online, an Internet website, from November 1996 through April 1999. Prior to co-founding E! Online, Mr. Verba served as Vice President, Entertainment
Ventures at CNET Network, Inc., a global media company, from January 1996 through November 1996, and as the director of new services for TCI Technology Ventures, a technology
investment group, from June 1995 through January 1996. Mr. Verba received an M.B.A. from Harvard University and a B.S. from the Massachusetts Institute of Technology.

David A. Brownserved as a Director of the Company from June 1995 to August 2001. Mr. Brown currently sits on the
Board of Directors of Quantum Corporation, a mass storage company he helped found in February 1980. Mr. Brown has also been a management consultant and board member for various
technology companies since February 1992. Mr. Brown received a B.S. in Engineering from San Jose State University and an M.S. in Engineering from Santa Clara University.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than 10% of the
Company's common stock (collectively, "Reporting Persons") to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and changes in ownership of the Company's common
stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, based solely on its review of the
copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended
December 31, 2001, all Reporting Persons complied with all applicable filing requirements, with the exception of reports due in December 2001 for Paul Matteucci and Jeremy Verba. These
reports will be filed in March 2002.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information concerning total compensation received for services rendered to the Company in all capacities during the period
from January 1, 1999 to December 31, 2001 by (i) the Chief Executive Officer, (ii) each of the most highly compensated executive officers who were serving as of the end of
fiscal 2001, and (iii) each of the two most highly compensated executive officers who were no longer serving as of the end of fiscal 2001, each of whose

57

---

aggregate compensation during our last fiscal year exceeded, or would exceed on an annualized basis, $100,000 (the "Named Officers").

|                                          |  | Annual Compensation |  | Long-Term
Compensation
Securities
Underlying
Options(8)
|----------------------------------------- |  | ------------------- |  | -------------------------------------------------------
|
|Robert Csongor
Director(1)                |  | 2001
2000
1999      |  | 217,755
231,875
174,500                                
|James Schmidt
Chief Executive Officer(2)  |  | 2001
2000
1999      |  | 238,351
230,500
204,198                                
|Joyce Keshmiry
Chief Financial Officer(3) |  | 2001
2000
1999      |  | 146,000
133,750
121,508                                
|Linda Palmor
Former Officer(4)            |  | 2001
2000
1999      |  | 130,426
188,708
162,336                                
|Greg Mrva
Former Officer(5)               |  | 2001
2000
1999      |  | 171,091
158,542
219,700                                
|Frank Chu
Former Officer(6)               |  | 2001
2000
1999      |  | 139,254
113,750
                                      

---

Therefore,
there are no options outstanding or currently exercisable at December 31, 2001.

58

---



Option Grants

The following table provides summary information regarding stock options granted to the Named Officers during the fiscal year ended December 31, 2001. The
options were granted pursuant to the Company's 1995 Stock Option/Stock Issuance Plan, the 1999 Stock Incentive Plan and grants outside of the Plan. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and does not represent how our stock performed. The actual stock price appreciation over the ten-year option terms
are far below the assumed 5% and 10% levels, and all options listed have terminated without being exercised by the Named Officer.

Option Grants in Last Fiscal Year

|               |  | Individual Grants |  |           |    |    |           | Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation For Option Term
|-------------- |  | ----------------- |  | --------- | -- | -- | --------- | ----------------------------------------------------------------------------------------------
|
|Rob Csongor    |  | 700,000
400,000   |  | 23.8
13.6 | %% | $$ | 0.40
1.25 |                                                                                               
|James Schmidt  |  | 100,000
60,000    |  | 3.4
2.04  | %% | $$ | 0.40
1.31 |                                                                                               
|Joyce Keshmiry |  | 10,000            |  | 0.34      | %  | $  | 1.31      |                                                                                               
|Linda Palmor   |  | 100,000
60,000    |  | 3.4
2.4   | %% | $$ | 0.40
1.31 |                                                                                               
|Greg Mrva      |  | 700,000
60,000    |  | 23.8
2.4  | %% | $$ | 0.56
1.31 |                                                                                               
|Frank Chu      |  |                  |  |          |    |    |          |                                                                                               

The
Company granted stock options representing 2,941,500 shares to employees in the last fiscal year.

Option Exercises and Holdings

The Named Executive Officers exercised no options during 2001. On November 26, 2001, all of the Company's stock option plans were terminated when the
Certificate of Dissolution was filed with the Secretary of State of Delaware. Therefore at December 31, 2001, there were no options outstanding exercisable or unexercisable.

Executive Retention Plan

On May 30, 2001, the Compensation Committee, acknowledging the challenges faced by the executive team in the current business climate, established an
executive retention plan (the "Executive Retention Plan"). Under this plan, the members of the executive team were granted options to purchase shares of the Company's common stock and/or retention
bonuses. In addition, a portion of

59

---

loans owed to the Company in connection with the purchase of the Company's common stock by certain of these individuals was forgiven. The loan forgiveness was effected through the repurchase of these
shares of common stock at an effective price per share equal to the fair market value on the date of repurchase, through the partial or total cancellation of the promissory note evidencing the loan.
The amounts shown in the following table reflect the amount of the loan forgiveness excluding accrued interest, but do not take into account the fair market value of the stock being repurchased, which
would have the effect of lowering the amount of compensation being given to the individual.

|Name                              |  | Amount of Loan
Forgiveness(1) |           | Retention
Bonus(2) |   | Option Grants(3)
|--------------------------------- |  | ----------------------------- | --------- | ------------------ | - | ----------------
|Robert Csongor                    |  | $                             | 110,000   |                    | $ | 150,000         
|James Schmidt                     |  |                               |          |                    |   | 150,000         
|Joyce Keshmiry                    |  |                               | 41,028    |                    |   | 73,000          
|Jeremy Verba(4)                   |  |                               | 200,000   |                    |   |                
|Linda Palmor                      |  |                               | 110,000   |                    |   | 110,000         
|Greg Mrva(5)                      |  |                               | 602,876   |                    |   |                
|All executive officers as a group |  | $                             | 1,187,348 |                    | $ | 700,000         

---



60

---

On
September 14, 2001, the Company entered into additional retention agreements with certain key executives and employees, in recognition of their services to HearMe based on the
performance of such employees and officers, including during the liquidation process. The Board believes that such arrangements are in the best interests of HearMe and its stockholders in order to
(i) retain the key individuals best-suited to participate in the process of winding down the Company and liquidating its assets in order to maximize the potential return to the
Company's stockholders, and (ii) provide such individuals with an incentive to maximize the return to the Company's stockholders. These retention agreements are as follows:

James
Schmidt (Chief Executive Officer):



Michael
Cottle (Vice President, Sales):



61

---



Joyce
Keshmiry (Chief Financial Officer):



John
Theodorakis (Vice President, General Counsel):



Greg
Mrva (Executive Vice President, Operations):



62

---



Compensation of Directors

Except for reimbursement for reasonable travel expenses relating to attendance at Board meetings and the grant of stock options, directors have not been
compensated for their services as directors. Directors who are employees of the Company have also been eligible to participate in the Company's 1999 Stock Incentive Plan and 1999 Employee Stock
Purchase Plan. Directors who are not employees of the Company were eligible to participate in the Company's 1999 Stock Incentive Plan and 1999 Directors' Stock Option Plan.

Under
our 1999 Directors' Stock Option Plan, or Directors' Plan, each non-employee director who first became a non-employee director after our initial public
offering received an automatic initial grant of an option to purchase 30,000 shares of common stock upon appointment or election. Initial grants to non-employee directors became
exercisable in installments of 25% of the total number of shares subject to the option on the first, second, third and fourth anniversaries of the date of grant. The Directors' Plan also provided for
annual grants, on the date of each annual meeting of our stockholders, to each non-employee director who had served on the Company's Board of Directors for at least six months. The annual
grant to non-employee directors is an option to purchase 7,500 shares of common stock, which option would become exercisable in full on the fourth anniversary of the date of grant. The
exercise price of all stock options granted under the Directors' Plan is equal to the fair market value of a share of our common stock on the date of grant of the option.

Under
this plan, on January 2, 2001, a grant of an option to purchase 30,000 shares of common stock at a price of $0.625 per share was made to Jeremy Verba. On April 30,
2001 grants of options to purchase 7,500 shares of common stock at a price of $0.34 per share were made to David Brown, William McCall and Jeremy Verba. The shares under the options were to vest 100%
after 4 years, subject to continued service as a member of the Board of Directors. All of these options terminated on November 26, 2001, the date the Company closed its stock transfer
books and filed the Certificate of Dissolution.

In
the event of a sale of all or substantially all of the assets of the Company or the merger or consolidation of us with or into another corporation in which the ownership of more than
50% of the total combined voting power of our outstanding securities changes hands, all outstanding options would have accelerated and become fully vested effective upon the consummation of the
transaction.

On
November 26, 2001, the Company's 1999 Directors' Stock Option Plan terminated when the Certificate of Dissolution with the Secretary of the State of Delaware was filed.

The
Company has entered into indemnification agreements with each member of the Board of Directors and some of its officers providing for the indemnification of such person to the
fullest extent authorized, permitted or allowed by law.

The
Company has agreed to forgive outstanding loans to certain directors. See "Executive Retention Plan" above.

We
have retained BPM to assist in the management of the continued wind-down of HearMe. It is currently contemplated that during the second quarter of 2002 all of our existing
employees, officers and directors will resign and that a representative from BPM will be appointed as our sole officer and director to oversee the liquidation and dissolution process. BPM will handle
all remaining affairs for the Company, including the final disposition of our remaining assets and settlement of any outstanding liabilities. Fees for BPM's professional services are based on an
hourly rate of the individual performing the work. It is estimated that the fees of BPM or any successor management company will range from an aggregate of $350,000 to $500,000 for three year
liquidation process.

63

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Compensation Committee Interlocks and Insider Participation in Compensation Decisions

During fiscal 2001, none of HearMe's executive officers served on the board of directors of any entities whose directors or officers serve on HearMe's
Compensation Committee. No current or past executive officers of HearMe serve on our Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial ownership of the shares of the Company's common stock on a fully-diluted basis as of
March 14, 2002 by:



Except
as otherwise noted, the address of each person listed in the table is c/o HearMe, 6200 Stoneridge Mall Road, 3rd Floor, Pleasanton, CA 94588. The table includes all
shares of common stock beneficially owned by the indicated stockholder as of March 14, 2002. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission ("SEC") and is based upon publicly available filings with the SEC as of March 14, 2002. In computing the number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of March 14, 2002 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage of ownership of any other person. To the knowledge of the Company, except as otherwise noted,
the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where
applicable.

64

---

The
percent of beneficial ownership for each stockholder is based on 28,402,908 shares of common stock outstanding as of March 14, 2002. An "*" indicates ownership of less than
1%.

Name

Shares
Beneficially
Owned

Percent
of
ClassAccel Partners(1)

2,846,719

10.0
%Performance Specialist Group, LLC(2)

1,603,263

5.6
%Paul Matteucci

581,078

2.0
%Brian Apgar

279,494

1.0
%James Schmidt

5,431

*
%Robert Csongor

5,730

*
%William McCall

1,000

*
%Jeremy Verba

63,831

*
%Joyce Keshmiry

41,603

*
%Linda Palmor

3,730

*
%Greg Mrva

17,970

*
%Frank Chu

528,231

1.9
%David A. Brown

175,758

*
%All executive officers and directors as a group (7 persons)

978,167

3.4
%


---



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Promissory Notes:

The directors and executive officers listed on the table below have executed full-recourse promissory notes in favor of the Company in excess of
$60,000. All of the notes listed below were executed in connection with the purchase of shares of the Company's common stock, and if the notes

65

---

are not paid back when due, the Company may seek repayment from the personal assets of the defaulting director or executive officer. Only Mr. Verba's note is due on April 29, 2002.

Name

Date of Note

Amount

Interest RateJeremy Verba
Director

04/13/99

$
487,868.90

4.99
%Greg Mrva
Former Executive Officer

1/25/99

$
602,876.52

4.64
%Linda Palmor
Former Executive Officer

02/05/99

$
221,398.31

4.71
%Robert Csongor
Director and Former Chief Executive Officer

11/22/98

$
123,594.00

4.51
%


During
2001, the following promissory notes were forgiven as part of the Executive Retention Plan:

Name

Date of Note

Amount

Interest RateGreg Mrva
Former Executive Officer

1/25/99

$
602,876.52

4.64
%Linda Palmor
Former Executive Officer

02/05/99

$
110,000.00

4.71
%Robert Csongor
Director and Former Chief Executive Officer

11/22/98

$
110,000.00

4.51
%


The company has entered into the retention plans, See "Executive CompensationExecutive Retention Plan" under Item 11.

We
have retained BPM to assist in the management of the continued wind-down of HearMe. It is currently contemplated that during the second quarter of 2002 all of our existing employees,
officers and directors will resign and that a representative from BPM will be appointed as our sole officer and director to oversee the liquidation and dissolution process. BPM will handle all
remaining affairs for the Company, including the final disposition of our remaining assets and settlement of any outstanding liabilities. Fees for BPM's professional services are based on an hourly
rate of the individual performing the work. It is estimated that the fees of BPM or any successor management company will range from an aggregate of $350,000 to $500,000 for three year liquidation
process.

66

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



Schedule IIValuation
and qualifying accounts

All
other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or the notes
thereto.

67

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|Number |   | Description                                                                                                                                                
|------ | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1    |   | Agreement and Plan of Merger dated as of September 27, 1999 among HearMe, ITR Acquisition Corp. and Resounding Technology, Inc.(1)                         
|2.2    |   | Plan of Liquidation and Dissolution.(8)                                                                                                                    
|2.3    |   | Asset Purchase Agreement dated December 19, 2001 by and among HearMe, AudioTalk Networks, Inc., Resounding Technologies, Inc. and PalTalk Holdings, Inc.(7)
|2.22   |   | Agreement and Plan of Merger dated as of March 10, 2000 among HearMe, AT Acquisition Corp. and AudioTalk Networks, Inc.(2)                                 
|2.23   |   | Asset Purchase Agreement dated as of December 18, 2000 by and between GameSpy Industries, Inc. and HearMe.(3)                                              
|3.2    |   | Form of Amended and Restated Certificate of Incorporation.(4)                                                                                              
|3.4    |   | Amended and Restated Bylaws.(4)                                                                                                                            
|4.1    |   | Specimen Stock Certificate.(4)                                                                                                                             
|4.3    |   | Form of Common Stock Purchase Warrant, issued in connection with the Series D Preferred Stock financing.(4)                                                
|4.4    |   | Warrant to Purchase Shares of Capital Stock dated November 18, 1996, issued by Mpath in favor of Intel Corporation.(4)                                     
|4.5    |   | Common Stock Purchase Warrant dated February 12, 1999, issued by HearMe in favor of PSINet, Inc.(4)                                                        
|4.6    |   | Common Stock Purchase Warrant dated February 12, 1999, issued by HearMe in favor of PSINet, Inc.(4)                                                        
|4.7    |   | Common Stock Purchase Warrant dated February 11, 1999, issued by HearMe in favor of Yahoo! Inc.(2)                                                        
|4.8    |   | Preferred Stock Purchase Warrant dated September 29, 1995, issued by HearMe in favor of Lighthouse Capital Partners, LP.(4)                                
|4.9    |   | Warrant to Purchase Stock dated July 29, 1998, issued by HearMe in favor of Greyrock Business Credit.(4)                                                   
|4.10   |   | Series E Preferred Stock Purchase Warrant dated January 15, 1999, issued by HearMe in favor of NationsBanc Montgomery Securities LLC.(4)                   
|4.11   |   | Convertible Senior Subordinated Promissory Note dated November 18, 1996, issued by HearMe to Viacom International, Inc.(4)                                 
|4.12   |   | Secured Promissory Notes dated July 29, 1998 and December 24, 1998 issued by HearMe to Greyrock Business Credit.(4)                                        
|4.13   |   | Fifth Amended and Restated Investors' Rights Agreement dated October 20, 1999.(2)                                                                          
|10.1   | * | Form of Indemnification Agreement between HearMe and each of its officers and directors.(4)                                                                
|10.2   | * | 1995 Stock Option/Stock Issuance Plan.(4)                                                                                                                  
|10.3   | * | 1999 Stock Incentive Plan.(5)                                                                                                                              
|10.4   | * | 1999 Employee Stock Purchase Plan.(5)                                                                                                                      
|10.5   | * | 1999 Directors' Stock Option Plan.(4)                                                                                                                      
|10.9   |   | Application Development Agreement dated November 9, 1998 between HearMe and Intel Corporation.(4)                                                         
|10.10  |   | Technology License Agreement dated April 15, 1996 between HearMe and SegaSoft Networks, Inc.(4)                                                           
|10.11  |   | Amendment #1 to Technology License Agreement dated November 27, 1996 between HearMe and SegaSoft Networks, Inc.(4)                                        
|10.12  |   | Amendment #2 to Technology License Agreement dated March 28, 1998 between HearMe and SegaSoft Networks, Inc.(4)                                           

68

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|10.13 |   | Amendment #3 to Technology License Agreement dated October 27, 1998 between HearMe and SegaSoft Networks, Inc.(4)                                                                                                                                                                                                                                                                                                                                                                                 
|----- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |   | Loan and Security Agreement dated July 29, 1998 between HearMe and Greyrock Business Credit, including the Related Schedule to Loan and Security Agreement dated July 29, 1998, the related Amendment to Loan Documents dated
July 31, 1998, the related Patent and Trademark Security Agreement dated July 29, 1998, the related Supplement One to Patent and Trademark Security Agreement dated December 1, 1998 and the related Security Agreement in Copyrighted Works dated July 29,
 1998.(4)
|10.16 |   | Industrial Lease dated December 1996 between HearMe and The Prudential Insurance Company of America and the related Nondisturbance and Attornment Agreement dated February 25, 1998.(4)                                                                                                                                                                                                                                                                                                            
|10.17 |   | Industrial Lease dated July 30, 1999 between HearMe and Martin CBP Associates, LP. (11)                                                                                                                                                                                                                                                                                                                                                                                                            
|10.18 |   | Loan and Security Agreement dated May 2, 2000 between HearMe and Silicon Valley Bank.(6)                                                                                                                                                                                                                                                                                                                                                                                                           
|10.19 |   | Termination of Lease Agreement dated June 29, 2001 by and between Martin CBP Associates, L.P. and HearMe. (10)                                                                                                                                                                                                                                                                                                                                                                                     
|10.20 |   | Settlement Agreement with GameSpy Industries, Inc. dated October 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.21 | * | Letter Agreement with Greg Mrva dated September 13, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.22 | * | Letter Agreement with James Schmidt dated September 20, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.23 | * | Letter Agreement with John Theodorakis dated September 20, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.24 | * | Letter Agreement with Mike Cottle dated September 20, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.25 | * | Letter Agreement with Joyce Keshmiry dated September 20, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.26 | * | Letter Agreement with James Schmidt dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.27 | * | Letter Agreement with Greg Mrva dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.28 | * | Letter Agreement with Mike Cottle dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.29 | * | Letter Agreement with Joyce Keshmiry dated May 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.30 | * | Letter Agreement with John Theodorakis dated May 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.31 | * | Letter Agreement with Robert Csongor dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|1032  | * | Letter Agreement with Linda Palmor dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.33 | * | Letter Agreement with Frank Chu dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.34 | * | Engagement Letter dated January 18, 2002 with Burr, Pilger & Mayer LLP.                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.35 |   | Termination Agreement dated January 18, 2002 between HearMe and Martin CBP Associates, LP.                                                                                                                                                                                                                                                                                                                                                                                                         
|21.1  |   | Subsidiaries of HearMe: Catapult Entertainment, Inc., Resounding Technologies, Inc., AudioTalk Networks, Inc.                                                                                                                                                                                                                                                                                                                                                                                      
|23.1  |   | Consent of Independent Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|24.1  |   | Power of Attorney. See Page 72.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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69

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70

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:   
| |  |       

Date:
March 15, 2002

71

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James Schmidt and Joyce Keshmiry, jointly and
severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

|Signature                        |  | Title                                                                |  | Date          
|-------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|                                 |  |                                                                      |  |               
|/s/ James SchmidtJames Schmidt   |  | Director and Chief Executive Officer (Principal Executive Officer)   |  | March 15, 2002
|/s/ Joyce KeshmiryJoyce Keshmiry |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 15, 2002
|/s/ Paul MatteucciPaul Matteucci |  | Chairman of the Board of Directors                                   |  | March 15, 2002
|/s/ Brian A. ApgarBrian A. Apgar |  | Director                                                             |  | March 15, 2002
|/s/ Rob CsongorRob Csongor       |  | Director                                                             |  | March 15, 2002
|/s/ William McCallWilliam McCall |  | Director                                                             |  | March 15, 2002
|/s/ Jeremy VerbaJeremy Verba     |  | Director                                                             |  | March 15, 2002

72

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EXHIBIT INDEX

|Number |   | Description                                                                                                                                                
|------ | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1    |   | Agreement and Plan of Merger dated as of September 27, 1999 among HearMe, ITR Acquisition Corp. and Resounding Technology, Inc.(1)                         
|2.2    |   | Plan of Liquidation and Dissolution.(8)                                                                                                                    
|2.4    |   | Asset Purchase Agreement dated December 19, 2001 by and among HearMe, AudioTalk Networks, Inc., Resounding Technologies, Inc. and PalTalk Holdings, Inc.(7)
|2.22   |   | Agreement and Plan of Merger dated as of March 10, 2000 among HearMe, AT Acquisition Corp. and AudioTalk Networks, Inc.(2)                                 
|2.23   |   | Asset Purchase Agreement dated as of December 18, 2000 by and between GameSpy Industries, Inc. and HearMe. (3)                                             
|3.2    |   | Form of Amended and Restated Certificate of Incorporation.(4)                                                                                              
|3.4    |   | Amended and Restated Bylaws.(4)                                                                                                                            
|4.1    |   | Specimen Stock Certificate.(4)                                                                                                                             
|4.3    |   | Form of Common Stock Purchase Warrant, issued in connection with the Series D Preferred Stock financing.(4)                                                
|4.4    |   | Warrant to Purchase Shares of Capital Stock dated November 18, 1996, issued by Mpath in favor of Intel Corporation.(4)                                     
|4.5    |   | Common Stock Purchase Warrant dated February 12, 1999, issued by HearMe in favor of PSINet, Inc.(4)                                                        
|4.6    |   | Common Stock Purchase Warrant dated February 12, 1999, issued by HearMe in favor of PSINet, Inc.(4)                                                        
|4.7    |   | Common Stock Purchase Warrant dated February 11, 1999, issued by HearMe in favor of Yahoo! Inc.(2)                                                        
|4.8    |   | Preferred Stock Purchase Warrant dated September 29, 1995, issued by HearMe in favor of Lighthouse Capital Partners, LP.(4)                                
|4.9    |   | Warrant to Purchase Stock dated July 29, 1998, issued by HearMe in favor of Greyrock Business Credit.(4)                                                   
|4.10   |   | Series E Preferred Stock Purchase Warrant dated January 15, 1999, issued by HearMe in favor of NationsBanc Montgomery Securities LLC.(4)                   
|4.11   |   | Convertible Senior Subordinated Promissory Note dated November 18, 1996, issued by HearMe to Viacom International, Inc.(4)                                 
|4.12   |   | Secured Promissory Notes dated July 29, 1998 and December 24, 1998 issued by HearMe to Greyrock Business Credit.(4)                                        
|4.13   |   | Fifth Amended and Restated Investors' Rights Agreement dated October 20, 1999.(2)                                                                          
|10.1   | * | Form of Indemnification Agreement between HearMe and each of its officers and directors.(4)                                                                
|10.2   | * | 1995 Stock Option/Stock Issuance Plan.(4)                                                                                                                  
|10.3   | * | 1999 Stock Incentive Plan.(5)                                                                                                                              
|10.4   | * | 1999 Employee Stock Purchase Plan.(5)                                                                                                                      
|10.5   | * | 1999 Directors' Stock Option Plan.(4)                                                                                                                      
|10.9   |   | Application Development Agreement dated November 9, 1998 between HearMe and Intel Corporation.(4)                                                         
|10.10  |   | Technology License Agreement dated April 15, 1996 between HearMe and SegaSoft Networks, Inc.(4)                                                           
|10.11  |   | Amendment #1 to Technology License Agreement dated November 27, 1996 between HearMe and SegaSoft Networks, Inc.(4)                                        
|10.12  |   | Amendment #2 to Technology License Agreement dated March 28, 1998 between HearMe and SegaSoft Networks, Inc.(4)                                           
|10.13  |   | Amendment #3 to Technology License Agreement dated October 27, 1998 between HearMe and SegaSoft Networks, Inc.(4)                                         

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|10.15 |   | Loan and Security Agreement dated July 29, 1998 between HearMe and Greyrock Business Credit, including the Related Schedule to Loan and Security Agreement dated July 29, 1998, the related Amendment to Loan Documents dated
July 31, 1998, the related Patent and Trademark Security Agreement dated July 29, 1998, the related Supplement One to Patent and Trademark Security Agreement dated December 1, 1998 and the related Security Agreement in Copyrighted Works dated July 29,
 1998.(4)
|----- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |   | Industrial Lease dated December 1996 between HearMe and The Prudential Insurance Company of America and the related Nondisturbance and Attornment Agreement dated February 25, 1998. (4)                                                                                                                                                                                                                                                                                                           
|10.17 |   | Industrial Lease dated July 30, 1999 between HearMe and Martin CBP Associates, LP. (11)                                                                                                                                                                                                                                                                                                                                                                                                            
|10.18 |   | Loan and Security Agreement dated May 2, 2000 between HearMe and Silicon Valley Bank.(6)                                                                                                                                                                                                                                                                                                                                                                                                           
|10.19 |   | Termination of Lease Agreement dated June 29, 2001 by and between Martin CBP Associates, L.P. and HearMe.(10)                                                                                                                                                                                                                                                                                                                                                                                      
|10.20 |   | Settlement Agreement with GameSpy Industries, Inc. dated October 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.21 | * | Letter Agreement with Greg Mrva dated September 13, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.22 | * | Letter Agreement with James Schmidt dated September 20, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.23 | * | Letter Agreement with John Theodorakis dated September 10, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.24 | * | Letter Agreement with Mike Cottle dated September 10, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.25 | * | Letter Agreement with Joyce Keshmiry dated September 10, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.26 | * | Letter Agreement with James Schmidt dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.27 | * | Letter Agreement with Greg Mrva dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.28 | * | Letter Agreement with Mike Cottle dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.29 | * | Letter Agreement with Joyce Keshmiry dated May 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.30 | * | Letter Agreement with John Theodorakis dated May 8, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.31 | * | Letter Agreement with Robert Csongor dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.32 | * | Letter Agreement with Linda Palmor dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.33 | * | Letter Agreement with Frank Chu dated June 19, 2001.(9)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.34 | * | Engagement Letter dated January 18, 2002 with Burr, Pilger & Mayer LLP.                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.35 |   | Termination Agreement dated January 18, 2001 between HearMe and Martin CBP Associates, LP.                                                                                                                                                                                                                                                                                                                                                                                                         
|21.1  |   | Subsidiaries of HearMe: Catapult Entertainment, Inc., Resounding Technologies, Inc., AudioTalk Networks, Inc.                                                                                                                                                                                                                                                                                                                                                                                      
|23.1  |   | Consent of Independent Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|24.1  |   | Power of Attorney. See Page 72.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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