# UNITED STATES SECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-QSB

[X]   QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT   OF 1934

| | For
the quarterly period ended  July 31, 2004
| | ---------------------------------------------

[     ]  TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

| | For
the transition period from _________ to ________
| | ----------------------------------------------------

| | Commission
File No.  000-50903
| | ------------------------------

METASUN ENTERPRISES, INC. (Exact
name of small business issuer as specified in its charter)

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Nevada                                                         | 47-0930829                          
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

201-1040 West 8th Avenue, Vancouver, British Columbia Canada V6H 1C4(Address
of principal executive offices)

604.739.1048(Issuers
telephone number, including area code)

N/A(Former Name, Former
Address if Changed Since last Report)

Check whether the issuer (1) filed
all reports to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes  [     ]     No  [X]

# [APPLICABLE ONLY TO
ISSUERS INVOLVED IN BANKRUPTCY

# PROCEEDINGS DURING THE
PRECEDING FIVE YEARS]

Check whether the registrant filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after distribution of securities under a plan confirmed by a
court.  Yes  [  ]     No  [  ].

# [APPLICABLE ONLY TO
CORPORATE ISSUERS]

State the number of shares
outstanding of each of the issuers classes of common equity as of the latest
practicable date:

As of September 15, 2004, there
were 10,357,500 shares of common stock, par value $0.001, outstanding.

Transitional Small Business
Disclosure Format (Check One):  Yes  [     ]     No  [X]

---



# PART I  FINANCIAL
INFORMATION

# Item 1.         Financial
Statements.

Metasun Enterprises, Inc.

(A Development Stage
Company)

|                                               | 
|---------------------------------------------- | 
|Consolidated Balance Sheets                    | 
|Consolidated Statements of Operations          | 
|Consolidated Statements of Cash Flows          | 
|Notes to the Consolidated Financial Statements | 

---

F-1

Metasun Enterprises, Inc.

(A Development Stage Company)
Consolidated Balance Sheets (expressed in U.S. dollars)

|                                                            | July 31,
2004,
$
(unaudited) | January 31,
2004
$
(audited)
|----------------------------------------------------------- | ---------------------------- | ----------------------------
|ASSETS                                                      |                              |                             
|Current Assets                                              |                              |                             
|Cash                                                        |                              |                             
|Accounts receivable                                         |                              |                             
|                                                           
|Total Current Assets                                        |                              |                             
|Property and Equipment (Note 3)                             |                              |                             
|Intangible Assets (Note 4)                                  |                              |                             
|                                                           
|Total Assets                                                |                              |                             
|                                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY                        |                              |                             
|Current Liabilities                                         |                              |                             
|Accounts payable                                            |                              |                             
|Accrued liabilities                                         |                              |                             
|Due to a related party (Note 5(a) and 5(b))                 |                              |                             
|                                                           
|Total Current Liabilities                                   |                              |                             
|Deferred Income Taxes (Note 7)                              |                              |                             
|                                                           
|Total Liabilities                                           |                              |                             
|                                                           
|Contingent Liability (Note 1)                               |                              |                             
|Stockholders' Equity                                        |                              |                             
|Common Stock (Note 6)                                       |                              |                             
|Authorized: 75,000,000 shares, par value $0.001             |                              |                             
|Issued: 10,357,500 shares and 6,600,000 shares respectively |                              |                             
|Additional Paid-in Capital                                  |                              |                             
|Donated Capital (Note 5(d))                                 |                              |                             
|Accumulated Other Comprehensive Income                      |                              |                             
|Deficit Accumulated During the Development Stage            |                              |                             
|                                                           
|Total Stockholders' Equity                                  |                              |                             
|                                                           
|Total Liabilities and Stockholders' Equity                  |                              |                             
|                                                           

The accompanying notes
are an integral part of these financial statements

---

F-2

Metasun Enterprises, Inc.

(A Development Stage Company) Consolidated
Statements of Operations (expressed in U.S. dollars) (unaudited)

|                                         | Accumulated from
April 11, 2003
(Date of Inception)
to July 31,
2004
$ | For the
Three Months
Ended
July 31,
2004
$ | For the
Three Months
Ended
July 31,
2003
$ | For the
Six Months
Ended
July 31,
2004
$ | Accumulated from
April 11, 2003
(Date of Inception)
to July 31,
2003
$
|---------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------ | ---------------------------------------- | ----------------------------------------------------------------------
|Revenue                                  |                                                                        |                                            |                                            |                                          |                                                                       
|Consulting                               |                                                                        |                                            |                                            | 73,562                                   |                                                                       
|License                                  |                                                                        |                                            |                                            | 46,527                                   |                                                                       
|                                        
|Total Revenue                            |                                                                        |                                            |                                            | 120,089                                  |                                                                       
|                                        
|Expenses                                 |                                                                        |                                           
|Advertising                              |                                                                        |                                            |                                            | 10,889                                   |                                                                       
|Amortization                             |                                                                        |                                            |                                            | 1,266                                    |                                                                       
|Commission                               |                                                                        |                                            |                                            | 1,843                                    |                                                                       
|Interest on note payable (Note 5(b))     |                                                                        |                                            |                                            | 405                                      |                                                                       
|Management and consulting services       |                                                                        |                                           
|(Note 5(c) and (d))                      |                                                                        |                                            |                                            | 48,763                                   |                                                                       
|Office and general                       |                                                                        |                                            |                                            | 10,679                                   |                                                                       
|Professional fees                        |                                                                        |                                            |                                            | 36,478                                   |                                                                       
|Rent (Note 5(d))                         |                                                                        |                                            |                                            | 6,941                                    |                                                                       
|Subcontract                              |                                                                        |                                            |                                            | 1,480                                    |                                                                       
|Transfer agent and filing fees           |                                                                        |                                            |                                            | 1,058                                    |                                                                       
|                                        
|Total Expenses                           |                                                                        |                                            |                                            | 119,802                                  |                                                                       
|                                        
|Net Income (Loss) Before Income Taxes    |                                                                        |                                            |                                            | 287                                      |                                                                       
|Income Taxes (Note 7)                    |                                                                        |                                            |                                            | (17,993                                  | )                                                                     
|                                        
|Net Income (Loss) for the Period         |                                                                        |                                            |                                            | (17,706                                  | )                                                                     
|Other Comprehensive Income               |                                                                        |                                           
|Foreign currency translation adjustments |                                                                        |                                            |                                            | 378                                      |                                                                       
|                                        
|Comprehensive Loss                       |                                                                        |                                            |                                            | (17,328                                  | )                                                                     
|                                        
|Net Loss Per Share - Basic and Diluted   |                                                                        |                                            |                                            |                                          |                                                                       
|                                        
|Weighted Average Shares Outstanding      |                                                                        |                                            |                                            |                                          |                                                                       
|                                        

The accompanying notes
are an integral part of these financial statements

---

F-3

Metasun Enterprises, Inc.

(A Development Stage Company)
Consolidated Statements of Cash Flows (expressed in U.S. dollars) (unaudited)

|                                                                | For the Six
Months Ended
July 31,
2004
$ | Accumulated from
April 11, 2003
(Date of
Inception) to
July 31,
2003
$
|--------------------------------------------------------------- | ---------------------------------------- | ----------------------------------------------------------------------
|Cash Flows From Operating Activities                            |                                          |                                                                       
|Net loss for the period                                         |                                          |                                                                       
|Adjustments to reconcile net loss to net cash used in operating |                                          |                                                                       
|activities                                                      |                                          |                                                                       
|Amortization                                                    |                                          |                                                                       
|Donated services and rent                                       |                                          |                                                                       
|Changes in operating assets and liabilities                     |                                          |                                                                       
|Accounts receivable                                             |                                          |                                                                       
|Accounts payable and accrued liabilities                        |                                          |                                                                       
|Deferred tax                                                    |                                          |                                                                       
|Due to related party                                            |                                          |                                                                       
|                                                               
|Net Cash Provided by Operating Activities                       |                                          |                                                                       
|                                                               
|Cash Flows From Financing Activities                            |                                          |                                                                       
|Issuance of common stock                                        |                                          |                                                                       
|                                                               
|Net Cash Provided By Financing Activities                       |                                          |                                                                       
|                                                               
|Effect of Exchange Rate Changes on Cash                         |                                          |                                                                       
|                                                               
|Net Increase in Cash                                            |                                          |                                                                       
|Cash - Beginning of Period                                      |                                          |                                                                       
|                                                               
|Cash - End of Period                                            |                                          |                                                                       
|                                                               
|Non-Cash Financing and Investing Activities                     |                                          |                                                                       
|                                                               
|Supplemental Disclosures                                        |                                          |                                                                       
|Interest paid                                                   |                                          |                                                                       
|Income taxes paid                                               |                                          |                                                                       
|                                                               

---

F-4

1.         Development Stage
Company

| | Metasun
Enterprises, Inc. (the Company) was incorporated in the State of Nevada on
October 2, 2003. Effective November 30, 2003, the Company acquired all the outstanding
common stock of Metasun Software Corp. (Software), a company under common
control. Prior to the acquisition, the Company was a non-operating shell corporation with
nominal net assets. The acquisition is a capital transaction in substance and therefore
has been accounted for as a reverse acquisition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | By
a Share Purchase Agreement dated November 30, 2003, the Company acquired 100% of the
issued and outstanding common stock of Software in consideration for the issuance of a
promissory note for $10,000. Software was incorporated on April 11, 2003 under the
Company Act of British Columbia and was owned by the President of the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Because
Software is deemed to be the acquirer for accounting purposes, the financial statements
are presented as a continuation of Software and include the results of operations of
Software since incorporation on April 11, 2003, and the results of operations of the
Company since the date of acquisition on November 30, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at November 30, 2003 the Company had $2,028 of net assets which was allocated to common
stock.
| | -------------------------------------------------------------------------------------------------

| | The
Company is based in Vancouver, British Columbia, Canada and its principal business is the
development of software specializing in web applications using Microsoft technologies. The
Company also provides website maintenance and server administration services. The
Companys only software product currently is MetaTraffic, a website statistics
program designed specifically for ASP based websites.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is in the development stage and planned principal activities have commenced, but
there has been no significant revenue therefrom. In a development stage company,
management devotes most of its activities to developing a market for its products and
services. These financial statements have been prepared on a going concern basis, which
implies the Company will continue to realize its assets and discharge its liabilities in
the normal course of business. The Company has not generated significant revenue and has
never paid any dividends. The Company is unlikely to pay dividends or generate significant
earnings in the immediate or foreseeable future. The continuation of the Company as a
going concern and the ability of the Company to emerge from the development stage is
dependent upon the continued financial support from its shareholders, the ability of the
Company to obtain necessary equity financing to continue operations and to generate
sustainable significant revenue. There is no guarantee that the Company will be able to
raise any equity financing or generate profitable operations. As at July 31, 2004, the
Company has an accumulated deficit of $17,706 since inception. These financial statements
do not include any adjustments to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. These factors raise substantial doubt regarding the
Companys ability to continue as a going concern.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company filed an amended SB-2 Registration Statement with the United States Securities and
Exchange Commission on May 28, 2004 to register 3,757,500 shares of common stock for
resale by existing shareholders of the Company. The Company did not receive any proceeds
from the resale of shares of common stock by the selling stockholders.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.          Summary of Significant
Accounting Principles

| | a) | Basis
of Presentation
| | -- | ---------------------

| | These
consolidated financial statements include the accounts of the Company and Software. All
significant intercompany transactions and balances have been eliminated. The Company has
not produced significant revenue from its principal business and is a development stage
company as defined by Statement of Financial Accounting Standard (SFAS) No.
7.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | Year
End
| | -- | --------

| | The
Companys fiscal year end is January 31.
| | --------------------------------------------

---

F-5

2.         Summary
of Significant Accounting Principles (continued)

| | c) | Use
of Estimates
| | -- | ----------------

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

| | d) | Cash
and Cash Equivalents
| | -- | -------------------------

| | The
Company considers all highly liquid instruments with a maturity of three months or less
at the time of issuance to be cash equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | e) | Interim
Financial Statements
| | -- | ----------------------------

| | These
interim financial statements have been prepared on the same basis as the annual financial
statements and in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the Companys financial
position, results of operations and cash flows for the periods shown. The results of
operations for such periods are not necessarily indicative of the results expected for a
full year or for any future period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | f) | Concentrations
| | -- | --------------

| | The
fair value of financial instruments which include cash, accounts receivable, accounts
payable, accrued liabilities and due to a related party were estimated to approximate
their carrying value due to the immediate or relatively short maturity of these
instruments. The Companys operations are in Canada and virtually all of its assets
and liabilities are giving rise to significant exposure to market risks from changes in
foreign currency rates. The financial risk is the risk to the Companys operations
that arise from fluctuations in foreign exchange rates and the degree of volatility of
these rates. Currently, the Company does not use derivative instruments to reduce its
exposure to foreign currency risk.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
at July 31, 2004, accounts receivable from a single customer represented 28% of total
accounts receivable.
| | -------------------------------------------------------------------------------------------------------------

| | g) | Property
and Equipment
| | -- | ----------------------

| | Property
and equipment consists of computer hardware, furniture and equipment and is recorded at
cost. Computer hardware, furniture and equipment are being amortized on a straight-line
basis over their estimated lives of three years and five years, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h) | Website
Development Costs
| | -- | -------------------------

| | The
Company recognizes the costs associated with developing a website in accordance with the
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) No. 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. Relating to website development costs the
Company follows the guidance pursuant to the Emerging Issues Task Force (EITF) No. 00-2,
Accounting for Website Development Costs.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Costs
associated with the website consist primarily of software purchased from a third party.
These capitalized costs are amortized based on their estimated useful life over four
years. Payroll and related costs are not capitalized, as the amounts principally relate
to maintenance. Internal costs related to the development of website content are expensed
as incurred.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i) | Long-Lived
Assets
| | -- | -----------------

| | In
accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the carrying value of intangible
assets and other long-lived assets is reviewed on a regular basis for the existence of
facts or circumstances that may suggest impairment. The Company recognizes impairment
when the sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset. Impairment losses, if any, are measured as the excess of the
carrying amount of the asset over its estimated fair value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

F-6

2.          Summary of Significant
Accounting Principles (continued)

| | j) | Foreign
Currency Translation
| | -- | ----------------------------

| | The
Companys functional currency is the Canadian dollar and the reporting currency is
the United States dollar. The financial statements of the Company are translated to
United States dollars under the current rate method in accordance with SFAS No. 52 Foreign
Currency Translation. Under the current rate method, all assets and liabilities are
translated at the current rate, while stockholders equity accounts are translated
at the appropriate historical rate. The revenues and expenses that occur evenly over the
period are translated at the weighted-average rate for the period. The cumulative
translation adjustments balance is reported as a component of accumulated other
comprehensive income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k) | Revenue
Recognition
| | -- | -------------------

| | The
Company recognizes revenue from the sale of products and services in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104),
Revenue Recognition in Financial Statements. Revenue consists of consulting
services and licensing and are recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, the service is performed or products
shipped, and collectibility is reasonably assured.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consulting
services consist of support services including server hardware setup and maintenance,
server software installation and maintenance, and web programming and debugging. The
Company recognizes consulting revenues ratably over the term of the services contract or,
if no contract is entered into, when the services are provided.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Licensing
revenue consists of revenue from licensing the Companys software and is recognized
when the software has been delivered and there are no significant remaining obligations.
The Company recognizes revenue from licensing its software products in accordance with
AICPA Statement of Position No. 97-2, as amended, Software Revenue Recognitionand
SAB 104.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l) | Offering
Costs
| | -- | --------------

| | On
May 28, 2004, the Company filed an SB-2 Registration Statement to register 3,757,500
shares of common stock for resale by existing stockholders of the Company. The Company
will not receive any proceeds from the resale of shares of common stock by the selling
stockholders, but will pay for expenses of this offering. Offering costs are included as
a charge to operations in the period incurred.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | m) | Other
Comprehensive Income
| | -- | --------------------------

| | SFAS
No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income and its components in the financial
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n) | Basic
and Diluted Net Income (Loss) per Share
| | -- | ---------------------------------------------

| | The
Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings
per Share (SFAS 128). SFAS 128 requires presentation of both basic and diluted
earnings per share (EPS) on the face of the income statement. Basic EPS is computed by
dividing net income (loss) available to common shareholders (numerator) by the weighted
average number of common shares outstanding (denominator) during the period. Diluted EPS
gives effect to all dilutive potential common shares outstanding during the period
including stock options, using the treasury stock method, and convertible preferred
stock, using the if-converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential
common shares if their effect is anti-dilutive.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o) | Recent
Accounting Pronouncements
| | -- | --------------------------------

| | In
December 2003, the United States Securities and Exchange Commission issued Staff
Accounting Bulletin No. 104, Revenue Recognition (SAB 104), which
supersedes SAB 101, Revenue Recognition in Financial Statements. The primary
purpose of SAB 104 is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, which was superseded as a result of the issuance
of EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.While
the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue
recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104.
The adoption of SAB 104 did not have a material impact on the Companys financial
statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.              Summary
of Significant Accounting Principles (continued)

| | p) | Income
Taxes
| | -- | ------------

| | Potential
benefits of income tax losses are not recognized in the accounts until realization is
more likely than not. The Company has adopted SFAS No. 109 as of its inception. Pursuant
to SFAS No. 109 the Company is required to compute tax asset benefits for net operating
losses carried forward. Potential benefit of net operating losses have not been
recognized in these financial statements because the Company cannot be assured it is more
likely than not it will utilize the net operating losses carried forward in future years.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

F-7

3.          Property and Equipment

|                        | Cost
$ | Accumulated
Amortization
$ | July 31,
2004
Net Carrying
Value
$ | January 31,
2004
Net Carrying
Value
$
|----------------------- | ------ | -------------------------- | ---------------------------------- | -------------------------------------
|                        |        |                            | (unaudited)                        | (audited)                            
|Computer hardware       |        |                            |                                    | 5,131                                
|Furniture and equipment |        |                            |                                    | 500                                  
|                       
|                        |        |                            |                                    | 5,631                                
|                       

4.           Intangible Assets

|                          | Cost
$ | Accumulated
Amortization
$ | July 31,
2004
Net Carrying
Value
$ | January 31,
2004
Net Carrying
Value
$
|------------------------- | ------ | -------------------------- | ---------------------------------- | -------------------------------------
|                          |        |                            | (unaudited)                        | (audited)                            
|Website development costs |        |                            |                                    | 242                                  
|                         

5.           Related Party Balances/Transactions

| | a) | The
amount of $343 owing to the President of the Company is non-interest
                    bearing, unsecured and due on demand.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------

| | b) | The
Company is indebted to the President of the Company for $10,000, which is
                    unsecured, bears interest at Royal Bank of Canada Prime Interest Rate
plus 2%                     per annum and is payable on demand. During the period, the
Company accrued                     interest charges of $295. This note was issued as
consideration for all the                     issued and outstanding common stock of
Software. See Note 7.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | Consulting
fees of $23,401 were paid to the President of the Company during the
                    period ended July 31, 2004.
| | -- | -------------------------------------------------------------------------------------------------------------------------------

| | d) | The
President of the Company provided management services and office premises to
                    the Company at no charge. These donated services are valued at $1,000
per month                     and donated office premises are valued at $250 per month. A
total of $6,000 and                     $1,500, respectively, were donated during the
period.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6.           Common Stock

| | a) | On
April 11, 2003, Software had issued 100,000 shares of its common stock at
                    $0.00077 per share for cash proceeds of $77.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | b) | On
October 2, 2003, prior to the reverse acquisition, the Company issued 100,000
                    shares of its common stock at $0.001 per share for cash proceeds of
$100.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | On
November 28, 2003, prior to the reverse acquisition, the Company issued
                    6,500,000 shares of common stock at $0.002 per share for cash
proceeds of                     $13,000.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

F-8

6.          Common Stock
(continued)

| | d) | On
February 15, 2004, the Company issued 3,757,500 shares of its common stock at
                    $0.002 per share for cash proceeds of $7,515.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------

7.           Income Taxes

| | The
Company provides deferred income taxes for differences between the tax reporting basis and
the financial reporting basis of assets and liabilities. The Company follows the
provisions of SFAS No. 109, Accounting for Income Taxes. Pursuant to SFAS 109
the Company is required to compute tax asset benefits for net operating losses carried
forward. The potential benefit of net U.S. operating losses has not been recognized in the
financial statements because the Company cannot be assured that it is more likely than not
that it will utilize the net U.S. operating losses carried forward in future years. The
Company has a U.S. tax loss of $13,153 to offset future years taxable income expiring
commencing in fiscal 2024.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
tax expense was as follows:
| | ----------------------------------

|                         | Six months
ended
July 31,
2004
$
(unaudited) | From April 11, 2003
(date of inception)
to January 31,
2004
$
(audited)
|------------------------ | -------------------------------------------- | -----------------------------------------------------------------------
|Current                  |                                              |                                                                        
|Canadian                 |                                              |                                                                        
|United States            |                                              |                                                                        
|Deferred:                |                                              |                                                                        
|Canadian                 |                                              |                                                                        
|United States            |                                              |                                                                        
|                        
|Total income tax expense |                                              |                                                                        
|                        

| | A
reconciliation of the statutory federal income tax rate to the Companys effective
tax rate follows:
| | ------------------------------------------------------------------------------------------------------

|                                  | Canada | United States
|--------------------------------- | ------ | -------------
|Statutory federal income tax rate |        |              
|Change in valuation allowance     |        |              
|                                 
|Total income tax expense          |        |              
|                                 

| | The
deferred tax liabilities and assets were as follows:
| | --------------------------------------------------------

|                                                | July 31,
2004
$
(unaudited) | January 31,
2004
$
(audited)
|----------------------------------------------- | --------------------------- | ----------------------------
|Deferred tax assets                             |                             |                             
|- Net operating loss carryforwards              |                             |                             
|- Less valuation allowance                      |                             |                             
|                                               
|Net deferred tax assets                         |                             |                             
|Deferred tax liability                          |                             |                             
|- Property and equipment, due to differences in |                             |                             
|financial and tax reporting basis               |                             |                             
|                                               
|Net deferred tax liability                      |                             |                             
|                                               

---

F-9

7.          Income
Taxes (continued)

| | At
July 31, 2004, the Company had net operating losses for U.S. federal income tax purposes
of $38,686, which begin expiring in fiscal 2024. When the future utilization of some
portion of the carryforwards is determined not to be more likely than not, a
valuation allowance is provided to reduce the recorded tax benefits from such assets. At
July 31, 2004, a valuation allowance of $13,153 was provided to reduce deferred tax assets
to nil.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

1

# Item 2.         
Managements Discussion and Analysis or Plan of Operation.

The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with
the financial statements and accompanying notes and the other financial information
appearing elsewhere in this report. The statements contained in this section include
projections of future results and forward-looking statements as that term is
defined in the Exchange Act. All statements that are included in this report, other than
statements of historical fact, are forward-looking statements. Although we believe that
the expectations reflected in these forward-looking statements are reasonable, we can give
no assurance that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the expectations are disclosed
in this report, including, without limitation, general business conditions.

OVERVIEW

Corporate History

We were incorporated in the State of
Nevada on October 2, 2003 and commenced operations commensurate with the acquisition of
Metasun Software Corp, on November 30, 2003. We acquired Metasun Software Corp. from Chad
DeGroot, our President, by issuing a $10,000 promissory note. The promissory note is at
the rate of prime plus 2% per annum and is due on demand. The acquisition was accounted
for as a reverse takeover. Our wholly-owned subsidiary, Metasun Software Corp., was
incorporated in British Columbia, Canada on April 11, 2003, at which time it commenced
operations with the sales of a software product called MetaTraffic. The software is a web
traffic analysis application that once installed on a website provides live traffic
statistics on visitors at the website. Through our subsidiary Metasun Software Corp, we
now sell the MetaTraffic software.

Our Current Business

Through our subsidiary Metasun
Software Corp, incorporated in British Columbia, Canada, we sell a software product called
MetaTraffic, which is currently our only product. The software is a web traffic analysis
application that once installed on a website provides live traffic statistics on visitors
at the website. The program was initially developed in October 2001 by our President, Chad
DeGroot, who subsequently caused Metasun Software Corp. to be incorporated for the ongoing
development, sale and distribution of MetaTraffic and Metasuns other software
products. MetaTraffic was initially distributed as a freeware application in order to gain
market share and help grow a strong base of users. MetaTraffic was first available for
download as freeware in October 2002, up until June of 2003. During this period,
MetaTraffic was downloaded approximately 7,000 times. Our President, Chad DeGroot,
distributed MetaTraffic through www.metasun.com.

In June 2003, v1.3 of MetaTraffic was
launched and was sold for a fee when used for commercial purposes. The software is still
available for free when used for personal or non-profit use. In conjunction with the
launch of the new software, www.metasun.com was launched which featured a newly redesigned
website.

The are 5 licensing options for
MetaTraffic which vary depending on the number of web sites the product is installed on:
(i) Single Web Site License: $39.95; (ii) 5 Web Sites: $99.95; (iii) Server License
(unlimited web sites on a single server): $199.95; (iv) Enterprise License (unlimited web
sites on an unlimited number of servers within a single organization): $499.95; and (v) In
addition to the above licensing options, there is also a developers license, which
is available for $999.95, which permits MetaTraffic to be licensed and included in another
developers software royalty free so long as this software is not marketed in
competition with MetaTraffic as a web traffic tracking application. This would apply where
the products primary purpose was not web traffic analysis. One example would be a content
management application that is used to manage web site content. As of July 31, 2004,
MetaTraffic has sold $46,527 in gross software licensing fees.

In addition to a license to use the
software, license holders receive free installation support via e-mail, which is currently
provided by our President, Chad DeGroot. All of the software licenses are available for
purchase through our website, www.metasun.com.

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2

MetaTraffic distinguishes licensing
based on the usage of the software depending on whether it is for commercial or personal /
non-profit use. Our rationale is that commercial users can more likely afford to pay for
the software, whereas personal users generally cannot. We are of the view that by getting
as many users as possible using the software, this improves the overall quality of the
product (through feedback) and increases the number of people with familiarity of the
product. It is the belief of management that this increased awareness has resulted
increased sales and will continue to do so in the future. However, due to technical
reasons inherent to the software programming language and platform, there is limited
ability to track and determine how the software is being used without hindering the
softwares compatibility with the most web servers possible.

The types of companies that have
purchased and may purchase the various licenses available will vary widely. Single web
site license: individual or small business with a single web site; 5 web site license:
individual, small business to medium size business with 3  5 web sites; Server /
Enterprise license: small to medium size business with more than 5 web sites they host,
manage or own (often web hosting or web development companies would purchase this
licensing type); and the Developer License: software companies who wish to include
MetaTraffic and distribute it royalty free in their application.

We use Share-it, an e-commerce
provider, to handle the e-commerce portion of the software sales. Share-it handles the
credit card transactions and also delivers the software to the purchaser via e-mail
instantly after purchase. In return for their services, Share-It receives a percentage
that averages approximately 7 to 13% commission on each sale.

In addition to selling software,
Metasun also offers technical consulting services for custom enterprise hosting solutions
and web application development for small to medium sized companies. In conjunction with
the strategic partners in our affiliate program, Metasun can provide a full end to end web
presence including design, web development, web programming, and online marketing. The
technical consulting services that we provide are specifically for web application
development that uses Microsoft technologies. We refer all non-technical services that do
not fit into web application development onto our strategic partners, with whom we do not
have any formal arrangements at present. Web application development includes web software
programming and database design in support of the software. Chad DeGroot, our President,
provides the web application development consulting services.

Current and Anticipated Sources of Revenue

We currently have two main sources of
revenue. These consist of software license sales from our flagship software product
MetaTraffic and consulting services. To date approximately 60% of this revenue has been
attributed to consulting; the remaining from software license sales. In the future, we
expect to have a larger percentage of its revenue derived from software sales as a result
of our focus on expanding this area of our business.

We are currently developing version
two of MetaTraffic. We hope to increase software license sales significantly with the
launch of this new product with a more stable and feature rich product offering coupled
with increased marketing efforts.

Consulting revenue currently
represents the majority of our revenue. This is derived from a technical consulting
contract with Acekicker.com Holdings, a company located in Victoria, British Columbia,
Canada. We provide Acekicker with a variety of technical services including site
management, web programming and system / network administration. From November of 2003 to
January of 2004, we earned approximately $13,300 in consulting revenue from our Acekicker
contract, and for the six month period ended July 31, 2004 earned a further $26,600 in
revenue from the Acekicker contract. This contract involves a variety of work but
primarily involves systems administration and web application development. The exact
amount attributed to each of the services varies from month to month. Chad DeGroot
provides all services relating to the Acekicker contract. The contract with Acekicker was
recently extended to October 31, 2004, which provides for Metasun Software receiving
consulting revenue of CAD$5,958 per month.

We also plan to release two new
products that are in development and scheduled for release in the summer and fall of 2004:
MetaNews and MetaLink. MetaNews and MetaLink are both web applications that are installed
onto a web site in order to provide their primary function. MetaNews is a news management
system and content management application that provides a way for non-technical
individuals to update content on their web sites through a web browser interface. MetaLink
is a link management program that dynamically creates a link directory on a web site.

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3

MetaLink is a website application
that manages reciprocal link programs building link directories on a website and a
monitoring reciprocal links on external websites. External links pointing to your site
are considered to be the key factor in determining and achieving high search engine
rankings for a website, making it an important part of any websites online
marketing strategy. Both of these products will have a similar licensing structure to
MetaTraffic with a per website licensing model. Both MetaNews and MetaLink were developed
by our President Chad DeGroot on behalf of Metasun Software. No funds were spent in their
development, although extensive man hours were required.

Marketing

We currently rely on free search
engine traffic and listings on website directories for the vast majority of website
traffic to www.metasun.com. This listings or these websites directories are free of
charge. Once MetaTraffic v2.0 is released, we plan to increase its marketing effort
significantly with pay per click advertising on search engines, advertising on niche
portal sites that include directories of software for your website, and an increased
reciprocal link exchange program in order to boost its rankings in the search engines. We
also plan to increase awareness to its affiliate program in order to try and increase
sales without direct marketing effort or expenditures.

Most of the traffic to Metasuns
website is referred through the major search engines and listings on website directories.
The major search engines represent approximately 50% of the websites traffic from
Google and Yahoo. The remaining visitors are referred from aspin.com and hotscripts.com,
two portal sites that have large directories of website software and applications.

After releasing MetaTraffic version
two, we plan to increase marketing expenditures with pay per click (PPC) advertising on
Google, Overture, Kanoodle and other PPC advertising networks yet to be identified. PPC
represents the majority of Internet advertising spending today as it is performance based
and payment is based solely on qualifying clickthroughs to the advertisers website.
In addition to PPC advertising, we will also be purchasing banner ad spots on several
different website application directory sites including Aspin.com and hotscripts.com.
Finally, we will be integrating a reciprocal link exchange application into
www.metasun.com in order to increase reciprocal links and boost Metasuns rankings in
the search engines.

We also plan to increase exposure to
our affiliate program which offers a 20% referral fee on all sales of software from
referring affiliates who have registered for this program. We will be listing the
affiliate program in several affiliate program and webmaster solution directories. We will
also be expanding the affiliate marketing text and documentation on the program and
boosting its visibility on our website. We anticipate spending $100 to 300 per month
marketing our affiliate program. As of July 31, 2004, there are currently 3 affiliates
that are members of our affiliate program, although we have not entered into any formal
agreements with these parties.

We temporarily suspended our
promotional efforts in order to focus on development of the next version of MetaTraffic.
After the software is launched, we plan to resume online advertising and increase spending
to approximately $500 to $750 a month. With the launch of the two new software products,
we forecast increasing the advertising budget by $250 per month for each new software
product.

Technology

We host our website and email on two
servers co-located at Peer1 Networks in a secure cage. These servers are owned and
operated by Metasun. Peer1 provides high performance bandwidth and secure server
co-location facilities with a 100% uptime guarantee. We pay a monthly fee of CAD$286.25 to
Peer1 Networks.

Competition

There is significant competition in
website traffic analysis software market. There are three distinct segments in the traffic
analysis market: other script based logging tools similar to MetaTraffic, log analysis
software and application service providers. Releasing new product lines will also
introduce a significant number of new competitors that can be grouped similarly as above.

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4

There are several script based
logging tools that are considered direct competition to MetaTraffic. These competitors use
the same technology in order to track and report web site statistics as MetaTraffic. They
include open source and commercial software products designed for Windows based web
hosting services. The primary competition with script based logging tools are SiteLog,
sold by SiteLog.com, and ASP StatsPro, a product by Primal Blue Software.

Although not direct competition, log
analysis software programs are seen as the stiffest competitors to MetaTraffic as they are
the most commonly used method of generating traffic reports on a web site. All web servers
produce log files which can be analyzed and used to produce reports by showing traffic
statistics. Examples of these software vendors include WebTrends by NetIQ, LiveStats by
DeepMetrix, and several others. They account for the vast majority of market share. The
primary difference between MetaTraffic and log analysis software is that MetaTraffic logs
traffic to a database whereas log analysis software relies on log files that are
automatically generated by the web server.

Application service providers (ASP)
offer live statistics services without the need to purchase any software. Instead, these
companies offer a monthly service that tracks activity on your website and offers
reporting on this activity from their website. This is a hosted service that does not
require you to install any software on your web site other than adding some tracking code
to each page. There are several competitors that offer this type of service including
DeepMetrix, IndexTools, and several others. The primary differences between MetaTraffic
and ASPs are that ASPs offer a remotely hosted service and the billing model is recurring
rather than a one time purchase.

Competition Pricing Comparison

|Product Name                          | Product Type                                       | Licensing Fees                                                                                                                         
|------------------------------------- | -------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|SiteLog  www.sitelog.com              | Script based logging tool                          | $39.00 for single websites    $150.00 for unlimited websites                                                                           
|ASP Stats Pro    Primal Blue Software | Script based logging tool                          | $14.95 per single website                                                                                                              
|WebTrends  www.netiq.com              | Log analysis software application                  | $499.00 for Log Analyzer  $1999.00 for Log Analyzer, Advanced                                                                          
|DeepMetrix  www.deepmetrix.com        | Log analysis software application                  | $895 for single website  $2995 for 25 websites (with options  in between)                                                              
|DeepMetrix  www.deepmetrix.com        | Live statistics service, hosted  application (ASP) | $49.95 to 99.95 per month depending  on volume of traffic                                                                              
|IndexTools  www.indextools.com        | Live statistics service, hosted  application (ASP) | $19.95 to 49.95 per month depending  on volume of traffic                                                                              
|Metasun Software  www.metasun.com     | Script based logging tool                          | $39.95 for single website  $199.95 for unlimited websites on a  single server  $399.95 for unlimited websites in a  single organization

Growth Strategy

We plan on growing the company and
revenues by increasing our product offering and associated marketing effort for each
product. After releasing the next version of MetaTraffic, we plan to release two more
products described previously. These will be released with similar licensing schemes and
marketing strategies as MetaTraffic. It is expected that the increased product offerings
will assist overall sales through cross marketing and application bundling strategies.

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5

Employees

Our president, secretary, treasurer
and director, Chad DeGroot, and our vice-president and director, Mr. Alastair Anderson,
are the only employees of our company. They handle all of the responsibilities in the area
of corporate administration, business development and research. Chad DeGroot provides all
corporate administration, business development and research services. He also provides the
75% of the product development, web site maintenance and development, and support
services. The remaining amount is provided by Alastair Anderson.

Intellectual Property

We own the domain name
www.metasun.com. Also, our MetaTraffic software includes a statement of copyright and a
standard license agreement.

The early version of the MetaTraffic
program was initially developed in October 2001 by our President, Chad DeGroot, who
subsequently caused Metasun Software Corp. to be incorporated for the ongoing development,
sale and distribution of MetaTraffic and Metasuns other software products.
Subsequently, v1.3 of MetaTraffic was finalized and launched in June of 2003. As this was
after the incorporation of Metasun Software Corp. in April of 2003, that product (and all
of our other products), were developed by Mr. DeGroot in his capacity as an employee of
Metasun Software Corp. As a result, the rights to all of our products are held directly by
our operating subsidiary, Metasun Software Corp.

We are not aware that our services or
proprietary rights infringe the proprietary rights of third parties. However, from time to
time, we may receive notices from third parties asserting that we have infringed their
trademarks, copyrights or other intellectual property rights. In addition, we may initiate
claims or litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. Any such claims could be
time-consuming, result in costly litigation, cause service stoppages or lead us to enter
into royalty or licensing agreements rather than disputing the merits of such claims. An
adverse outcome in litigation or similar proceedings could subject us to significant
liabilities to third parties, require expenditure of significant resources to develop
non-infringing technology, require disputed rights to be licensed from others, or require
us to cease the marketing or use of our website, any of which could have a material
adverse effect on our business, operating results and financial condition.

# RISK FACTORS

Much of the information included in
this annual report includes or is based upon estimates, projections or other forward
looking statements. Such forward looking statements include any projections or
estimates made by us and our management in connection with our business operations. While
these forward-looking statements, and any assumptions upon which they are based, are made
in good faith and reflect our current judgment regarding the direction of our business,
actual results will almost always vary, sometimes materially, from any estimates,
predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other
forward looking statements involve various risks and uncertainties as outline
below. We caution the reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or other
forward looking statements.

Our common shares are considered
speculative during our search for a new business opportunity. Prospective investors should
consider carefully the risk factors set out below.

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6

RISKS RELATED TO OUR
BUSINESS

We have had minimal cash flows
from operations and if we are not able to obtain further financing we may be forced to
scale back or cease operations or our business operations may fail.

To date we have had minimal cash
flows from operations and we have been dependent on sales of our equity securities to meet
our cash requirements. We have incurred cumulative losses of $17,706 from inception to
July 31, 2004. As of July 31, 2004, we had working capital deficit of $2,225. We do not
expect positive material cash flow from operations in the near term. Between October 2003
and February 2004, we received an aggregate of $7,592 gross proceeds from two private
placement financings in which we sold shares of our common stock. We also received $13,100
cash from our reverse acquisition of our subsidiary. We have estimated that we will
require between $18,500 and $48,000 to carry out our business plan in the year ended
January 31, 2005. We anticipate that the funds we have raised in the last private
placements may be sufficient to satisfy our cash requirements for the balance of the year
ended January 31, 2005. However, there is no assurance that actual cash requirements will
not exceed our estimates. In particular, additional capital may be required in the event
that:

we
incur unexpected costs in completing the development of our technology or encounter any
unexpected technical or other difficulties;


we incur delays and additional expenses as a result of technology failure;

 we
are unable to create a substantial market for our products; or


we incur any significant unanticipated expenses.

The occurrence of any of the
aforementioned events could adversely affect our ability to meet our business plans and
achieve a profitable level of operations.

We will depend almost exclusively on
outside capital to pay for the continued development and marketing of our technology. Such
outside capital may include the sale of additional stock and/or commercial borrowing.
There can be no assurance that capital will continue to be available if necessary to meet
these continuing development costs or, if the capital is available, that it will be on
terms acceptable to us. The issuance of additional equity securities by us would result in
a significant dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our liabilities
and future cash commitments.

If we are unable to obtain financing
in the amounts and on terms deemed acceptable to us, we may be forced to scale back or
cease operations.

We have only commenced our
business operations in April, 2003 and we have a limited operating history. If we cannot
successfully manage the risks normally faced by start-up companies, we may not achieve
profitable operations and ultimately our business may fail.

We have a limited operating history.
Our operating activities since our incorporation on October 2, 2003 consisted primarily of
acquiring a software company that had commenced operations in April, 2003, and continuing
to market the software. On November 30, 2003, we acquired all the outstanding shares in
Metasun Software Corp, a British Columbia, Canada company which owns a web statistical
tracking software called MetaTraffic and a website at www.metasun.com. Metasun Software
Corp. was incorporated on April 11, 2003. The acquisition has been accounted for as a
reverse takeover. Metasun Software Corp. started selling the MetaTraffic software in June
2003. We are continuing to develop and expand the softwares capabilities. Our
prospects are subject to the risks and expenses encountered by start up companies, such as
uncertainty regarding level of future revenue and inability to budget expenses and manage
growth accordingly and inability to access sources of financing when required and at rates
favorable to us. Our limited operating history and the highly competitive nature of the
software industry make it difficult or impossible to predict future results of our
operations. We may not establish a clientele that will make us profitable, which might
result in the loss of some or all of your investment in our common stock.

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7

The fact that we are in the early
development of our company and that we have only generated limited revenues since our
incorporation raises substantial doubt about our ability to continue as a going concern,
as indicated in our independent auditors opinion in connection with our audited
consolidated financial statements.

We are in the development stage and
have generated limited revenue since our inception on April 11, 2003. Since we are still
in the early stages of developing our company and because of the lack of significant
business operations at January 31, 2004, our independent auditors report includes an
explanatory paragraph about our ability to continue as a going concern. We will, in all
likelihood, continue to incur operating expenses without significant revenues until our
software gains significant popularity. Between October 2003 and February 2004, we raised
$7,592 through the sale of shares of our common stock. We also received $13,100 in cash
from the reverse acquisition of our subsidiary. We estimate our average monthly operating
expenses, not including one time expenses in marketing and in completing construction of
our website (estimated at a total of $4,500 to $10,000 for the 12 month period ending
January 31, 2005), to be approximately $5,000 each month. At this rate we will be able to
maintain our operations until January 31, 2005 without generating significant revenues
from our operations. Our primary source of funds has been the sale of our common stock and
consulting revenue earned by our President. We cannot assure that we will be able to
generate enough interest in our software. If we cannot attract a significant number users,
we will not be able to general any significant revenues or income. These circumstances
raise substantial doubt about our ability to continue as a going concern as described in
an explanatory paragraph to our independent auditors report on the financial
statements for the period ended January 31, 2004. If we are unable to establish and
generate material revenues our business will fail and you may lose some or all of your
investment in our common stock.

We have only generated limited
revenues from our business operations and we will need to raise additional funds in the
near future. If we are not able to obtain future financing when required, we might be
forced to discontinue our business.

Since the incorporation of our
subsidiary, Metasun Software Corp., we have generated $46,527 in revenue from software
license sales and $73,562 in consulting revenue. We issued a $10,000 promissory note to
acquire the outstanding shares in Metasun Software Corp. We intend to spend a further
$5,000 to expand our website and a further $6,000 to market our software before January
31, 2005. Because we cannot anticipate when we will be able to generate significant
revenue from our software license sales, we will need to raise additional funds to
continue develop our software and website to respond to competitive pressures, to acquire
complementary technologies or to respond to unanticipated requirements or expenses. We do
not currently have any arrangements for financing and we can provide no assurance to
investors we will be able to find such financing when such funding is required. Obtaining
additional financing would be subject to a number of factors, including investor
acceptance of our website and our business model. The most likely source of future funds
presently available to us is through the sale of equity capital. Any sale of share capital
will result in dilution to existing shareholders. Furthermore, there is no assurance that
we will not incur debt in the future, that we will have sufficient funds to repay our
future indebtedness or that we will not default on our future debts, jeopardizing our
business viability. Finally, we may not be able to borrow or raise additional capital in
the future to meet our needs or to otherwise provide the capital necessary to conduct
business, which might result in the loss of some or all of your investment in our common
stock.

All of our assets and all of our
directors and officers are outside the United States, with the result that it may be
difficult for investors to enforce within the United States any judgments obtained against
us or any of our directors or officers.

All of our assets are located outside
the United States and we do not currently maintain a permanent place of business within
the United States. In addition, all of our directors and officers are nationals and/or
residents of countries other than the United States, and all or a substantial portion of
such persons assets are located outside the United States. As a result, it may be
difficult for investors to enforce within the United States any judgments obtained against
us or our officers or directors, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any state thereof. Consequently,
you may be effectively prevented from pursuing remedies under U.S. federal securities laws
against them.

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8

If we are unable to protect our
Internet domain name, our efforts to increase public recognition of our brand may be
impaired.

We currently hold the Internet domain
name metasun.com. The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. The regulation of domain names in
the United States and in foreign countries is subject to change. As a result, we may be
unable to acquire or maintain relevant domain names in all countries in which we intend to
conduct business. This could impair our efforts to build brand recognition and to increase
traffic to our website and software sales. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value of our
trademarks and other proprietary rights. We may need to bring legal claims to enforce or
protect such intellectual property rights. Any litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of resources. Any claims,
by or against us, could be time consuming and costly to defend or litigate, divert our
attention and resources and result in the loss of goodwill associated with our trade
names.

The establishment and maintenance
of brand identity of our website and software is critical to our future success. If we are
unable to provide competitive software or otherwise fail to promote and maintain our
brands, we may never achieve a profitable level of operations.

We offer a single software product on
our website. Since we expect that in the future, substantially all of our revenues will be
generated from software license sales through our website, market acceptance of our
website is critical to our future success. Factors such as market positioning, the
availability and price of competing software, and the introductions of new technologies
will affect the market acceptance of our software.

We believe that establishing and
maintaining brand identity of our website will help increase the awareness of our
software. Promotion of our software will depend largely on our success in continuing to
provide a high quality online website. In order to attract and retain users for our
software and to promote and maintain our brand in response to competitive pressures, we
may increase our financial commitment to creating and maintaining a distinct brand loyalty
among our users. If we are unable to provide high quality online services, or otherwise
fail to promote and maintain our brand, incur excessive expenses in an attempt to improve,
or promote and maintain our brand, we will not achieve profitable operations and you may
lose some or all of your investment in our common stock.

We currently do not have any
intellectual property rights. If we are unable to protect our Metasun trade
name and MetaTraffic software products, our efforts to increase public
recognition of our Metasun brand may be impaired and we may be required to
incur substantial costs to protect our name and products.

We have not made any applications for
the protection of our intellectual property rights. As a consequence we may not be able to
prevent the unauthorized use of our Metasun trade name and
MetaTrafficsoftware products. We may be unable to prevent third
parties from acquiring and using names or products that are similar to, infringe upon or
otherwise decrease the value of our name, our products, and other proprietary rights that
we may hold. We may need to bring legal claims to enforce or protect any intellectual
property rights that we assert. Any litigation, whether successful or unsuccessful, could
result in substantial costs and diversions of resources. Any claims, by or against us,
could be time consuming and costly to defend or litigate, divert our attention and
resources and result in the loss of goodwill associated with our trade name and products.

If our operations are disrupted by
technological or other problems, we may not be able to generate revenues from the sales of
our products.

Our systems could be overwhelmed or
could fail for any number of reasons. We currently promote and sell our software
exclusively through the Internet. Heavy usage volumes could cause significant backlogs or
could cause our systems to fail. We may not be able to expand and upgrade our technology
and network hardware and software to accommodate increased usage by our customers on a
timely basis. Also, our systems, and those of the third parties on which we depend, may
not operate properly in the event of:


a hardware or software error, failure or crash,

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9

a
power or telecommunications failure,

 human
error, or


a fire, flood or other natural disaster.

Our systems may be more likely to
suffer problems while we implement upgrades to our network hardware and software.
Additionally, our computer systems and those of the third parties on which we depend may
be vulnerable to damage or interruption due to sabotage, computer viruses or other
criminal activities or security breaches.

The computer servers which house the
data storage and software are housed at the data center of a third party company. If the
systems of this third party slows down significantly or fail even for a short time, our
customers would suffer delays in data access. These delays could damage our reputation,
cause customers to choose other software vendors. We currently do not have any property
and business interruption insurance to compensate us for all losses we may incur. If any
of these circumstances occur, then our ongoing operations may be harmed to the extent that
we will be unable to sell our products, as a result of which you may lose some or all of
your investment in our common stock.

Because we face intense
competition, an investment in our company is highly speculative.

Our domain name
www.metasun.com and our MetaTraffic software are critical to our success. The
web based statistics industry is characterized by intense and substantial competition. We
believe that our website will have to compete with large and established companies such as
WebTrends and Deep Metrix, as well as other small to medium sized website statistic
software companies.

These existing and future competitors
may be able to respond more quickly to new or changing opportunities, technologies and
customer requirements than us and may be able to undertake more extensive promotional
activities, offer more attractive terms to customers and adopt more aggressive pricing
policies than we do. Increased competition by these existing and future competitors will
negatively affect our ability to maintain or expand our operations, or achieve
profitability.

We are currently dependent upon
one customer, AceKicker.com Holdings, for a substantial portion of our
revenues.

We have entered into a consulting
agreement with AceKicker.com Holdings which accounts for approximately 60% of our revenue.
Our reliance on this customer subjects us to various risks, including the possibility of
termination of our agreement, which would negatively affect our revenues. Although we
believe that AceKicker.com Holdings has no present intention to terminate our agreement
with them, there is no assurance that this will continue. In addition, our agreement with
AceKicker.com Holdings expires in October of 2004 and we cannot provide any assurances
that our agreement with them will be renewed. Further, if AceKicker.com Holdings ceased to
continue to retain us for consulting services, our revenues and profitability potential
may be irreparably harmed.

Because we depend on a small group
of qualified people and because our directors and officers, Chad DeGroot and Alastair
Anderson, if we cannot hire and retain qualified personnel to replace either of these
individuals if they leave our company then we might be forced to discontinue our
operations.

Since our incorporation on October 2,
2003, our president, secretary, treasurer and director, Mr. Chad DeGroot, has handled all
of the responsibilities in the area of corporate administration, business development and
research. Mr. Alistair Anderson was appointed vice-president and a director on November
28, 2003. In addition, Mr. DeGroot has also provided us with capital raising services. The
loss of the services of any of these directors, executive officers or key personnel, or
the inability to identify, hire, train and retain other qualified directors, executive
officers or personnel in the future would have a material adverse affect on our business,
financial condition and operating results. We do not maintain any life insurance policies
on any of these directors, executives, or key personnel for our benefit. If they sell all
or most of their shares common stock, they may no longer have an incentive to remain with
us, which would damage our business.

---

10

Our directors and officers are
engaged in other business activities and accordingly may not devote sufficient time to our
business affairs, which may affect our ability to conduct operations and generate
revenues.

One of our directors and officers is
involved in other business activities. Alastair Anderson, our Vice-President and director
is employed full time as a freelance graphic designer. As a result of these other business
activities that our directors and officers are involved in, our directors and officers may
not be able to devote sufficient time to our business affairs, which may negatively affect
our ability to conduct our ongoing operations and our ability to generate revenues.

Because our officers, directors
and principal shareholders control a majority of our common stock, investors will have
little or no control over our management or other matters requiring shareholder approval.

Our officers and directors and their
affiliates, in the aggregate, beneficially own 64% of issued and outstanding shares of our
common stock. As a result, they have the ability to control matters affecting minority
shareholders, including the election of our directors, the acquisition or disposition of
our assets, and the future issuance of our shares. Because our officers, directors and
principal shareholders control the company, investors will not be able to replace our
management if they disagree with the way our business is being run. Because control by
these insiders could result in management making decisions that are in the best interest
of those insiders and not in the best interest of the investors, you may lose some or all
of the value of your investment in our common stock.

Because we do not have sufficient
insurance to cover our business losses, we might have uninsured losses, increasing the
possibility that you would lose your investment.

We may incur uninsured liabilities
and losses as a result of the conduct of our business. We do not currently maintain any
comprehensive liability or property insurance. Even if we obtain such insurance in the
future, we may not carry sufficient insurance coverage to satisfy potential claims. We do
not carry any business interruption insurance. Should uninsured losses occur, any
purchasers of our common stock could lose their entire investment.

Because we can issue additional
common shares, purchasers of our common stock may incur immediate dilution and may
experience further dilution.

We are authorized to issue up to
75,000,000 common shares, of which 10,357,500 are issued and outstanding. Our board of
directors has the authority to cause our company to issue additional shares of common
stock without the consent of any of our shareholders. Consequently, our shareholders may
experience more dilution in their ownership of our company in the future.

RISKS ASSOCIATED WITH
OUR COMMON STOCK

There is no active trading market for
our common stock and if a market for our common stock does not develop, our investors will
be unable to sell their shares.

There is currently no active trading
market for our common stock and such a market may not develop or be sustained. It is our
intention to have our common stock quoted on the National Association of Securities
Dealers Inc.s OTC Bulletin Board. In order to do this, a market maker must file a
Form 15c-211 to allow the market maker to make a market in our shares of common stock. At
the date hereof, we are not aware that any market maker has any such intention. However,
we cannot provide our investors with any assurance that our common stock will be traded on
the OTC Bulletin Board or, if traded, that a public market will materialize. Further, the
OTC Bulletin Board is not a listing service or exchange, but is instead a dealer quotation
service for subscribing members. If our common stock is not quoted on the OTC Bulletin
Board or if a public market for our common stock does not develop, then investors may not
be able to resell the shares of our common stock that they have purchased and may lose all
of their investment. If we establish a trading market for our common stock, the market
price of our common stock may be significantly affected by factors such as actual or
anticipated fluctuations in our operation results, general market conditions and other
factors. In addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for the shares
of developmental stage companies, which may materially adversely affect the market price
of our common stock.

---

11

Because we do not intend to pay
any dividends on our common shares, investors seeking dividend income or liquidity should
not purchase shares in this offering.

We do not currently anticipate
declaring and paying dividends to our shareholders in the near future. It is our current
intention to apply net earnings, if any, in the foreseeable future to increasing our
working capital. Prospective investors seeking or needing dividend income or liquidity
should, therefore, not purchase our common stock. We currently have no revenues and a
history of losses, so there can be no assurance that we will ever have sufficient earnings
to declare and pay dividends to the holders of our shares, and in any event, a decision to
declare and pay dividends is at the sole discretion of our board of directors, who
currently do not intend to pay any dividends on our common shares for the foreseeable
future.

Our stock is a penny stock.
Trading of our stock may be restricted by the SECs penny stock regulations which may
limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The
Securities and Exchange Commission has adopted Rule 15g-9 which generally defines
penny stock to be any equity security that has a market price (as defined)
less than $5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The term accredited
investor refers generally to institutions with assets in excess of $5,000,000 or
individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its salesperson
in the transaction and monthly account statements showing the market value of each penny
stock held in the customers account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be given to the customer
orally or in writing prior to effecting the transaction and must be given to the customer
in writing before or with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchasers written agreement
to the transaction. These disclosure requirements may have the effect of reducing the
level of trading activity in the secondary market for the stock that is subject to these
penny stock rules. Consequently, these penny stock rules may affect the ability of
broker-dealers to trade our securities. We believe that the penny stock rules discourage
investor interest in and limit the marketability of our common stock.

NASD sales practice requirements
may also limit a stockholders ability to buy and sell our stock.

In addition to the penny
stock rules promulgated by the Securities and Exchange Commission (see above and the
Market for Common Equity and Related Stockholder Matters section at page 34
for discussions of penny stock rules), the NASD has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to recommending
speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customers financial
status, tax status, investment objectives and other information. Under interpretations of
these rules, the NASD believes that there is a high probability that speculative low
priced securities will not be suitable for at least some customers. The NASD requirements
make it more difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an adverse effect
on the market for our shares.

---

12

MANAGEMENTS
DISCUSSION AND ANALYSIS

Results of Operations

Period from April 11, 2003 (date of inception) to January 31, 2004

From the date of the incorporation of
Metasun Software Corp. on April 11, 2003 to January 31, 2004, we had not generated any
material revenue. Our operating activities during the period consisted primarily of
acquiring our wholly-owned subsidiary, Metasun Software Corp. and its software assets. The
acquisition was completed on November 30, 2003.

The period covered by our audited
financial statements is from the incorporation date of subsidiary Metasun Software Corp.,
on April 11, 2003 to January 31, 2004 during which we had minimal operations and generated
minimal revenue. For the period ending January 31, 2004, we generated $19,395 in revenue.
This revenue consisted of consulting fees paid to us by corporate clients for whom we
provide system administration services as well as from software sales. Of our revenue,
$15,484 came from consulting fees and $3,911 came from software sales. For this period our
operating expenses totalled $21,012, which also consisted of organizational costs for
incorporating our company.

As we expand our software line and
increase marketing of our website, we intend to increase our software sales such that it
represents a more significant portion of our revenue. Management believes this to be the
most scalable aspect of our business and will represent the focus of future marketing
efforts.

As noted, total expenses for the
period were $21,012. Out of these total expenses, $3,872 were consulting fees paid to our
President, and another $2,000 were donated management services from our President. Mr.
DeGroot is prepared to continue to donate services to us for the foreseeable future.

Professional fees were $13,750
represented by fees paid to auditors, accountants and lawyers.

Advertising expense was $1,074,
amortization was $303 and office, rent and general expenses were $3,769.

Three Month Period Ended July 31, 2004 (unaudited)

During the three month period ended
July 31, 2004, we generated total revenues of $46,409, which consisted of $29,527 in
consulting revenue and $16,882 in revenue from sales of our software. Our consulting
revenue was $nil for the previous period from April 11, 2003 to July 31, 2003, and our
software revenue increased from $220 in the previous period.

Total expenses for the three month
period ended July 31, 2004 increased to $58,701, from $1,741 for the previous period from
April 11, 2003 to July 31, 2003. The increase in expenses was primarily as a result of an
increase in professional fees to $13,750 for the three month period ended July 31, 2004,
from $nil for the previous period from April 11, 2003 to July 31, 2003, which represented
fees paid to auditors, accountants and lawyers. In addition, expenses associated with
management and consulting fees increased to $28,100 for the three month period ended July
31, 2004, from $nil for the previous period from April 11, 2003 to July 31, 2003, which
included consulting fees of $23,401 paid to our president. Advertising expenses also
increased to $9,805 for the three month period ended July 31, 2004, from $nil for the
previous period from April 11, 2003 to July 31, 2003.

Six Month Period Ended July 31, 2004 (unaudited)

During the six month period ended
July 31, 2004, we generated total revenues of $100,694, which consisted of $58,078 in
consulting revenue and $42,616 in revenue from sales of our software. Our consulting
revenue was $nil for the previous period from April 11, 2003 to July 31, 2003, and our
software revenue increased from $220 in the previous period.

---

13

Total expenses for the six month
period ended July 31, 2004 increased to $98,790, from $1,741 for the previous period from
April 11, 2003 to July 31, 2003. The increase in expenses was primarily as a result of an
increase in professional fees to $31,778 for the six month period ended July 31, 2004,
from $nil for the previous period from April 11, 2003 to July 31, 2003, which represented
fees paid to auditors, accountants and lawyers. In addition, expenses associated with
management and consulting fees increased to $42,891 for the six month period ended July
31, 2004, from $nil for the previous period from April 11, 2003 to July 31, 2003, which
included consulting fees of $35,192 paid to our president.

Liquidity and Capital Resources

For the period ended July 31, 2004,
net cash provided by operating activities was $19,910.

At July 31, 2004, we had $41,574 in our
bank account and $17,160 in accounts receivable.

Net cash provided by financing
activities for the period ended January 31, 2004 was $13,177. This consisted of sales of
6,500,000 shares of our common stock to our two directors at $0.002 per share and $13,100
cash received from the reverse takeover. For the period ended July 31, 2004 we received a
further $7,515 from the sale of 3,757,500 shares of common stock at $0.002 per share.
Non-cash transactions for the period since inception were $10,000 and is related to a note
payable for the acquisition of Metasun Software.

Capital Expenses and Sources of Funds

Presently, our revenue is not
sufficient to meet our operating and capital expenses. Management projects that we will
require additional funding to expand our current operations.

There is substantial doubt about our
ability to continue as a going concern as the continuation of our business is dependent
upon renewal of our consulting contract and successful and sufficient market acceptance of
new software releases, the continuing successful promotion of our website, and finally,
maintaining a break even or profitable level of operations.

We have incurred operating losses
since inception, and this is likely to continue into the twelve month period ended July
31, 2005. Management projects that we may require an additional $18,500 to $48,000 to fund
our ongoing operating expenditures, working capital requirements for the twelve month
period ended July 31, 2005, broken down as follows:

|Estimated Funding Required During the 12 Month Period Ended July 31, 2005
|-------------------------------------------------------------------------
|Operating expenditures                                                   
|Marketing                                                                
|General and Administrative                                               
|Website development costs                                                
|Working capital                                                          
|Total                                                                    

We have effected a series of equity
private placements totalling $7,592. Our cash on hand as at July 31, 2004 was $41,574.
These funds will enable us to address our current and ongoing expenses, continue with the
marketing and promotion activity connected with the development and marketing of our
software and expansion of our website. We anticipate that these funds, together with our
cash on hand and the revenue that we anticipate generating, will be sufficient to pay for
the offering expenses of this offering and will satisfy our minimum cash requirements for
the twelve month period ended July 31, 2005. If we require any additional monies during
fiscal 2005, we plan to raise any such additional capital primarily through the private
placement of our securities.

---

14

Due to the uncertainty of our ability
to meet our current operating and capital expenses, in their report on our audited annual
financial statements for the period ended January 31, 2004, our independent auditors
included an explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent auditors.

There is substantial doubt about our
ability to continue as a going concern as the continuation of our business is dependent
upon obtaining further financing, successful and sufficient market acceptance of our
website, the continuing successful development of our website, and, finally, achieving a
profitable level of operations. The issuance of additional equity securities by us could
result in a significant dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.

There are no assurances that we will
be able to obtain further funds required for our continued operations. We are pursuing
various financing alternatives to meet our immediate and long-term financial requirements,
which we anticipate will consist of further private placements of our equity securities or
shareholder loans. There can be no assurance that additional financing will be available
to us when needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to obtain the additional financing on a timely basis, we will
not be able to meet our other obligations as they become due and we will be forced to
scale down or perhaps even cease our Operations. We do not currently have any plans to
merge with another company, and we have not entered into any agreements or understandings
for any such merger.

Future Operations

Our primary objectives in the twelve
month period ending July 31, 2005 include further development and expansion of our product
line of website software and an increase in software license sales. Management believes
that some of the keys to our success include an increased breadth of software solutions
for webmasters as well as higher software license sales in order to have less reliance on
consulting revenue. We plan on launching at least one new version of our current software
and two additional software products within the next twelve months and we plan on slowly
increasing our software marketing expenditures.

Software Revenue

Our website commenced selling
software on June 15, 2003. With the new version to be released in the fall of 2004, we
expect sales to increase even further. We will be launching two new software products in
the fall of 2004, MetaNews and MetaLink. We expect that these two new applications
combined with the new version of MetaTraffic will contribute to increased software license
sales and assist in meeting Metasuns sales target of $4,000 in software licenses per
month by November 2004.

The software is being sold through an
e-commerce provider called Share-It. They charge a percentage fee for handling the credit
card transactions which ranges from 7-13% depending on the gross sale of the transaction.
This is paid monthly on the 15th of every month for the prior months
sales via bank wire transfer. Billing for consulting services is done on the
24th of each month, for that months monthly retainer fee and is paid on
the last day of the month via check.

Promotion

We currently promote our website on
the Internet through search engines, link exchanges and paid Internet advertising. Paid
Internet advertising includes banner ad placement and sponsored listings on niche portal
sites that provide directory style listings of website software. It also includes Pay Per
Click text link advertising on several search engines. Promotion is designed to attract
visitors to the website to download, trial and purchase our software. We have spent
approximately $1,074 on advertising including banner placements and pay per click text ads
on search engine results.

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15

From August 2003 until December 2003,
Metasun advertised on aspin.com, hotscripts.com and download.com with banner ad placements
and sponsored listings in their website software directory. During this time, we also
engaged in Pay Per Click text link advertising on google.com and kanoodle.com.

We temporarily suspended our
promotional efforts in order to focus on development of the next version of MetaTraffic.
After the software is launched, we plan to resume online advertising and increase spending
to approximately $500 to $750 a month. With the launch of the two new software products,
we forecast increasing the advertising budget by $250 per month for each new software
product.

Research and Development

We spent $242 to design and implement
our website. We expect to spend a further $1,000 to $3,000 developing the website between
now and January 31, 2005 to expand the website content to support the new products
anticipated for release. We expect the useful life of the website to be three years.

Development of the current version of
MetaTraffic took place from September 2002 until June 2003 with approximately 500 hours
spent by our President, Chad DeGroot. No outside help was solicited for the current
version. We have not incurred any specific expenses related to the development of the
MetaTraffic software.

Development of the next version of
MetaTraffic has been ongoing since July 2003. It is expected to be released in July and
approximately 300 hours invested by Chad DeGroot. Other than $200 spent on graphics work
for the reporting interface, no outside help was solicited for the upcoming version. This
version is expected to be competitive for one year before an upgrade will be required.

Approximately 200 hours have been
invested into product development for MetaLink and MetaNews, Metasuns future
software releases. It is expected that an additional 300 hours will be required to get
these products to market in addition to $1,000 contracting fees for graphical work to
support improvement in the user interfaces. These products are expected to be competitive
for one year before an upgrade will be required. We have not incurred any specific
expenses related to the development of the MetaLink and MetaNews software.

Purchase or Sale of Equipment

We do not anticipate that we will
expend any significant amount on equipment for our present or future operations. We may
purchase computer hardware and software for our ongoing operations.

Personnel

As of July 31, 2004, our employees
include our president, Chad DeGroot, and vice-president, Alastair Anderson. They handle
all of the responsibilities in the area of corporate administration, business development
and research. In addition, our president also provides us with capital raising services.
We have no other employees. In the twelve months ending July 31, 2005, we plan to increase
our total number of permanent employees by three: two programmers and one sales and
marketing person. We anticipate the cost of each employee to be employed will be
approximately $500 per month and we may choose to compensate our employees with
consideration other than cash, such as shares of our common stock or option to purchase
shares of our common stock.

If our sales and marketing program is
successful in selling software, we may be required to hire new personnel to improve,
implement and administer our operational, management, financial and accounting systems.

NEW ACCOUNTING
PRONOUNCEMENTS

In December 2003, the United States
Securities and Exchange Commission issued Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104), which supercedes SAB 101, Revenue Recognition in
Financial Statements. The primary purpose of SAB 104 is to rescind accounting
guidance contained in SAB 101 related to multiple element revenue arrangements, which was
superceded as a result of the issuance of EITF 00-21, Accounting for Revenue
Arrangement with Multiple Deliverables. While the wording of SAB 104 has changed to
reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely unchanged by the issuance of SAB 104. The adoption of SAB 104 did not have a
material impact on our financial statements.

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16

APPLICATION OF CRITICAL
ACCOUNTING POLICIES

Our consolidated financial statements
and accompanying notes are prepared in accordance with generally accepted accounting
principles used in the United States. Preparing financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, and expenses. These estimates and assumptions are affected by managements
application of accounting policies. We believe that understanding the basis and nature of
the estimates and assumptions involved with the following aspects of our consolidated
financial statements is critical to an understanding of our financials.

Going Concern

The audited consolidated financial
statements included with our SB-2 have been prepared on the going concern basis which
assumes that adequate sources of financing will be obtained as required and that our
assets will be realized and liabilities settled in the ordinary course of business.
Accordingly, the audited financial statements do not include any adjustments related to
the recoverability of assets and classification of assets and liabilities that might be
necessary should we be unable to continue as a going concern.

In order to continue as a going
concern, we require additional financing. There can be no assurance that additional
financing will be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to continue as a going concern, we would
likely be unable to realize the carrying value of our assets reflected in the balances set
out in the preparation of the financial statements.

Revenue Recognition

We recognize revenue from the sale of
products and services in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial
Statements. Revenue consists of consulting services and licensing and are recognized
only when the price is fixed or determinable, persuasive evidence of an arrangement
exists, the service is performed or products shipped, and collectibility is reasonably
assured.

Consulting services consist of
technical support services including server hardware setup and maintenance, server
software installation and maintenance, and web programming and debugging. We recognize
consulting revenues ratably over the term of the services contract or, if no contract is
entered into, when the services are provided.

Licensing revenue consists of revenue
from licensing our software and is recognized when the software has been delivered and
there are no significant remaining obligations. We recognize revenue from licensing our
software products in accordance with AICPA Statement of Position No. 97-2, as amended,
Software Revenue Recognition and SAB 104.

# Item 3. Controls and
Procedures.

As required by Rule 13a-15 under the
Securities Exchange Act of 1934, as of the end of the period covered by the annual report,
being July 31, 2004, we have carried out an evaluation of the effectiveness of the design
and operation of our companys disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our companys
management, including our companys president and our companys chief executive
officer. Based upon that evaluation, our companys president and our companys
chief executive officerconcluded that our companys disclosure controls and
procedures are effective as at the end of the period covered by this report. There has
been no significant changes in our companys internal controls or in other factors,
which could significantly affect internal control subsequent to the date we carried out
our evaluation.

---

17

Disclosure controls and procedures
are controls and other procedures that are designed to ensure that information required to
be disclosed in our companys reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our companys reports filed under the
Exchange Act is accumulated and communicated to management, including our companys
chairman and chief financial as appropriate, to allow timely decisions regarding required
disclosure.

# PART II  OTHER
INFORMATION

# Item 1.         Legal Proceedings

None.

# Item 2.         Unregistered
Sales of Equity Securities and Use of Proceeds

None.

# Item 3.         Defaults Upon
Senior Securities

None.

# Item 4.         Submission of Matters
to a Vote of Security Holders

None.

# Item 5.         Other Information

None.

# Item 6.         Exhibits and
Reports on Form 8-K.

Exhibits required by Item
601 of Regulation S-B

Exhibit
DescriptionNumber

| | 3.1 | Articles
of Incorporation (incorporated by reference from our Form SB-2 Registration
                            Statement, filed on March 19, 2004)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Bylaws
 (incorporated by reference from our Form SB-2 Registration Statement, filed on
                            March 19, 2004)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

| | 3.3 | Certificate
of Correction  (incorporated by reference from our Form SB-2 Registration
                            Statement, filed on March 19, 2004)
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------

| | 5.1 | Opinion
of Clark, Wilson regarding the legality of the securities being registered (incorporated
by reference from a Form SB-2/A Registration Statement, filed on May 28, 2004).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Subscription
Agreement, dated October 3, 2003, between Metasun Enterprises Inc. and
                            Chad DeGroot. (incorporated by reference from our Form SB-2
Registration Statement,                             filed on March 19, 2004)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2 | Subscription
Agreement, dated November 28, 2003, between Metasun Enterprises Inc. and
                            Chad DeGroot. (incorporated by reference from our Form SB-2
Registration Statement,                             filed on March 19, 2004)
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Subscription
Agreement, dated November 28, 2003, between Metasun Enterprises Inc. and
                            Alastair Anderson.  (incorporated by reference from our Form
SB-2 Registration         Statement, filed on
March 19, 2004)
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Form
of Subscription Agreement between Metasun Enterprises Inc. and each of the
                            following persons  (incorporated by reference from our Form
SB-2 Registration                             Statement, filed on March 19, 2004):
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name               | Amount of Common Shares
Purchased at $0.002 per Share
|------------------ | -----------------------------------------------------
|Craig Gulliver     | $125                                                 
|Craig Warren       | $325                                                 
|Brian Carlson      | $350                                                 
|Debra Maguire      | $250                                                 
|Wendy DeGroot      | $340                                                 
|Bill Brazier       | $275                                                 
|Katherine Gorgenyi | $175                                                 
|Tim Boesenkool     | $300                                                 
|Chris Maclean      | $325                                                 
|Sherri Edwards     | $150                                                 
|Stephen Ratcliffe  | $175                                                 
|Alex Alves         | $100                                                 
|Roger Williams     | $425                                                 
|Sean Maguire       | $450                                                 
|Agathe Savard      | $350                                                 
|Stacy Smith        | $330                                                 
|Christina Sales    | $100                                                 
|Ian Frame          | $250                                                 
|Peter Karch        | $250                                                 
|Julia Ding         | $145                                                 
|Mike Mcfayden      | $400                                                 
|Andrew Tippett     | $100                                                 
|Audrey Leung       | $100                                                 
|Ryan Totten        | $200                                                 
|Anand Greenwell    | $200                                                 
|Sheldon Karlson    | $200                                                 
|Mike Stann         | $200                                                 
|Kelly Smith        | $200                                                 
|Jacquie Hopkins    | $100                                                 
|Jeff Mottishaw     | $225                                                 
|Ryan Speed         | $250                                                 
|Wayne English      | $150                                                 

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19

| | 10.5 | Share
Purchase Agreement dated November 30, 2003 between Metasun Enterprises, Inc. and
                            Chad DeGroot  (incorporated by reference from our Form SB-2
Registration Statement,                             filed on March 19, 2004)
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Promissory
Note dated November 30, 2003 executed by Metasun Enterprises Inc.
                            (incorporated by reference from our Form SB-2/A Registration
Statement, filed on May                             28, 2004)
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Co-location
and Bandwidth Services Agreement, dated November 12, 2003, between Metasun
                            Software Corp. and Peer 1 Network, Inc. (incorporated by
reference from our Form SB-2/A                             Registration Statement, filed
on May 28, 2004).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | Contract
Agreement, dated April, 2004, between Metasun Software Corp. and Acekicker
                            Holdings (incorporated by reference from our Form SB-2/A
Registration Statement, filed                             on May 28, 2004).
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21. | Subsidiaries
of Metasun Enterprises, Inc.
| | --- | -----------------------------------------

| | Metasun
Software Corp. (British Columbia)
| | -----------------------------------------

| | 31.1 | Section
302 Certifications under Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------

| | 32.1 | Section
906 Certifications under Sarbanes-Oxley Act of 2002
| | ---- | -----------------------------------------------------------

Reports on Form 8-K

None.

# SIGNATURES

In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

/s/ Chad DeGroot By: Chad DeGroot,
President, Secretary, Treasurer and Director (Principal Executive Officer,
Principal Financial Officer and Principal Accounting Officer) Dated: September 17, 2004

/s/ Alastair AndersonBy: Alastair Anderson,
Vice-President and DirectorDated:September 17, 2004