C ME RUN CORP, 10KSB, 2001-01-17

C ME RUN CORP
10KSB, 2001-01-17
BLANK CHECKS

Previous: REMEDENT USA INC/AZ, 10QSB/A, EX-27, 2001-01-17

Next: C ME RUN CORP, 10KSB, EX-10.40, 2001-01-17

<PAGE>

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2000

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________.

COMMISSION FILE NO. 0-25359

CMERUN CORP.
(Name of Small Business Issuer in its Charter)

DELAWARE 91-2013692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

ONE CABOT ROAD, HUDSON, MA 01749
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (978) 567 6800

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

Title of each class Name of each exchange on which registered

NONE NONE
Securities to be registered under Section 12(g) of the Act:

COMMON STOCK, $.001 PAR VALUE PER SHARE
(Title of class)

Check whether the issuer (1) filed all reports required 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

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB

Yes: No: X

Issuer's revenues for its most recent fiscal year $0

The aggregate market value of the voting and non-voting common equity held
by non-affiliates was $1,010,000 as of December 31, 2000.

As of December 31, 2000, there were 3,021,000 shares of Common Stock of the
registrant issued and outstanding.

<PAGE>

CMERUN CORP.

FORM 10-KSB
FOR THE PERIOD ENDED SEPTEMBER 30, 2000

INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I

Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 5
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 5

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.... 5
Item 6. Management's Discussion and Analysis or Plan of Operation of 6
Item 7. Financial Statements........................................ 18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................. 34

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act......................................................... 34
Item 10. Executive Compensation...................................... 36
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 37
Item 12. Certain Relationships and Related Transactions.............. 38
Item 13. Exhibits and Reports on Form 8-K............................ 39
Signatures............................................................ 40
</TABLE>
i

<PAGE>

Part I
------

ITEM 1. DESCRIPTION OF BUSINESS

(A) BUSINESS DEVELOPMENT

cMeRun Corp. ("cMeRun" or the "Company") is an application service provider
whose strategy is to operate and offer internet computing as a service whereby
consumers will be able to access brand-name software and store files via a
secure web browser through their favorite Internet Service Provider ("ISP") or
using almost any internet-ready device.

The Company currently has not commenced its principal operations and in
accordance with Statement of Financial Accounting Standards (SFAS) No. 7
"Accounting and Reporting by Development Stage Enterprises," is considered a
development stage company for financial reporting purposes.

The Company was incorporated under the name Fundae Corporation ("Fundae") on
March 16, 1995 under the laws of the State of Florida. From inception to
December 1999, the Company conducted minimal business operations except for
organizational and capital raising activities.

On December 2, 1999, Fundae changed its name to cmerun, Inc. in anticipation of
a potential transaction with a privately held application service provider, C Me
Run Corp. On December 29, 1999, the Company reincorporated in the State of
Delaware through the merger of the Company with and into its wholly-owned
subsidiary, Fundae Acquisition Corporation.

On January 31, 2000, Fundae Merger Sub, Inc., a wholly-owned subsidiary of the
Company, merged with and into C Me Run Corp. The merger was a stock-for-stock
transaction accounted for as a reverse merger in which the shareholders of C Me
Run Corp. received an aggregate of 1,000 shares of common stock, 2,000,000
shares of Series A Convertible Preferred Stock and 2,333,333 shares of Series B
Convertible Preferred Stock. Prior to the merger, the Company had 7,000,000
shares of common stock outstanding. In connection with the merger, the Company
exercised a right to purchase for cancellation, 4,000,000 shares of its common
stock for a total consideration of $1.00 with a resulting 3,001,000 shares of
common stock being issued and outstanding.

On February 2, 2000, C Me Run Corp. merged with and into the Company, and in
connection with the merger, the Company changed its name to "cMeRun Corp."

As a result of the merger, the Company became obligated to acquire C Me Run
Alberta Ltd. ("Alberta"), pursuant to the terms of an acquisition agreement by
and among CMERUN Corp., CMERUN Acquisition Corp.("CAC") and Alberta (the
"Alberta Agreement").

Alberta was incorporated in Canada in November 1999 in anticipation of the
merger of C Me Run Corp. and Fundae Merger Sub, Inc. Alberta was established
as a tax-efficient mechanism to transfer equity in the Company following the
merger to certain of cMeRun Corp.'s Canadian founders and other Canadian
individuals, as well as to reduce Canadian legal restrictions on the trading
of such equity securities.

The Alberta Agreement provided that the Company would become obligated to
issue (i) upon exchange of certain exchangeable shares of CAC, an aggregate
of 2,650,000 shares of common stock and to certain employees and other
parties options to purchase an aggregate of 325,000 shares of common stock
with an exercise price of $1.00 per share, and (ii) options to purchase an
aggregate of 1,295,000 shares of common stock with an exercise price of $5.00
per share. The Alberta Agreement expressly provided that the Company had the
right to terminate the Alberta Agreement if the merger was not consummated by
April 30, 2000. Until August 2000, the Company undertook efforts to make
certain pre-merger Canadian regulatory filings for the purpose of reducing
Canadian restrictions on the trading of the equity securities to be issued in
the merger, but abandoned such efforts at such time, and began a
re-evaluation of the merger and its effect on the Company's financial
statements and other matters.

On November 6, 2000, the Company terminated the Alberta Agreement and entered
into a termination agreement whereby the Company agreed to grant to Alberta
options to purchase approximately 1,100,000 shares of common stock, vesting
annually over three years, at an exercise price of $3.60 per share. In exchange
for the foregoing, the Company received, among other things, a release from
Alberta and certain other parties.

Under separate agreements, the Company agreed to issue to certain of the
Company's employees, officers and directors that were to have received
consideration upon the acquisition of Alberta, options to purchase 50,000
shares of common stock with an exercise price of $1.00 per share, options to
purchase an aggregate of 845,000 shares of common stock with an exercise
price of $5.00 per share, and options to purchase an aggregate of 725,000
shares of common stock with a nominal exercise price.

In the Fall of 2000, the Company raised funds for operations through the sale of
debt and convertible securities to affiliated parties and to certain existing
stockholders. As of the date hereof, the Company has reduced its operations and
number of employees significantly so as to reduce its requirements for ongoing
additional funding until more favorable conditions exist for

<PAGE>

the Company and its principal customers and sources of distribution.

(B) NARRATIVE DESCRIPTION OF BUSINESS

The service provided by cMeRun enables consumers to access brand-name software
applications and games via a secured Web browser from their favorite Internet
service provider, commonly known as an "ISP" or "portal". Acting as the
application service provider engine behind its ISP customers, cMeRun is seeking
to enable Internet portals and ISPs to provide software applications and games
to customers from data centers across a wide-area network.

Consumer ISPs currently specialize in providing Internet access to their
customers. cMeRun's services enable an ISP to become a consumer application
service provider, by providing management and delivery services for software
applications and games to be delivered to customers. cMeRun will work with these
ISP customers to create customized interfaces, which partners can then market,
and sell the applications and games to their end users under their own brands.
Through these ISP customers, cMeRun intends to leverage existing consumer
portals to gain market penetration without incurring the expense of developing
its own channel to the Internet.

cMeRun acts as both a subscription software distributor and a technical services
company. It specializes in the design, deployment and management of back-end
solutions for ISPs, Internet portals and telecommunication companies. It has
developed what it believes to be a solid infrastructure design and a flexible
licensing framework which will enable its customers to offer applications and
personal file storage services to their subscribers, which are the end users of
the cMeRun services.

Our Services

CO-BRANDED INTERNET COMPUTING SERVICE - cMeRun's primary service offering is the
deployment of an Internet-based, web-accessed computing platform that its
customers license, co-brand and market to their customers as an integrated
component of their Internet computing service. cMeRun's customers, ISPs and
Internet portals, can choose the application packages they wish to offer their
subscribers, which can include software titles from companies such as Microsoft,
Corel and others. Subscriptions will automatically include upgrades to future
versions.

When end users want access to the system, they simply go to the customer's
home page and log in. The cMeRun system can recall users' personal settings
and provide access to their files through a simple icon or link on their
start page. Clicking the link automatically launches the application as an
embedded element of the page or in a new browser window.

The customers have the opportunity to present the interface to their end
users with maximum flexibility. They can create an experience whereby users
can modify the appearance of their "desktop" (e.g., change colors, change
backgrounds, show personal pictures, remove/add features to their "home
page").

cMeRun provides a certain amount of basic file storage per user, with
additional storage available for an incremental fee. In addition, it provides
security in the form of 128-bit encryption (Secure Socket Layer - SSL) and an
internal firewall at no extra charge. For the end user, cMeRun will provide a
free Web-based help desk and email customer support service related to the
cMeRun offering. Telephone end user support is normally provided via the
existing help desk of the ISP or Internet portal. cMeRun in turn provides
service specific telephone support to key customer technical staff.

Because the software applications and games offered by cMeRun through its
customers run on cMeRun's servers instead of an end-user's hard drive, cMeRun
can provide an end-user with a flexible and dynamic platform for personal
computing.

- The cMeRun service enables end users to pay for as many or as few
software applications as they need and only for as long as they want
them.

- cMeRun intends to continually upgrade each of its application offerings
automatically, at no additional cost to the consumer. End users do not
need to have the aptitude or the expertise to manage system updates or
handle day-to-day maintenance for their computer systems to access new
software applications.

- Because the applications are not run on the end user's hardware, the
ultimate customer can avoid the $1,500 to $3,500 investment in hardware
upgrades or new computers that have the sophistication necessary to
operate the newest and most technically evolved applications.

- An end user can access his or her personal desktop, files, and
applications anywhere, anytime, and on almost any Internet-capable
device, regardless of the platform.

CMERUN PROFESSIONAL SERVICES - cMeRun's professional services division plans to
provide for-fee consulting to our ISP customers to aid in the planning,
deployment and ongoing integration of the offerings co-branded between cMeRun
and the ISPs. The amount of consultation and customization will vary among
customers.

<PAGE>

Content

cMeRun is continually negotiating to expand the list of vendors which have
licensed the use of their software to run on the cMeRun service. Companies which
have extended such licenses to cMeRun include Microsoft Corporation, Corel
Corporation, Simon & Schuster, Inc., Zane Publishing, Inc., Winstruct, Inc.,
DeLorme Publishing Company, Inc., Individual Software and Merit Software. The
Company is in the process of testing and certifying the software provided by
these vendors as capable of running on the cMeRun system.

Our Market

DIRECT TARGET MARKET. cMeRun's primary direct target market includes the ISPs,
telcos, broadband carriers, and other companies with a major consumer Internet
focus, and Internet portal sites. cMeRun's secondary direct target market
consists of the computer hardware manufacturers and marketers of Internet
appliances, such as "thin client devices" and television set-top boxes.

INDIRECT TARGET MARKET. cMeRun's indirect target consists of consumers who make
personal use of consumer applications and games. These includes:

- Consumers, small office and home office users. This population wants to
be able to access the latest software applications without the difficulty
and expense of constantly upgrading their hardware or software
requirements and/or maintaining their system;

- Individuals who have Internet-capable "thin clients," ranging from
hand-held devices to set-top devices, with a need to access applications
and content to expand the capabilities of their devices;

- People who travel extensively and would like the ability to access their
applications and files at any time from any place they have access to the
Internet, regardless of what computer they are using; and

- People who cannot afford the initial investment in a fully functional
personal computer, but who would consider subscribing to a comprehensive
service that supplies an Internet appliance, Internet connectivity and
the cMeRun application service for a fixed monthly fee.

Revenue Opportunities

cMeRun is in the development stage, and has no revenue from product sales or
provision of its services. cMeRun seeks to generate revenue through multiple
sources, including through:

- Per-user software licensing fees paid to cMeRun by its customers;

- Monthly management and licensing service fees paid to cMeRun by its
customers; and

- Professional services fees paid to cMeRun by its customers.

As cMeRun increases its end-user subscriber base, it may seek the possibility of
charging an agency fee from e-commerce and advertising programs generated
through hits/impressions related to the delivery of our Internet computing
services.

Marketing

cMeRun has a combined push and pull marketing and promotion strategy.

PUSH MARKETING - Through a North American campaign consisting of public
relations, symposium and trade show participation and sponsorship, and
advertising, cMeRun will seek to create awareness of its brand and services to
its direct market: ISPs, telcos and Internet portal companies that are potential
customers.

PULL MARKETING - cMeRun plans to sponsor cooperative advertising and marketing
campaigns with customers to promote the service to its customers' subscribers,
thereby increasing revenue for both cMeRun and its customers. These campaigns
will help create consumer market awareness of the cMeRun brand to heighten brand
awareness both of cMeRun's components and the brands of its partners.

Product Development Schedule

In January 2000, cMeRun completed a proof of concept demonstration of an
application running via the Internet, providing storage on a remote server and
generating statistics on a per-user basis. The software package Microsoft
Office(TM) was made available to Windows-only Web-based clients. A static HTML
page with no customizability options was presented to the end users.

By the end of April 2000, cMeRun had procured and configured the initial
hardware components and development servers and completed the documentation of
the policies, procedures and standards that are used to establish the cMeRun
development

<PAGE>

environment, including the development of the back-end software, Web site design
and integrated accounting systems.

From February to May 2000, beta users were given access to a limited set of
consumer applications hosted on WWW.CMERUN.COM. In addition, focus groups were
exposed to the service. This phase tested the performance, functionality, design
and overall user experience of the service and its perceived value in cMeRun's
market. From these tests, cMeRun refined the performance, design and
functionality elements of the service. Also during this time period, additional
technical resources and customer support staff were recruited and trained on
cMeRun's design and its maintenance and service delivery methodologies to
prepare for implementation.

The Company's initial server farm/data center was in Seattle, Washington. In
June 2000, cMeRun replaced this facility with a full production Data Center in
Waltham, Massachusetts, with capacity to accommodate 10,000 subscribers. This
server farm is housed in a facility operated by Exodus Communications, Inc., is
highly secure, and is designed for rapid scale. Our R&D facility was built in
our offices in Hudson, Massachusetts.

Additionally, cMeRun has developed a partnership with Exent Technologies Inc. to
integrate online gaming into cMeRun's web-based application suite. cMeRun and
Exent have entered into a partnership to co-market and provide integration and
support services around the deployment of Exent's gaming platform.

cMeRun designed and implemented a controlled rollout of its service with Cyber
Beach, an Ontario, Canada Internet service provider, which moved to full
production and a service contract on November 1, 2000. The Company, in January
2001, significantly reduced its development and marketing staffs to conserve
resources until more favourable financing and sales conditions are presented.
Development of product is continuing on a limited basis and will be accelerated
based on customer requirements, new strategic partnerships and available
financing from such parties or third parties. The Company is continuing in
negotiations with service providers and portals, and hopes to be able to provide
its service on a larger scale in the third quarter of fiscal 2001.

Competition

cMeRun's direct competitors are focused on enabling the consumer market to use
the Internet as a personal workspace. These companies include IntoNetworks,
Yummy.com, MediaStation and Always On, among others. Such companies have
announced or are already delivering software rental services potentially
targeted at the consumer market. In general, cMeRun believes that it offers
better pricing, more storage capacity, enhanced security features and better
overall performance than its competitors. Although these companies have similar
business models, cMeRun focuses on the consumer market using a "thin-client"
mind set, meaning an end user that utilizes minimal local hardware to engage in
computing.

<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY

The Company maintains its offices and research and development function in a
facility containing approximately 17,500 square feet in Hudson, Massachusetts,
under a lease, which expires March 31, 2005. Its data center and server farm is
located in Waltham, Massachusetts, in a facility operated and maintained by
Exodus Communications.

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings based on the information currently
available which would in the opinion of management materially affect the
financial condition or results of operations of the Company.

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

There were no matters submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended September 30, 2000.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information

Until September 2000, the Company's common stock was quoted on the OTC Bulletin
Board under the symbol "CMER". As a result of the Company being delinquent in
the filing of its Form 10-QSB for the period ended June 30, 2000, the Company's
stock ceased electronic trading on the OTC Bulletin Board, and has not been
electronically traded since that time. On December 6, 2000, the Company filed
its Amended Form 10-QSB/A for the period ended March 31, 2000, to restate
certain financial results, and its Form 10-QSB for the period ended June 30,
2000. Accordingly, it is seeking to have its stock returned to electronic
trading on the OTC Bulletin Board, but cannot predict when, or if, such trading
will resume.

The high and low market value per share of common stock as reported on the OTC
Bulletin Board for each of the quarters of the fiscal year ended September 30,
2000 was as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------
High Low
-------------------------------------------------------------
<S> <C> <C>
Fiscal Year 2000
First quarter $ 1.30 $ .0063
Second quarter $44.00 $ 5.00
Third quarter $23.00 $10.50
Fourth quarter $16.5 $ 5.50

Fiscal Year 2001
First Quarter through
December 31, 2000 $ 8.00 $ .125
</TABLE>

(b) Holders

As of December 31, 2000, there were 14 holders of cMeRun common stock.

The Company has not declared or paid dividends on its common stock and does
not plan to do so in the foreseeable future. Dividends may be paid only out
of legally available funds as proscribed by statute, subject to the
discretion of the Company's Board of Directors. No dividends may be paid on
the common stock until all accumulated dividends have been paid on the Series
A and Series B Preferred stock in accordance with the terms of the Company's
Certificate of Incorporation.

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Overview

The Company was incorporated under the name Fundae Corporation ("Fundae") on
March 16, 1995 under the laws of the State of Florida and was reincorporated
in the State of Delaware through the merger of the Company with and into its
wholly-owned subsidiary, Fundae Acquisition Corporation on December 29, 1999.
From inception to December 1999, the Company conducted minimal business
operations except for organizational and capital raising activities. See
"Item 1 Description of Business" for a discussion of the Company's recent
corporate history.

On December 2, 1999, Fundae changed its name to cmerun, Inc. in anticipation of
a potential transaction with a privately held applications service provider, C
Me Run Corp. On December 29, 1999, the Company reincorporated in the State of
Delaware through the merger of the Company with and into its wholly-owned
subsidiary, Fundae Acquisition Corporation.

The Company's consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
yet to generate revenues, and accordingly, is subject to a number of risks.
Principal among these risks are the successful development and marketing of its
service, competition from other companies, and the ability to raise additional
financing as required. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Forward-Looking Statements

This Form 10-KSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-KSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future are forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties, including, without limitation:

<PAGE>

- the Company's ability to obtain adequate capital to affect its
product development and marketing strategies;

- limited or delayed client acquisition or increases in client
acquisition costs;

- the Company's ability to retain clients, sellers and suppliers and
attract new clients, sellers and suppliers cost-effectively;

- changes in the Company's pricing policies or those of its
competitors or suppliers;

- the Company's ability to introduce new services;

- delays in developing and introducing new products or enhanced
capabilities for existing products;

- introduction of new services by the Company's competitors;

- the Company's ability to adequately supply services to its
clients; and

- changes in accounting standards, including standards relating to
revenue recognition, business combinations and stock-based
compensation.

Consequently, there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequence to or effects on the Company or its
business or operations. The Company assumes no obligations to update any
forward-looking statements made herein.

Plan of Operation

The Company's plan for the next 12 months includes a transition of its
technology platform and business model. Through numerous pilot campaigns that
the Company conducted during the year, it was determined that the Company's
customers and their subscribers were more interested in adopting a streaming
technology platform rather than the existing server-based platform. This new
platform will allow the company to be more targeted in its approach, working
principally with broadband providers. Also, the new platform will allow the
Company to experience significant ongoing cost reductions, quicker time to
market, opportunities to work with additional content providers and reduced
operating expenses.

Due to the technology platform advantages, the Company expects to be able to
significantly change its business model, from a high-touch, professional
services offering, to an easy to implement, turn-key solution. While customers
and their subscribers will be able to realize the Company's original benefits of
INTERNET COMPUTING, the ability to deliver it has become more standard-based and
out-of-the-box in nature. This has also allowed the Company to reduce headcount
significantly while still providing a substantial offering. While the Company's
headcount was once as high as 35, it has been determined that the company can
operate successfully with only 9 employees and still provide appropriate service
to its customers for short-term pursuit of its business plan.

The Company currently has several customers testing the new platform's
capabilities. The Company anticipates that a full-scale production test will
occur by the end of February 2001, with a controlled rollout taking place with
at least two customers by the end of March. As the number of customers and
subscribers increases, the Company expects additions to its hardware
requirements, primarily in the form of servers that provide streaming and host
the applications. The Company anticipates obtaining the servers though leasing
arrangements. As the service is finalized and offered to additional customers,
the Company plans to accommodate this growth with only slight incremental
headcount.

Results of Operation

For the period ended September 30, 2000, the Company had no operating
revenues and incurred a net loss of $(11,641,856). During this time the
Company focused its efforts on infrastructure, marketing efforts, and service
development. The Company is refining its service offering and building an
infrastructure to prepare for the anticipated rapid growth to meet its
expected customer needs. In addition, with the Company's unique approach of
offering its programs, significant expenditures were incurred relating to
promoting its services and its potential benefits. Continued operation
requires ongoing financing by the sale of debt or equity securities to
affiliated parties, principal stockholders or others.

For the period November 8, 1999 (date of inception) to September 30, 2000,
operating expenses were as follows:

Development costs $2,209,405
General and administrative 5,786,216
Marketing and promotion 3,673,290
-----------------

Total $11,668,911

Development costs, which relate principally to the preparation and refinement of
the Company's service offering include salaries and wages of approximately
$352,000 for engineering and technical personnel. Also, in order to achieve its
target dates, contract personnel were used to supplement the Company's
workforce. These costs were approximately $328,000 for the period. Costs
incurred for operating the Company's outside data centers including monitoring
charges were approximately $353,000. Other development costs include non-cash
charges for depreciation of approximately $257,000 and compensation of
approximately $557,000 for stock options granted to technical personnel.

General and administrative costs include costs for the development of the
Company's infrastructure and operations. The Company incurred certain legal and
outside professional fees that it does not anticipate to recur, due principally
with the merger that occurred during the period. Salaries and wages and related
costs were approximately $1,680,000, including non-cash charges related to stock
options of approximately $712,000. Other significant costs include rent and
office related charges of approximately $495,000 and consulting fees of
$630,000. In addition, the Company has accrued approximately $646,000 for stock
registration penalties related to the Series A and Series B Convertible
Preferred Stock. The Company expects that this will actually be resolved for an
amount less than that accrued.

Marketing and promotion costs include tradeshow costs of approximately $615,000,
advertising costs of approximately $689,000 and public relations and agency
charges of approximately $865,000. In an effort to promote its service offering,
the Company incurred significant costs to make both its customers (ISP's,
Telcos) and their end customers, the consumer, aware of the Company's offerings.

<PAGE>

Liquidity and Capital Resources

At September 30, 2000, the Company had available cash of $526,639 and restricted
cash of $165,789

On November 6, 2000, Douglas H. Dittrick, the Company's Chairman of the Board,
advanced the Company $200,000 to be repaid on or before November 6, 2001. The
note provides for the payment of interest at the rate of 9.5% to be applied to
the remaining unpaid principal on a quarterly basis on each of February 6, 2001,
May 6, 2001, August 6, 2001 and November 6, 2001. On or after February 6, 2001,
the holder of the note may elect to convert the principal amount of the loan
plus any interest then unpaid into shares of the Company's common stock at the
price of $3.00 for (i) one share of common stock and (ii) a warrant to purchase
one-half of a share of common stock. Prior to February 6, 2001, the Company may
at its sole discretion, pay the holder the remaining unpaid balance of the note,
plus all interest accrued and unpaid, plus 10% of the sum of the unpaid
principal and interest in lieu of providing any equities to the holder. Mr.
Dittrick owns no stock in the Company. The Dittrick note was filed with the
Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2000,
and is incorporated herein by reference.

During the period November 16, 2000 through December 28, 2000, Cameron Chell,
the Company's Vice Chairman of the Board, advanced the Company a total of
$830,000, to fund continuing operations. Terms have not been finalized, but the
Company anticipates that they will be similar to those relating to Mr.
Dittrick's advance.

In order to meet its cash requirements through the end of the fiscal year and
for the next twelve months, management intends to seek financing from a number
of sources. In the event the Company's stock is returned to active trading on
the OTC Bulletin Board, and subject to additional shares of its common stock,
warrants currently outstanding could be exercised for the purchase of common
stock in the third or fourth quarter of fiscal 2001. Depending upon the number
of warrants exercised, if any, this could provide up to an additional $6,075,000
of cash to the Company. In conjunction with its equipment requirements,
management is in discussion with certain vendors to provide an equity investment
in the Company.

In addition to these sources, management is considering alternative sources
including additional private debt or equity capital or a potential sale of
public equity. As of the date hereof, funding of the Company's operations is
being provided on a month to month basis by certain principal stockholders and
affiliated persons, and there is no assurance that such funding can or will
continue until alternative sources are developed.

RISK FACTORS

You should carefully consider the risks described below before making a
decision to buy our common stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also
materially impair our business operations.

If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may
lose all or part of your investment.

WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME AND YOUR BASIS FOR
EVALUATING cMeRun IS LIMITED.

Management has only operated the current business of cMeRun since January 31,
2000. Therefore, we have no operating history for you to use in evaluating
our proposed business, our business prospects, the effectiveness of
management or our potential for success. We are actively marketing our
services to ISPs, telcos and portals . Our company must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets such as the Internet and the World Wide Web.
Such risks, expenses and difficulties include:

- the evolving and unpredictable nature of our business,

- our ability to anticipate and adapt to a developing market,

- acceptance by consumers of our services, and

- the ability to identify, attract and retain qualified personnel.

We cannot assure you that we will be successful in addressing these and other
risks. Because we have not yet commenced commercial sales, our past results and
rates of growth are not meaningful and you should not rely upon them as an
indication of our future performance.

WE WILL REQUIRE SUBSTANTIAL ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO
OBTAIN.

We are still in the early stages of the development of our business and
expect to incur significant operating losses for the foreseeable future.
Product development, marketing, project implementation and our plans for
expansion will require significant amounts of capital. Since we have no
revenues to finance our continuing operations and plans for expansion, we
will require significant external financing immediately. Since the Company
has few tangible assets or receivables, loans or similar financing will not
be available on conventional terms, and will only be available through the
issuance of additional equity, or equity derivative rights and instruments.
All of such equity or equity derivatives will have a dilutive effect on the
equity held by existing stockholders. We can make no assurance that additonal
funding can or will be obtained, and that the Company will be able to
continue its operations for any definable length of time. Obtaining
additional financing will be subject to a number of factors, including:

- market conditions,

- our operating performance, and

- investor sentiment, particularly for Internet-related companies.

<PAGE>

These factors may make the timing, amount, terms and conditions of additional
financing unattractive, difficult or even impossible to obtain for cMeRun.
Market conditions for companies with similar business strategies, and Internet
based business plans, have been depressed recently, which has made additional
financings difficult and costly to the Company. The Company is not able to
predict if this situation will continue. If we are unable to obtain additional
financing on satisfactory terms, we may have to suspend our operations or
terminate our operations altogether. In that case, we would not be able to
execute our business plan and our financial condition will be materially and
adversely affected.

WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE INCURRING CONTINUED LOSSES.

We have only been operating our Internet computing business for a short
period of time and during that time our business has never been profitable.
We have incurred net losses totaling approximately $11,600,000 including
non-cash compensation charges of approximately $2,400,000 from November 8,
1999, our date of inception, to September 30, 2000. We expect that we will
continue to incur significant losses for the foreseeable future.

We will need to generate significant revenue to achieve profitability. We may
not achieve profitability. If our revenue grows more slowly than we
anticipate or if our operating expenses either increase more than we expect
or cannot be reduced in light of lower revenue, our results of operations
will be materially and adversely affected.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND
YOU SHOULD NOT RELY ON THEM AS AN INDICATION OF OUR FUTURE REVENUE.

Our operating results may vary significantly from quarter to quarter due to a
number of factors, not all of which are in our control. Future revenue and
operating results are difficult to forecast and for the foreseeable future
will be influenced by the timing and amount of sales to new customers. Future
revenue likely will be affected by:

- slow sales resulting from new end users that are unfamiliar with the
new services we offer, and

- many fixed expenses that cannot be quickly adjusted to accommodate for
a shortfall in sales.

Because of these factors, you should not rely on quarter-to-quarter comparisons
of our results of operations as an indication of our future performance. It is
possible that, in future periods, our results of operations may be below the
expectations of public market analysts and investors. This could cause the
trading price of our common stock to decline.

OUR SERVICES ARE NEW IN THE MARKETPLACE, AND WE ARE UNCERTAIN AS TO WHETHER THEY
WILL ACHIEVE ACCEPTANCE IN THE MARKETPLACE.

The market for our services has only recently begun to develop and is rapidly
changing. As is typical for a new and rapidly evolving industry, market
acceptance for recently introduced services over the Internet is subject to a
high level of uncertainty. We can give you no assurance that our services,
including Internet-based computing, will be accepted in the marketplace or
that the Internet will continue to grow in its role in commerce and society
in general.

<PAGE>

WE WILL BE RELYING ON OUR ISP CUSTOMERS TO RESELL OUR SERVICES AND WOULD BE
ADVERSELY AFFECTED IF THEY ARE NOT ABLE OR WILLING TO MARKET OUR SERVICES
SUCCESSFULLY.

We expect to derive much of our sales revenue through our ISP, telco and
portal customers who will either resell or use our services to enhance their
own services to end users. Our success will be dependent on whether or not we
are able to develop relationships with customers and can maintain a strong
end user base. If we are unable to enter into those relationships, our
business will be materially and adversely affected.

In addition, our relationships with our customers are subject to certain
risks including:

- We cannot control or predict the success of any customer at promoting
our business and in reselling our services.

- We may have difficulty in maintaining long-term relationships with
customers.

As a result of these and other risks, we may experience difficulty or
interruptions in our ability to deliver our services to end users. If end users
are not able to rely on their ISP to deliver our services in a consistent and
efficient manner, our business could be materially and adversely affected.

WE WILL BE RELYING ON BUILDING AND MAINTAINING RELATIONSHIPS WITH SOFTWARE
CONTENT VENDORS, AND IF WE CANNOT DO SO EFFECTIVELY, THE PUBLIC RECEPTION OF OUR
SERVICE WILL BE NEGATIVELY IMPACTED.

We intend to create a service offering which will attract end users by
providing a wide selection of software titles in the areas of productivity,
gaming and education. In order to create an appealing service offering, we
must contract with a number of software vendors to obtain the rights to
provide their software as part of the cMeRun service. A successful public
reception of the cMeRun service depends upon our being able to offer a
sufficient number of software titles.

<PAGE>

If we fail to attract a sufficient number of software vendors or if, having
entered into contractual relationships with such vendors, we fail to satisfy
them and they cease doing business with us, we could experience difficulty in
creating a service offering which will generate interest among end users. If
vendors decide that we do not generate sufficient revenue, or that our
service does not deliver their software with satisfactory reliability and
performance, or that they would prefer to do business with our competitors
than with us, we could find ourselves unable to obtain the rights to a
sufficient number of titles to build a service offering which the public will
find desirable.

IF WE CANNOT PROVIDE OUR CUSTOMERS AND THEIR END USERS WITH THE SUPPORT THEY
NEED, OUR BUSINESS WILL BE ADVERSELY AFFECTED.

Our customers will require significant technical support from cMeRun, and we
do not have any history or experience in establishing or maintaining such
third party support. We can provide no assurances that we will be able to
successfully support our customers. If we are unable to provide such support,
we may lose customers, or seriously impair the customer's ability to retain
end user subscribers to our service. We can provide no assurance that we will
be able to replace any or all customers lost as a result of failure to
provide sufficient support.

OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO ADAPT TO THE CHANGING NEEDS OF
OUR CUSTOMERS AND THE ENVIRONMENT IN WHICH INTERNET-BASED COMPUTING IS
CONDUCTED.

Our success will depend on our ability to design, develop, test, market, sell
and support new services and enhancements of current services on a timely
basis in response to both competitive offerings and evolving demands of the
marketplace. In addition, we must ensure that new services and enhancements
are compatible with end user devices and Internet protocols.

In order to create or improve our services, we must be able to successfully
integrate software licensed from third parties into our own software. These
projects are key to the success of our business strategy. We can give you no
assurance that we will be successful in developing, integrating and marketing
these and other new services and enhancements. If we are unable to do so, our
business, operating results and financial condition will be materially and
adversely affected.

HAVE MANY COMPETITORS AND POTENTIAL COMPETITION AND MAY NOT BE ABLE TO
COMPETE EFFECTIVELY.

The market for Internet personal computing is growing rapidly and is
intensely competitive. Our direct competitors include IntoNetworks,
Yummy.com, MediaStation and Always On, among others. We must also compete
with companies that provide software on a more traditional, stand-alone basis
to individual consumers for use on their personal computers. Such competitors
may engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, strategic
partners, advertisers and software licensors. Our competitors may be better
financed and have access to more substantial capital than the Company, and
may therefore have a competitive advantage from a greater ability to secure
equipment, personnel, strategic partners or customers.

Our competitors may develop services that are equal or superior to our own or
that achieve greater market acceptance than our own. In addition, current and
potential competitors may establish cooperative relationships among
themselves or with third parties. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share. We may
not be able to compete successfully and competitive pressures may materially
and adversely affect our financial condition.

<PAGE>

THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET COMPUTING IS NOT YET FULLY
ESTABLISHED.

Our future success is dependent on an increase in the use and acceptance of
the Internet as a personal computing platform. Internet computing is new and
rapidly evolving, and it is difficult to gauge its acceptance by the personal
computing population. Critical issues concerning the commercial use of the
Internet, including capacity, security, reliability, cost, ease of use,
access, quality of service and acceptance of advertising, remain unresolved.
As a result, demand for and market acceptance of Internet computing solutions
are uncertain. If the market for Internet computing fails to develop or
develops more slowly than we expect, our business could be materially and
adversely affected.

WE DEPEND ON THE CONTINUED VIABILITY OF THE INTERNET INFRASTRUCTURE.

Our success depends upon the development and maintenance of a viable Internet
infrastructure. The current Internet infrastructure may be unable to support
an increased number of users. The timely development and acceptance of
products such as high-speed modems and communications equipment will be
necessary to continue reliable Web access. Furthermore, the Web has
experienced outages and delays as a result of damage to portions of its
infrastructure. Such outages and delays could adversely affect Web sites and
the level of traffic on our customers' sites.

In addition, the effectiveness of the Web may decline due to delays in the
development or adoption of new standards and protocols designed to support
increased levels of activity. If such new infrastructure, standards or
protocols are developed, we may be required to incur substantial expenditures
to adapt our services to the new technologies.

TECHNOLOGICAL CHANGE MAY RENDER OUR SERVICES OBSOLETE.

The Internet market is characterized by rapidly changing technology, evolving
industry standards, frequent new product announcements and enhancements and
changing customer demands. The introduction of new products and services
embodying new technologies and the emergence of new industry standards can
render existing products and services obsolete. Our success depends on our
ability to adapt to rapidly changing technologies and to improve the
performance, features and reliability of our services in response to changing
customer and industry demands. We may experience difficulties that could
delay or prevent the successful design, development, testing, introduction or
marketing of services. New services or enhancements to existing services may
not adequately meet the requirements of our current and prospective customers
or achieve any degree of significant market acceptance. We can give you no
assurances that we will be successful in adapting to this rapidly evolving
environment in a manner that allows us to compete effectively.

OUR SYSTEMS MAY FAIL OR EXPERIENCE SLOWDOWNS.

All of our communications hardware and other data center operations are
provided internally and through a multiple hosting services firm on the East
Coast. Fire, floods, earthquakes, power loss, telecommunications failures,
break-ins and similar events could damage these systems. Our business could
be materially and adversely affected if our systems were affected by any of
these occurrences. Our insurance policies may not adequately compensate us
for any losses that may occur due to any failures or interruptions in our
systems or loss of data.

<PAGE>

Our future success depends in part on the efficient performance of our
Internet computing solutions, as well as the efficient performance of the
systems of third parties, such as our customers. A rapid and substantial
increase in the volume of end users could strain the capacity of the software
or hardware that we have deployed, which could lead to slower response times
or system failures and adversely affect the availability of our services and
our revenue. To the extent that we do not effectively address any capacity
constraints or system failures, our customers may choose competing services
and as a result our business may be materially adversely affected.

OUR BUSINESS COULD BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATION OF THE
INTERNET AND INTERNET-RELATED BUSINESSES.

The legal and regulatory environment governing the Internet is uncertain and
may change. A number of laws and regulations have been and may be adopted
covering issues such as pricing, acceptable content, taxation and quality of
products and services on the Internet. Such legislation could dampen the
growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications and commercial medium. In addition, due to the
global nature of the Internet, it is possible that multiple federal, state or
foreign jurisdictions might inconsistently regulate our activities and
customers. Any of the foregoing developments could have a material adverse
effect on our business.

IF WE CAN NOT PROVIDE THE END USERS OF OUR SERVICES WITH THE SECURITY AND
CONFIDENTIALITY THEY REQUIRE, OUR BUSINESS COULD BE MATERIALLY AND ADVERSELY
AFFECTED.

A significant barrier to e-commerce and communications is the secure
transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure
transmission of confidential information. We can provide you no assurances
that the advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise
or breach of the algorithms used by cMeRun to protect customer transaction
data. Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet as a means of conducting
commercial transactions. We can provide you no assurances that our security
measures will prevent security breaches of our systems and our customer data.
Any material breach in security could materially and adversely affect our
business.

THERE IS A LIMITED TRADING MARKET FOR OUR COMMON STOCK AND WE CAN PROVIDE NO
ASSURANCES THAT THIS MARKET WILL EITHER CONTINUE OR GROW.

There is currently only a limited trading market for our common stock. Until
September 2000, our common stock was quoted on the OTC Bulletin Board under
the symbol "CMER", which is a limited market in comparison to the Nasdaq
system, the New York Stock Exchange or the American Stock Exchange. As a
result of the Company being delinquent in the filing of its Form 10-QSB for
the period ended June 30, 2000, the Company's stock ceased electronic trading
on the OTC Bulletin Board. On December 6, 2000, the Company filed an Amended
10-QSB for the period ended March 31, 2000, to restate certain financial
results, and a Form 10-QSB for the period ended June 30, 2000. Accordingly,
it is seeking to have its stock returned to electronic trading on the OTC
Bulletin Board.

There is no assurance that the Company's stock will return to electronic
trading on the OTC Bulletin Board, when this may happen, or whether
subsequent events may cause it to cease trading electronically in the future.
We can provide you no assurances that the limited market for our common stock
will continue on the OTC Bulletin Board or will grow. In addition, we can
provide you no assurances that our common stock will ever qualify for
inclusion on the Nasdaq National Market, the American Stock Exchange or the
New York Stock Exchange.

<PAGE>

OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE.

The price at which our common stock will trade has been and is likely to
continue to be highly volatile and may fluctuate substantially due to a
number of factors, including:

- actual or anticipated fluctuations in our results of operation,

- changes in or our failure to meet securities analysts' expectations,

- technological innovations,

- increased competition,

- conditions and trends in the Internet and other technology industries,
and

- general market conditions.

In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market
price of our common stock, regardless of our operating performance.

In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business, financial condition and results of operations.

OUR BOARD OF DIRECTORS CAN ISSUE DEBT, COMMON STOCK OR PREFERRED STOCK WITHOUT
THE APPROVAL OF OUR STOCKHOLDERS AND THE HOLDERS OF SUCH DEBT, COMMON STOCK OR
PREFERRED STOCK WOULD LIKELY HAVE RIGHTS AND PREFERENCES SENIOR TO EXISTING
HOLDERS OF OUR COMMON STOCK.

Our certificate of incorporation authorizes our Board of Directors to create
and issue shares of preferred stock without the approval of our stockholders.
Any series of preferred stock could have rights and preferences that are
superior to our common stock, including superior preferences upon a
liquidation of the Company and special voting rights that could prevent a
change in control of the Company.

WE DO NOT PAY AND DO NOT ANTICIPATE IN THE FUTURE PAYING DIVIDENDS ON OUR
COMMON STOCK.

cMeRun does not pay, nor do we anticipate paying, dividends on our common
stock. If we generate positive cash flows from our operations, we intend to
use those positive cash flows to finance further growth of our business.

<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
cMeRun Corp.

We have audited the accompanying consolidated balance sheet of cMeRun Corp. and
Subsidiary (a development stage company) as of September 30, 2000, and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for the period from inception, November 8, 1999, to September 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of cMeRun Corp. and
Subsidiary as of September 30, 2000, and the results of its operations and its
cash flows for the period from inception, November 8, 1999 to September 30, 2000
in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has suffered a net loss from
inception of $11,641,856, has a working capital deficit of $2,937,896 and a
stockholders' deficit of $7,448,368 at September 30, 2000, which raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ VITALE, CATURANO AND COMPANY, P.C.
-----------------------------------------

Boston, Massachusetts
December 28, 2000, except for Notes 13
and 14 as to which the date is
January 5, 2001

<PAGE>

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

cMeRun Corp. and Subsidiary
(A Development Stage Company)

Consolidated Balance Sheet

At September 30, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 526,639
Restricted cash 165,789
Employee advances 83,333
Related party prepaid expenses 90,000
Prepaid tradeshow expenses 200,350
Prepaid expenses and other current assets 255,128
----------

1,321,239

Property and Equipment:
Leasehold improvements 132,423
Office furniture and equipment 411,403
Computer equipment and software 2,332,972
----------

2,876,798
Less: Accumulated depreciation and amortization 257,472
----------
2,619,326

Other Assets:
Employee advances 131,115
Security deposits 177,084
----------

308,199
----------
Total assets $4,248,764
----------

LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $1,581,586
Note payable 1,000,000
Current portion of obligations under capital lease 261,719
Accrued penalties under registration rights agreements 646,422
Accrued issuance costs 150,000
Accrued marketing costs 231,000
Accrued payroll and related costs 107,318
Other accrued expenses 225,407
Due to related party 55,683
----------
4,259,135

Obligations under capital lease 527,186
Deferred income taxes 46,000

Commitments and contingencies: (Note 6)

Redeemable series A convertible preferred stock
(Aggregate redemption value of $1,286,630) 1,116,807
Redeemable series B convertible preferred stock
(Aggregate redemption value of $9,006,410) 4,205,185
Redeemable series B convertible preferred stock
subscribed and fully paid (Aggregate
redemption value of $1,905,288) 1,542,819
</TABLE>

<PAGE>

<TABLE>
<S> <C>
Stockholders' deficit:
Common stock; $.001 par value; 50,000,000 shares
authorized, 3,001,000 issued and outstanding 3,001
Common stock subscribed 735
Additional paid-in capital 9,523,748
Unearned compensation (5,333,996)
Deficit accumulated during the development stage (11,641,856)
------------

Total stockholders' deficit (7,448,368)
------------

Total liabilities and stockholders' deficit $ 4,248,764
------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

cMeRun Corp. and Subsidiary
(A Development Stage Company)

Consolidated Statement of Operations

For the period November 8,1999 (date of inception) to September 30, 2000

<TABLE>
<S> <C>
Revenues $ --

Operating expenses:
Development costs (including $556,581 of non-cash compensation) 2,209,405
General and administrative (including $1,120,330 of non-cash compensation) 5,786,216
Marketing and promotion (including $703,160 of non-cash compensation) 3,673,290
------------

11,668,911

Interest income, net 73,055

Deferred income tax expense 46,000
------------

Net loss (11,641,856)

Beneficial conversion feature on
convertible preferred stock and warrants
Series A convertible preferred stock and warrants (976,425)
Series B convertible preferred stock and warrants (4,122,036)

Accretion of convertible preferred stock to
redemption value
Series A convertible preferred stock (53,752)
Series B convertible preferred stock (914,269)

Accretion of convertible preferred stock
dividends
Series A convertible preferred stock (86,630)
Series B convertible preferred stock (711,699)
------------
Net loss attributable to common
stockholders $(18,506,667)
------------

Basic and diluted net loss per common share

Loss per common share - basic and diluted (6.17)

Basic and diluted weighted-average
shares outstanding 3,001,000
</TABLE>

See notes to consolidated financial statements.

<PAGE>

cMeRun Corp. and Subsidiary
(A Development Stage Company)

Consolidated Statement of Changes in Stockholders' Deficit

For the period November 8,1999 (date of inception) to September 30, 2000

COMMON STOCK COMMON STOCK SUBSCRIBED
----------------------- ----------------------- ADDITIONAL
NO. OF NO. OF PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------ --------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of founders' stock 1,000 $ 1 $ 999

Common stock subscribed 700,000 $700

Merger of Fundae Acquisition Corp and
C Me Run Corp and cancellation
of 4,000,000 outstanding shares 3,000,000 3,000 (3,000)

Beneficial conversion feature related to
Series A convertible preferred stock
and warrants 976,425

Accretion of beneficial conversion feature
related to Series A convertible preferred
stock and warrants (976,425)

Beneficial conversion feature related to
Series B convertible preferred stock
and warrants 2,772,036

Accretion of beneficial conversion feature
related to Series B convertible preferred
stock and warrants (2,772,036)

Beneficial conversion feature related to
Series B convertible preferred stock subscribed
and fully paid 1,350,000

Accretion of beneficial conversion feature
related to Series B convertible preferred stock
subscribed and fully paid (1,350,000)

Accretion of Series A convertible preferred
stock to redemption value (53,752)

Accretion of Series B convertible preferred
stock to redemption value (826,738)

Accretion of Series B convertible preferred
stock subscribed and fully paid to redemption
value (87,531)

Issuance of warrants to purchase common
stock to placement agent in connection with sale
of Series B convertible preferred stock 3,499,942

Dividends accrued on Series A convertible
preferred stock (86,630)

Dividends accrued on Series B convertible
preferred stock (606,411)

Dividends accrued on Series B convertible
preferred stock subscribed and fully paid (105,288)

Issuance of stock options to employees and
non-employee members of the board of directors 6,375,925

Issuance of stock grant to employee 25,000 25 174,975

Stock-based compensation

Issuance of common stock subscriptions
in connection with advertising services 500,000

Issuance of warrants to purchase common
stock in connection with financial advisory
services 926,582

Amortization of unearned compensation

Change in market value of common stock
subscriptions and warrants issued in connection
with advertising and financial advisory services (263,441)

Issuance of stock as interest 10,000 10 78,116

Net Loss
--------- ------ ------- ----- -----------
Balance at September 30, 2000 3,001,000 $3,001 735,000 $ 735 $ 9,523,748
--------- ------ ------- ----- -----------

<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
UNEARNED DEVELOPMENT
COMPENSATION STAGE
------------ ------------
<S> <C> <C>
Issuance of founders' stock

Common stock subscribed

Merger of Fundae Acquisition Corp and
C Me Run Corp and cancellation
of 4,000,000 outstanding shares

Beneficial conversion feature related to
Series A convertible preferred stock
and warrants

Accretion of beneficial conversion feature
related to Series A convertible preferred
stock and warrants

Beneficial conversion feature related to
Series B convertible preferred stock
and warrants

Accretion of beneficial conversion feature
related to Series B convertible preferred
stock and warrants

Beneficial conversion feature related to
Series B convertible preferred stock subscribed
and fully paid

Accretion of beneficial conversion feature
related to Series B convertible preferred stock
subscribed and fully paid

Accretion of Series A convertible preferred
stock to redemption value

Accretion of Series B convertible preferred
stock to redemption value

Issuance of warrants to purchase common
stock to placement agent in connection with sale
of Series B convertible preferred stock

Dividends accrued on Series A convertible
preferred stock

Dividends accrued on Series B convertible
preferred stock

Dividends accrued on Series B convertible
preferred stock subscribed and fully paid

Issuance of stock options to employees and
non-employee members of the board of directors (6,375,925)

Issuance of stock grant to employee (175,000)

Stock-based compensation 1,421,310

Issuance of common stock subscriptions
in connection with advertising services (500,000)

Issuance of warrants to purchase common
stock in connection with financial advisory
services (926,582)

Amortization of unearned compensation 958,760

Change in market value of common stock
subscriptions and warrants issued in connection
with advertising and financial advisory services 263,441

Issuance of stock as interest

Net Loss (11,641,856)
----------- ------------
Balance at September 30, 2000 $(5,333,996) $(11,641,856)
----------- ------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

cMeRun Corp.
(A Development Stage Company)

Consolidated Statement of Cash Flows

For the Period November 8,1999 (date of inception) to September 30, 2000

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(11,641,856)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 257,472
Amortization of unearned compensation 958,760
Stock-based compensation 1,421,310
Non cash interest charge 15,624
Deferred income taxes 46,000
Amortization of employee advances 55,552
Changes in operating assets and liabilities:
Related party prepaid expenses (90,000)
Prepaid expenses and other current assets (392,978)
Accounts payable 1,581,739
Accrued payroll and related costs 107,318
Accrued penalties under registration rights agreements 646,422
Accrued marketing and other expenses 456,407
Security deposits (177,084)
------------

Net cash used in operating activities (6,755,314)

Cash flows used in investing activities:
Additions to property and equipment (2,057,805)
------------

Net cash used for investing activities (2,057,805)

Cash flows from financing activities:
Restricted cash (165,789)
Advances from related party 2,375,011
Repayment of advances from related party (2,317,781)
Employee advances (270,000)
Borrowing under note payable 1,000,000
Repayment of capital lease obligations (30,086)
Proceeds from issuance of Series A preferred stock, net
of issuance costs 976,425
Proceeds from issuance of Series B preferred stock, net
of issuance costs 6,271,978
Proceeds from preferred stock subscription 1,500,000
------------
Net cash provided by financing activities 9,339,758

Increase in cash and cash equivalents 526,639

Cash and cash equivalents at beginning of period 0
------------

Cash and cash equivalents at end of period $ 526,639
------------

Summary of noncash financing and investing activities:

Issuance of common stock subscriptions in connection
with advertising services $ 550,000
------------

Issuance of common stock warrants in connection
with financial advisory services $ 613,142
------------

Issuance of stock options to employees, officers and directors $ 6,375,925
------------

Issuance of stock to officer $ 175,000
------------

Issuance of common stock warrants in connection
with fee for Series B convertible preferred stock $ 3,499,942
------------

Property and equipment acquired under capital leases $ 818,993
------------

Cash paid during the period for interest $ 10,077
------------
</TABLE>

See notes to consolidated financial statements.

<PAGE>

cMeRun Corp.
(A Development Stage Company)

Notes to Consolidated Financial Statements for the period November 8, 1999 (date
of inception) to September 30, 2000

1. NATURE OF BUSINESS, PRINCIPLES OF CONSOLIDATION, AND BASIS OF PRESENTATION

Nature of Business

cMeRun Corp. (the "Company") is an application service provider whose strategy
is to operate and to offer internet computing as a service whereby consumers
will be able to access brand-name software and store files via a secure web
browser through their favorite Internet Service Provider ("ISP") or using almost
any internet-ready device.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, C Me Run Acquisition Corp., ("CAC"). All
intercompany accounts and transactions have been eliminated in consolidation.

On February 2, 2000, C Me Run Corp. merged with and into the Company and in
connection with the merger, the Company changed its name to cMeRun Corp.

21
<PAGE>

Basis of Presentation

Since inception, the Company had limited operations and incurred a net loss of
$(11,641,856) including non-cash compensation charges of $(2,380,071). Funding
of this loss was provided principally by the proceeds from the sale of the
Series A and Series B Convertible Preferred Stock.

Since inception, the Company has focused its efforts on building an
infrastructure, marketing efforts, and service development. The Company is
refining its service offering to meet its expected customer needs. In
addition, with the Company's unique approach of offering its programs,
significant expenditures were incurred relating to promoting its services and
its potential benefits.

The accompanying consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
yet to generate revenues, has incurred a net loss of $(11,641,856) since
inception, has a working capital deficit of $(2,937,896) and a stockholders'
deficit of $(7,448,368) at September 30, 2000 and accordingly, is subject to a
number of risks. Principal among these risks are the successful development and
marketing of its service, competition from other companies, and the ability to
raise additional financing as required. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

In addition to these sources, management is considering alternative sources
including additional private debt or equity capital or a potential sale of
public equity. Since November 2000, funding of the Company's operations is being
provided on a month to month basis by certain principal stockholders and
affiliated persons, and there is no assurance that such funding can or will
continue until alternative sources are developed.

2. SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year

The Company's fiscal year ends September 30.

Use of Estimates

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of
three months or less at the date of purchase to be cash equivalents. The Company
invests its excess cash in money market funds, which invest in U.S. Government
securities and are subject to minimal credit and market risk.

<PAGE>

Prepaid Expenses

Prepaid expenses are carried at cost and consist principally of advance payments
for trade shows and license agreements which benefit more than one period. The
amounts are charged to expense when the trade show takes place and for the
license agreements over the term of the agreement.

Property and Equipment

Property and equipment is carried at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
related assets. The estimated useful life for leasehold improvements is five
years or the remaining life of the lease, whichever is shorter and the estimated
useful life for office furniture and equipment and computer equipment and
software is three years. Maintenance and repair costs are expensed as incurred.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax liabilities and
assets are recognized for the estimated tax effects of temporary differences
between the carrying amounts and tax bases of assets and liabilities and for
loss carryforwards based on enacted tax law and rates. Future tax benefits
attributable to temporary differences are recognized to the extent that
realization of such benefits is more likely than not.

Net Loss Per Common Share

Basic loss per share is computed using the weighted-average number of common
shares outstanding. Shares issued in the reverse acquisition have been treated
as outstanding since inception. Diluted loss per common share reflects the
potential dilution if common equivalent shares outstanding (preferred shares,
warrants and options ) were exercised or converted into common stock unless the
effects are antidilutive. All common stock equivalents (4,833,333 preferred
shares, 2,915,000 warrants to purchase common stock, 25,000 shares of common
stock awarded and unissued, 50,000 shares of common stock subscribed, 2,078,700
options to purchase common stock, and 735,000 shares of common stock subscribed
at September 30, 2000) that were outstanding for the period presented were not
included in the computation of loss per common share due to a net loss on all
periods presented, and, therefore, their effect would be antidilutive.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to significant
concentration of credit risk, consist of cash and cash equivalents. The Company
places its investments in highly rated financial institutions which are backed
by the U.S. Government.

Long-lived assets

On an ongoing basis, the Company evaluates the carrying value of its long-lived
assets based upon estimated future non-discounted cash flows relying on a number
of factors, including operating results, business plans and certain economic
projections. In addition, the Company's evaluation considers non-financial data
such as changes in the operating environment, competitive information, market
trends and business relationships.

Advertising Costs

The Company accounts for advertising costs in accordance with Statement of
Position 93-7 "Reporting on Advertising Costs". Accordingly, advertising costs
are expensed as incurred. Total advertising costs for the period ended September
30, 2000 were $688,973.

Web Site Development Costs

The Company accounts for web site development costs in accordance with Emerging
Issues Task Force Statement No. 00-2 "Accounting for Web Site Development
Costs." Costs of approximately $5,000 relating to web site development have been
capitalized in accordance with this statement.

Computer Software Development Costs

The Company accounts for computer software developed internally in accordance
with Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". Internal payroll costs of approximately
$34,000 have been capitalized in accordance with this statement.

Research and Development Costs

The Company expenses research and development costs as incurred.

Comprehensive Income

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income," which requires companies to report the changes
in their net assets during the period from nonowner sources by major components
and as a single total. The Company had no reportable comprehensive income items
to report, other than net loss, for the period November 8, 1999 (date of
inception) to September 30, 2000.

<PAGE>

Stock based compensation

The Company is subject to the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Under the provisions of this standard,
employee and director stock-based compensation expense is measured using either
the intrinsic-value method as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), or the fair value
method described in SFAS 123. Companies choosing the intrinsic value method are
required to disclose the pro forma impact of the fair value method on net
income. The Company has elected to account for its employee and director
stock-based awards under the provisions of APB 25. Under APB 25, compensation
cost for stock options is measured as the excess, if any, of the fair value of
the underlying common stock on the date of grant over the exercise price of the
stock option. The Company has disclosed the required pro forma effect on the net
loss in Note 11.

The Company accounts for stock options granted to consultants, independent
representatives and other non-employees in accordance with SFAS No. 123 and EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."

<PAGE>

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which defines derivatives, requires that all derivatives be carried at fair
value, and provides for hedge accounting when certain conditions are met. The
Company is required to adopt this statement as amended by SFAS No. 137 for
the fiscal year ending September 30, 2001. Management does not expect the
implementation to have a significant impact on the consolidated financial
statements of the Company.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101") which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101A was released on
March 24, 2000 and deferred the effective date to no later than the second
fiscal quarter beginning after December 15, 1999. In June 2000, the SEC issued
SAB 101B which delays the implementation date of SAB 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB 101
requires companies to report any changes in revenue recognition as a cumulative
change in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes". Management
does not expect the implementation to have a significant impact on the
consolidated financial statements of the Company.

In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 is generally effective for transactions
occurring after July 1, 2000 but applies to repricings and some other
transactions after December 15, 1998. The Company believes this interpretation
will not have a significant effect on its consolidated financial statements.

3. RESTRICTED CASH

Restricted cash includes approximately $75,000 to secure a leasing line of
credit with a bank, which was fully borrowed at September 30, 2000 and
approximately $90,000 to secure a letter of credit in favor of the landlord of
the Company's headquarters in Hudson, MA.

4. EMPLOYEE ADVANCES

In connection with their employment agreements, the Company granted two officers
non-interest bearing loans. The first loan of $20,000 is payable on demand. The
second loan of $250,000 will be forgiven in equal amounts over a three-year
period on the condition that employment continues and is being amortized on a
monthly basis. Approximately $55,000 was included in general and administrative
expenses for the period ended September 30, 2000.

5. REDEEMABLE PREFERRED STOCKS

Series A Convertible Preferred Stock

On January 12, 2000, the Company issued 2,000,000 shares of Series A Convertible
Preferred Stock ("Series A Stock"), par value $.001 per share, for $1,000,000.
Issuance costs of $23,575 are being accreted to the carrying value of the Series
A Stock over the period to the stock's scheduled redemption date of January 11,
2003. The Company is authorized to issue 10,000,000 total shares of preferred
stock.

<PAGE>

Series B Convertible Preferred Stock

On January 28, 2000, the Company issued 2,333,333 shares of Series B Convertible
Preferred Stock ("Series B Stock"), par value $.001 per share, for $6,999,999.
Issuance costs of $4,227,963 include $3,499,942 related to warrants to purchase
400,000 shares of common stock at a price of $2.50 per common share and legal
and brokerage fees of $728,021 which are being accreted to the carrying value of
the Series B Stock over the period to the stock's scheduled redemption date of
January 11, 2003.

Series B Convertible Preferred Stock Subscribed

During the period, the Company received $1,500,000 in connection with the
issuance of an additional 500,000 shares of Series B Stock. At September 30,
2000, the certificates had not been issued and, accordingly, the shares have
been recorded as fully paid and subscribed in the accompanying financial
statements. Issuance costs of $150,000 have been recorded as a reduction of the
proceeds from the sale.

The rights and preferences of each of the classes of preferred stock are as
follows:

Liquidation - In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, before any
distributions are made to the holders of any classes of stock ranking junior to
the Series A and Series B Stock, the Series A shareholders will be entitled to
be paid an amount equal to the preference value of $.50 per share and the Series
B shareholders will be entitled to be paid an amount equal to the preference
value of $3.00 per share. After such distribution, any remaining assets
available for distribution shall be distributed to the holders of shares of
Series A Stock and Series B Stock and holders of Common Stock pro rata based on
the total number of shares held by each holder on a fully-converted basis. If
the assets are not sufficient to generate cash sufficient to pay in full the
Series A and Series B preference values, then the Series A and Series B
shareholders will be entitled to share ratably in any distribution of cash
generated by assets in accordance with the respective amounts that would have
been payable in such distribution if the amounts to which the holders of the
Series A and Series B Stock are paid in full.

Conversion - The Series A Stock has a preference value of $.50 per share and is
convertible at the option of the holder at any time prior to the redemption date
into the number of shares of common stock of the Company as determined by
dividing the preference value by the conversion price then in effect. The Series
B Stock has a preference value of $3.00 per share and is convertible at the
option of the holder at any time prior to the redemption date into the number of
shares of common stock of the Company as is determined by dividing the
preference value by the conversion price then in effect.

Dividends - The holders of the Series A and Series B Stock are entitled to
receive cumulative dividends at the rate of 12% of the preference value per
share payable in quarterly installments in cash or shares of common stock.

Voting Rights - The holders of the Series A and Series B Stock and the holders
of the common stock shall be entitled to vote as a single class. Each holder of
Series A or Series B Stock shall have one vote for each full share of common
stock into which the Series A and Series B Stock would be convertible on the
record date for the vote.

Redemption - If not converted to common stock by the holders prior to the
redemption date of January 11, 2003, the Series A and Series B Stock shall be
redeemed by the Company at a redemption price of 120% of the preference value,
plus all accumulated and unpaid dividends accrued as of the redemption date.

Beneficial Conversion Feature - The entire value of the Series A Stock was
allocated to the beneficial conversion feature based on the difference between
the conversion price of $.50 per share and the estimated fair value of the
common stock of approximately $7.8 million at the date that the preferred stock
was issued. This amount, however, was limited to the value of the proceeds
received from issuing the beneficial convertible security. As the Series A Stock
is immediately convertible, the Company also recorded accretion of the entire
amount to additional paid-in capital. Similarly, the entire value of the Series
B Stock was allocated to the beneficial conversion feature based on the
difference between the conversion price of $3.00 per share and the estimated
fair value of the common stock of approximately $23.3 million at the date that
the preferred stock was issued. This amount, however, was limited to the value
of the proceeds received from issuing the beneficial convertible security. As
the Series B Stock is immediately convertible, the Company also recorded
accretion of the entire amount to additional paid-in capital.

The Company allocated $976,425 and $2,772,036 to the beneficial conversion
feature of the Series A Stock and warrants and Series B Stock and warrants,
respectively, net of issuance costs. The Company allocated $1,350,000 to the
beneficial conversion feature of the Series B Stock subscribed and fully paid.

Registration Rights Agreements

The registration rights agreements between the Company and the Series A and
Series B shareholders require the Company to register common stock underlying
the convertible preferred stock prior to May 19, 2000 (the "Registration Date")
in the form of a registration statement and to keep the registration statement
continuously effective for a period of the earlier of two years or until there
are no additional securities required to be registered. In the event that the
Company does not file a registration statement prior to the 30th day following
the Registration Date, or if any registration statement has not been declared
effective on or prior to the 120th day following the Registration Date, the
Company will be required to pay liquidated damages in the amount of 2% per month
of the proceeds from the sale of the preferred stock, or approximately $190,000
per month. The Company has received a waiver from certain of the Series A and
Series B shareholders, representing 68% of the total outstanding preferred
shares, amending the Registration Date to January 19, 2001. At September 30,
2000 the Company has accrued a liability of $646,422 representing the liquidated
damages for those shareholders from whom the Company did not receive a waiver.

<PAGE>

6. COMMITMENTS

The Company leases certain property and equipment under non-cancellable
operating and capital leases expiring at various dates through 2005. At
September 30, 2000, future minimum payments under non-cancelable operating and
capital leases are as follows:

<TABLE>
<S> <C>
Operating leases:

October 1, 2000 - September 30, 2001 354,740
October 1, 2001 - September 30, 2002 363,499
October 1, 2002 - September 30, 2003 372,258
October 1, 2003 - September 30, 2004 372,258
October 1, 2004 - September 30, 2005 186,129
----------

$1,648,884
Capital leases:

October 1, 2000 - September 30, 2001 349,995
October 1, 2001 - September 30, 2002 319,800
October 1, 2002 - September 30, 2003 226,032
October 1, 2003 - September 30, 2004 9,086
October 1, 2004 - September 30, 2005 6,057
----------

Total minimum lease payments 910,970
Amounts representing interest 122,065
----------

Present value of net minimum payments 788,905

Less: current portion 261,719
----------

Long-term portion 527,186
----------
</TABLE>

The Company's capital lease financing is provided principally through
manufacturers of equipment which is used by the Company in development. Terms of
these arrangements range from 24 to 36 months with interest rates between 7% and
14%. Amortization expense related to capital leases was $18,882 for the period
ended September 30, 2000.

Rent expense relating to the operating leases was $287,047 for the period from
November 8, 1999 (date of inception) to September 30, 2000. The lease for the
Company's facility in Hudson, Massachusetts expires on March 31, 2005. The
Company has the option to extend the term for an additional five years at a fair
market value rate.

Certain employees of the Company are under employment agreements that provide
for compensation in the event of voluntary or involuntary termination. Terms
under these arrangements range from three to twelve months with aggregate
compensation of $629,750. Total salaried compensation on an annual basis for
those employees that are under employment agreements at September 30, 2000 is
$877,000.

7. NOTE PAYABLE

In September, 2000, CALP II Limited Partnership, a Bermuda limited partnership
and the holder of 50,000 shares of the Company's Series B Stock, advanced the
Company $1,000,000 to fund continuing operations. The note provided for an
initial fee of 10,000 restricted common shares and for an additional fee of
1,000 restricted common shares for each $100,000 or portion thereof of unpaid
principal for each 30 days or portion thereof after November 15, 2000. The
initial fee of 10,000 had not been paid as of September 30, 2000 and accordingly
is recorded as common stock subscribed in the accompanying financial statements.

8. RELATED PARTY TRANSACTIONS

From the date of incorporation through the sale of its convertible preferred
stock, the working capital requirements of the Company were financed principally
by Chell.com Inc., a Calgary, Alberta based incubator of internet related
companies. The Chairman of Chell.com is also the Vice-Chairman of the Company.
During this period, Chell.com advanced approximately $1,654,000 to the Company
of which approximately $56,000 was still outstanding at September 30, 2000.

On November 15, 1999, Chell.com Inc. and the Company entered into a consulting
agreement whereby Chell.com Inc. would supply certain services in the areas of
corporate strategy, human resources, corporate finance, communications and
hiring outside consultants to the Company for a one-year period. The fee for
this service was $720,000 per annum payable in advance of which $630,000 was
expensed for the period from November 8, 1999 to September 30, 2000. At
September 30, 2000, a balance of $90,000 is included in prepaid expenses related
to the remaining contract term.

The Series B Stock was sold to an organization in which the Vice Chairman, a
principal shareholder of the Company, has an ownership interest.

<PAGE>

9. INCOME TAXES

The provision for (benefit from) income taxes consists of the following:

<TABLE>
<S> <C>
Deferred:
Federal $ (3,850,000)
State (682,000)
------------
(4,532,000)
Valuation allowance 4,578,000
------------
Income tax provision $ 46,000
------------

A reconciliation of the federal statutory rate to the provision
for income taxes follows:

Federal tax benefit at statutory rate (35.0)%
State tax benefit at statutory rate (6.2)%
Change in valuation allowance 41.6%
------------
Income tax provision .4%
------------
</TABLE>

The components of the deferred tax assets (liabilities) as reflected on the
accompanying balance sheet consist of the following:

<TABLE>
<S> <C>
Deferred tax assets:
Start-up costs $ 8,200
Stock-based compensation 980,500
Operating loss carryforwards 3,589,300
-----------
4,578,000
Deferred tax liabilities
Depreciation expense (46,000)
-----------

Total 4,532,000
Valuation allowance (4,578,000)
-----------
Net deferred tax liability $ (46,000)
-----------
</TABLE>

In assessing the realization of deferred tax assets, the Company considers
whether it is more likely than not that some or all of the deferred tax asset
will not be realized. The Company believes that sufficient uncertainty exists
regarding the realization of the deferred tax assets that it has provided a
valuation allowance for the full amount.

At September 30, 2000, the Company has a Federal and state net operating loss
carryforward of approximately $8,700,000 which expires in 2020 and 2005,
respectively.

10. STOCKHOLDERS' EQUITY

Common Stock

<PAGE>

On January 28, 2000, the Company entered into an advertising agency agreement to
promote public awareness of the Company. As consideration for such services, the
Company will grant the advertising agency 50,000 restricted shares of common
stock of which 25,000 will have piggyback registration rights. The term of the
agreement is six months with an option to renew by the Company. In connection
with this agreement, the Company recorded a noncash charge of $500,000 to
unearned compensation to be expensed over the term of the agreement. The Company
has remeasured the value of the common stock as of July 28, 2000, the completion
date of the agreement, and has adjusted compensation expense for the period
ended September 30, 2000 to $550,000, which represents the total charge in
connection with the agreement.

Common Stock Warrants

In connection with the issuance of 2,000,000 shares of Series A Convertible
Preferred Stock (the "Series A Stock"), the Company issued warrants to purchase
1,000,000 shares of the Company's common stock at a price of $1.00 per share.
Such warrants have a term of 48 months and are exercisable immediately.

In connection with the issuance of 2,333,333 shares of Series B Convertible
Preferred stock (the "Series B Stock"), the Company issued warrants to purchase
1,400,000 shares of the Company's common stock at a price of $2.50 per share.
Such warrants have a term of 48 months and are exercisable immediately.

On February 1, 2000, the Company entered into an agreement with a firm to
provide general corporate financial advisory and investor and media relations
needs. As consideration for these services, the Company will grant the firm
warrants to purchase 115,000 shares of common stock at $5.00 per share with
registration for 50% of the warrants originally scheduled for June 30, 2000 and
the remaining 50% by December 31, 2000. The agreement also provides for a
retainer of $9,000 per month and a percentage fee of up to 5% of the value level
of certain transactions involving business development and technology licensing,
and mergers and acquisitions completed by the Company and a success fee of 7%
(plus warrant coverage, at sale price of the common stock, of 10%) for advising
the Company with respect to financing strategy, including public and private
equity and debt. The term of the agreement is one year with an option to renew
by the Company. In connection with this agreement, the Company recorded a
noncash charge of $926,582 to unearned compensation to be expensed over the term
of the agreement. The Company has remeasured the value of the warrants as of
September 30, 2000 as the requisite performance has not been completed and has
adjusted compensation expense for the period ended September 30, 2000 to
$613,142. For the period November 8, 1999 to September 30, 2000 $408,761 was
amortized and recorded in general and administrative expenses.

In connection with the sale of the Series B Stock, the selling agent received
warrants to purchase 400,000 shares of the Company's common stock at $2.50 per
share which expire in January, 2004. The estimated fair market value of the
warrant of $3,499,942 has been recorded as a reduction of the proceeds from the
sale of the Series B Stock. The warrants are exercisable immediately and,
accordingly, the Company also recorded accretion of the entire amount to the
carrying value of the Series B Stock. The registration rights agreement between
the Company and the selling agent requires the Company to register common stock
underlying the warrants prior to May 19, 2000 (the "Registration Date") in the
form of a registration statement and to keep the registration statement
continuously effective for a period of the earlier of two years or until there
are no additional securities required to be registered. In the event that the
Company does not file a registration statement prior to the 30th day following
the Registration Date, or if any registration statement has not been declared
effective on or prior to the 120th day following the Registration Date, the
Company will be required to pay liquidated damages in the amount of 2% per month
of the aggregate proceeds to the Company upon conversion of the warrants, or
approximately $20,000 per month. The Company has received a waiver from the
selling agent, amending the Registration Date to January 19, 2001.

Common Stock Subscribed

In November and December 1999, two of the Company's founders entered into
agreements under which they were to receive 700,000 shares of common stock at
par value. As these have not yet been issued, they are reported as common stock
subscribed in the accompanying financial statements. In addition, the restricted
common stock to be issued in connection with a note payable and a stock grant to
an officer are also reported as common stock subscribed as the shares had not
been issued as of September 30, 2000.

<PAGE>

11. STOCK BASED COMPENSATION

In July, 2000, the Company's Board of Directors approved the cMeRun Corp.
2000 Equity Incentive Plan (the "Plan"). The Plan was established to provide
awards to employees, consultants and advisors including advisors who are in
the opinion of the Board of Directors in a position to make a significant
contribution to the success of the Company. Subject to the terms and
provisions of the Plan, the Board may award stock options, incentive stock
options, non-qualified stock options or a combination thereof. Awards may be
made under the Plan for up to 4,500,000 shares and the maximum number of
shares to any participant is limited to 200,000 shares in any calendar year.

The Company has computed the value of all compensatory options granted as
prescribed by SFAS No. 123, using the Black-Scholes option-pricing model for pro
forma disclosure purposes.

The following assumptions were used to value grants issued during the period
November 8, 1999 (date of inception) to September 30, 2000:

Risk-free interest rate (range) 5.09% - 5.71%
Expected dividend yield 0.0%
Expected lives 1 - 3 years
Expected stock volatility 186.78%

Had compensation costs for compensatory options been determined consistent with
SFAS No. 123, the Company's net loss and loss per share information reflected in
the accompanying consolidated statements of operation would have been reduced to
the following pro forma amounts:

<TABLE>
<S> <C>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net loss attributable to common shareholders:
--------------------------------------------------------------------------------
As reported $(18,506,667)
--------------------------------------------------------------------------------
Pro forma $(20,065,823)
--------------------------------------------------------------------------------
Net loss per common share:
--------------------------------------------------------------------------------
As reported (6.17)
--------------------------------------------------------------------------------
Pro forma (6.69)
--------------------------------------------------------------------------------
</TABLE>

A summary of the status of the Company's stock option plans as of September 30,
2000 and changes during the period ended September 30, 2000 is presented below:

<TABLE>
<CAPTION>
----------------- ---------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR
NUMBER OF PRICE VALUE
SHARES $ $
----------------- ---------------- -----------------
<S> <C> <C> <C>
Options outstanding, beginning of period -- -- --

Granted 2,078,700 4.90 6.39
Cancelled
-------------

Options outstanding, at September 30, 2000 2,078,700 4.90 6.39
=============
</TABLE>

<PAGE>

The following table summarises outstanding and exercisable options as of
September 30, 2000:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES SEPTEMBER 30, LIFE PRICE SEPTEMBER 30, PRICE
$ 2000 (YEARS) $ 2000 $
---------------------- ------------------- --------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>

1.00 50,000 9.29 1.00 -- --
5.00 2,028,700 9.29 5.00 -- --
----------------- ----------------
1.00 to 5.00 2,078,700 4.90 -- --
================= ================
</TABLE>

<PAGE>

DEFERRED STOCK COMPENSATION

As discussed in Note 1, the Company accounts for its stock-based awards
to employees using the intrinsic value method in accordance with APB No.
25. Accordingly, the Company recorded deferred compensation expense equal
to the difference between the grant price and deemed fair value of the
Company's common stock for options granted and stock awarded. Such
deferred compensation expense aggregated $6,375,925 for the period
November 8, 1999 (date of inception) to September 30, 2000 for stock
option grants and $175,000 for stock awards. During the period November
8, 1999 to September 30, 2000, $1,370,268 relating to stock option grants
and $51,042 relating to stock awards were recorded as compensation
expense.

12. PENSION PLAN

The Company maintains a defined contribution 401(k) and profit sharing plan
covering substantially all of its employees. The Company's contribution is
determined by management. For the period November 8, 1999 to September 30, 2000,
total Company contributions were $10,283.

13. ALBERTA TRANSACTION

On February 2, 2000, C Me Run Corp. merged with and into the Company and in
connection with the merger, the Company changed its name to cMeRun Corp.

Alberta was incorporated in Canada in November, 1999 in anticipation of the
merger of C Me Run Corp. and Fundae Merger Sub, Inc (a wholly-owned subsidiary
of the Company). Alberta was established as a tax-efficient mechanism to
transfer equity in the Company, following the merger to certain of C Me Run
Corp.'s Canadian founders and other Canadian individuals, as well as to reduce
Canadian legal restrictions on the trading of such equity securities.

The Alberta Agreement provided that the Company would become obligated to issue,
(i) upon exchange of certain exchangeable shares of CAC, an aggregate of
2,650,000 shares of common stock and to certain employees and other parties
options to purchase an aggregate of 325,000 shares of common stock with an
exercise price of $1.00 per share, and (ii) options to purchase an aggregate of
1,295,000 shares of common stock with an exercise price of $5.00 per share. The
Alberta Agreement expressly provided that the Company had the right to terminate
the agreement if the merger was not consummated by April 30, 2000. Until August
2000, the Company undertook efforts to make certain pre-merger Canadian
regulatory filings for the purpose of reducing Canadian restrictions on the
trading of the equity securities to be issued in the merger, but abandoned such
efforts at such time, and began a re-evaluation of the merger and its effect on
the Company's financial statements and other matters.

On November 6, 2000, the Company terminated the Alberta Agreement and
subsequently entered into a settlement agreement whereby the Company agreed to
grant to Alberta options to purchase 1,100,000 shares of common stock, vesting
in equal annual amounts over 3 years, at an exercise price equal to the fair
market value of the stock. In exchange for the foregoing, the Company received,
among other things, a release from Alberta and certain other parties.

Under separate agreements, the Company agreed to issue to certain of the
Company's employees, officers and directors that were to have received
consideration upon the acquisition of Alberta, options to purchase 50,000 shares
of common stock with an exercise price of $1.00 per share, options to purchase
an aggregate of 845,000 shares of common stock with an exercise price of $5.00
per share and options to purchase an aggregate of 725,000 shares of common stock
with a nominal exercise price.

14. SUBSEQUENT EVENTS

In November 2000 and in January 2001, in an effort to reduce costs and because
of change in its selected technology platform which requires less
infrastructure, the Company reduced its workforce by 25 employees which
approximates 75% of the employee count before the reductions were effected. In
addition, the Company is considering other measures to reduce its costs.

<PAGE>

14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss attributable to common shareholders $(377,678) $(9,068,207) $(4,073,448) $(4,987,334)
---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ (46,000)
---------------------------------------------------------------------------------------------------------------------------------
Net loss per common share $ (.12) $ (3.02) $ (1.35) $ (1.68)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Dorra Shaw & Dugan Certified Public Accountants ("DS&D") were the original
principal accountants to audit the financial statements of the Company. On
February 8, 2000, that firm's appointment as principal independent auditors was
terminated. The firm of Deloitte & Touche LLP ("D&T") was engaged on April 21,
2000 as principal independent auditors. The decision to change auditors was
recommended by the Company's Board of Directors. In connection with the audits
of the Company's financial statements as of September 30, 1999 and for the
period December 1, 1998 (date of inception) to September 30, 1999, and with
respect to the subsequent period through the date of termination, there were no
disagreements with DS&D on any matter of accounting principles or practices,
financial statements disclosure, or auditing scope or procedures, which
disagreements, if not resolved to their satisfaction, would have caused them to
make reference in connection with their opinion to the subject matter of the
disagreement.

On August 21, 2000, D&T resigned as the independent auditors of the Company. D&T
informed the Company that it was unwilling, and therefore unable, to rely on the
representations of the Company's then Chairman, Cameron Chell. The Board of
Directors accepted D&T's resignation.

During the period from D&T's engagement as the Company's independent auditors to
the date of D&T's resignation, there were no disagreements with D&T on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to D&T's
satisfaction, would have caused D&T to make reference to the subject matter of
the disagreements in connection with its report. D&T did not issue an
independent auditor's report on the Company's consolidated financial statements.

On October 11, 2000, the Company engaged Vitale, Caturano and Company, P.C., of
Boston, Massachusetts, as the Company's independent auditors.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The names, ages, positions and business experience during the past five years of
all of the directors, executive officers and control persons of cMeRun as of
December 1, 2000 are listed below. Mr. Chell's brother is married to the sister
of Mr. Killoran's wife. Other than this, no family relationships are known to
exist among the Company's directors and executive officers.

Douglas H. Dittrick, 67
CHAIRMAN OF THE BOARD, AUDIT COMMITTEE MEMBER

Mr. Dittrick, who became Chairman of Board of Directors of cMeRun on September
20, 2000, is President and Chief Executive Officer and a director of Douglas
Communications Corporation II, which provides consulting services in the
telecommunications and marketing field. Mr. Dittrick currently serves on the
board of directors of Vornado Operating Company, and is Chairman of the Board of
DTC Communications, Inc., a private communications company.

Cameron B. Chell, 32
VICE CHAIRMAN OF THE BOARD

Mr. Chell became Vice Chairman of the Board on September 20, 2000. From January
31, 2000 to September 20, 2000, he was Chairman of the Board. He was the
Chairman and Chief Executive Officer of the cMeRun predecessor companies from
November 1999. Since November 1999, Mr. Chell has served as the Chairman of the
Board and Chief Executive Officer of Chell.com Inc., a private strategic
merchant bank. Since January, 2000, Mr. Chell has been the Chairman of the Board
and Chief Executive Officer of Chell.com Ltd., a formerly private strategic
merchant bank which merged with Networks North, Inc., a U.S. corporation, in
September, 2000 to become the publicly held Chell Merchant Capital Group. From
January 1998 to November 1999, Mr. Chell was the Chairman of the
Board/Co-Chairman and an officer of FutureLink Corp. (formerly FutureLink
Distribution Corp.), a business applications service provider. From May 1997 to
January 1998, Mr. Chell was the Chairman of the Board and Chief Executive
Officer of Chell Corp, a private financial consulting firm. From January 1994 to
May 1997, Mr. Chell was a registered representative with a Calgary, Alberta
broker dealer. He is a founder and co-chairman of the ASP Industry Consortium.

On November 6, 1998, Mr. Chell entered into a Settlement Agreement with the
Alberta Stock Exchange to resolve a pending investigation into alleged breaches
by Mr. Chell of Alberta Stock Exchange rules and bylaws. As part of the
Settlement Agreement, Mr. Chell acknowledged that he had breached certain duties
of supervision, disclosure, or compliance in connection with various offers and
sales of securities. Further, Mr. Chell was prohibited from receiving Alberta
Stock Exchange approval for a five year period, subjected to a CDN$25,000 fine
and a three year period of enhanced supervision. Subsequent to such Settlement
Agreement, Mr. Chell has served as an officer and director of one or more
companies that have registered, or applied to become registered, as reporting
companies under the rules of certain securities exchanges in Canada, including
in connection with the issuance of cMeRun stock to certain Canadian residents.
In connection therewith, cMeRun has been advised by the Alberta Securities
Commission that it is conducting a review of Mr. Chell's suitability to serve as
a director or officer of cMeRun.

Chad K. Corneil, 31
DIRECTOR, AUDIT COMMITTEE CHAIRMAN, COMPENSATION COMMITTEE MEMBER

Mr. Corneil was elected as a director of cMeRun on April 21, 2000. Mr. Corneil
founded and has been the Chairman and Chief Executive Officer of Allidex, Inc.,
formerly known as WorldOne Webwide, Inc. since February 1, 2000. Mr. Corneil has
been the Secretary/Treasurer of the ASP Industry Consortium since April 1999.
From March 1997 to February 2000, Mr. Corneil was the Product Manager for Great
Plains Hosting Services, and also acted as the Program Manager for the
Management Services Program for Great Plains Consulting. From May 1991 to
February 1997, Mr. Corneil worked for Deloitte & Touche, first as an auditor and
then as a manager in the computer consulting group.

<PAGE>

Gordon A. Elliott, 68
DIRECTOR, COMPENSATION COMMITTEE MEMBER

Mr. Elliott was elected as a director of cMeRun on September 20, 2000. He is
also a director of Mainsborne Communications, an international powerline carrier
technology company. From 1984 to 1995, he was a partner in the marketing and
fund raising consulting firm of Haines Elliott Marketing Services. From 1995 to
2000, Mr. Elliott served as Director of the Millennium Quest for the Calgary
Philharmonic Society.

David C. Hayden, 45
DIRECTOR

Mr. Hayden was elected a director of the Company on April 19, 2000. Mr. Hayden
founded Critical Path (Nasdaq: CPTH) in February 1997 and served as its
Chairman, President and Chief Executive Officer from inception until November
1998. He continues to serve as Critical Path's Chairman. From August 1993 to
February 1997, Mr. Hayden was Chairman, President, Chief Executive Officer and
co-founder of The McKinley Group, creators of Internet search engine Magellan.

Richard A. Hronicek, 45
DIRECTOR, COMPENSATION COMMITTEE CHAIRMAN

Mr. Hronicek was elected as a director of cMeRun on April 19, 2000. Mr. Hronicek
was President and CEO of Xevo Corporation from August 1998 until November 2000.
From June 1998, to August 1998, he was Senior Vice President of US
Internetworking, an application service provider specializing in ERP
applications. From April 1997 to January 1998, Mr. Hronicek was Chief Executive
Officer of Javelin Internet Group and from April 1995 to April 1997, he was
Chief Executive Officer of Pacific Bell Internet.

Alan B. Levine, 57
DIRECTOR, AUDIT COMMITTEE MEMBER

Mr. Levine was elected as a director of cMeRun on September 20, 2000. He has
served as Vice President, Chief Financial Officer and Treasurer of Marathon
Technologies Corporation, a software corporation, since 1998. He was a partner
with the professional services firm of Ernst & Young LLP from 1986 to 1998. He
serves on the Board of Directors of eCENT Technology, Inc.

James S. Lovie, 48
DIRECTOR, CHIEF EXECUTIVE OFFICER AND PRESIDENT

Mr. Lovie became the Chief Executive Officer and a director of cMeRun in January
2000, and assumed the additional duties of President in November, 2000. From
October 1998 to January 2000, Mr. Lovie was the President and Chief Executive
Officer of Bell Distribution Inc., a Canadian-based integrated services
telecommunications retail organization. From June 1995 to October 1998, Mr.
Lovie was Senior Vice-President B Sales, Marketing and Distribution for Bell
Mobility and Vice President, Western Region with Bell Mobility.

Colin B. Curwen, 30
VICE PRESIDENT AND CHIEF TECHNOLOGY OFFICER

Mr. Curwen was one of the founders of cMeRun Corp., and became its Chief
Technology Officer in October, 2000. From November, 1999 to October, 2000 he was
cMeRun's Vice President - Product Development. From July, 1998 to November,
1999, Mr. Curwen served as Director of Sales and Director of Channel Sales for
FutureLink Corp., a business application service provider. From July, 1997 to
June, 1998, Mr. Curwen was the Southern Alberta Education Sales Director for
WestWorld Computers Ltd. From October 1995 to December 1996, he was the
owner/operator of Sandusky's, a Canadian restaurant.

<PAGE>

Gerald J. McGovern, 44
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER

Mr. McGovern joined cMeRun as its Vice President, Chief Financial Officer and
Treasurer in May, 2000. From 1997 though 1999, he acted as a private financial
consultant, and served as senior financial executive in special situations for
various client companies. From 1994 through 1996, Mr. McGovern was Chief
Financial Officer for International Health Specialists. Prior to that, Mr.
McGovern was employed by Ernst & Young for twelve years.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the cash compensation paid by the Company in
fiscal year 2000 as well as certain other compensation paid, awarded or accrued
for the year to the Company's Chief Executive Officer and the other four highest
paid executives during the period.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION AWARDS LONG-TERM COMPENSATION PAY-OUTS

SECURITIES
OTHER UNDERLYING ALL OTHER
BONUS ANNUAL RESTRICTED OPTIONS/ LTIP COMPENSATION
NAME AND PRINCIPAL POSITION SALARY (1) COMPENSATION STOCK AWARDS SARS PAY-OUTS (2)
--------------------------- ------ ----- ------------ ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James S. Lovie
Chief Executive Officer $171,475.89 $ 55,552.00 450,000 $5,671.88
David Myers
President & Chief
Operating Officer $137,180.62 $ 30,000.00 210,000 $1,125.00
</TABLE>

(1) Mr. Lovie received a $250,000 interest free loan in connection with his
employment which is forgivable over a three year period. Through
9/30/2000, $55,552 had been forgiven. Mr. Myers received a bonus in
connection with his employment offer.

(2) "All Other Compensation" includes Company contributions to 401(k) plan
and Company vehicle.

Option/SAR Grants in Fiscal 2000

<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PER SHARE DATE
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
James S. Lovie 50,000 2.41% $1.00 10 years from grant date
James S. Lovie 400,000 19.24% $5.00 10 years from grant date
David Myers 210,000 10.10% $5.00 10 years from grant date
</TABLE>

Aggregated Option/SAR Exercises in Fiscal 2000 and Year-End Option/SAR Values

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
9/30/2000 OPTIONS/SARS AT
SHARES 9/30/2000
ACQUIRED ON VALUE EXERCISABLE (1) EXERCISABLE (1)
NAME EXERCISE (#) REALIZED UNEXERCISABLE (2) UNEXERCISABLE (2)
---- ------------ -------- ----------------- -----------------
<S> <C> <C> <C> <C>
James S. Lovie 0 0 12,500 (1) $75,000 (1)
437,500 (2) 0 (2)
David Myers 0 0 0 (1) 0 (1)
210,000 (2) 0 (2)
</TABLE>

Employment Agreements

Mr. Lovie, the Chief Executive Office and a Director of the Company entered into
an Employee Agreement with the Company on January 3, 2000. The Agreement
provides for a base salary of $250,000 per annum. The Agreement also provides a
loan in the amount of $250,000 to be repaid in full in the event that Mr. Lovie
is dismissed with cause or resigns with the first year of employment. On the day
following the first three anniversary dates of this Agreement, $83,333.33 of the
loan is to be forgiven provided that Mr. Lovie has not been dismissed with cause
or has not resigned prior to the completion of the first year of employment. In
addition, Mr. Lovie was granted option to purchase 50,000 common shares of the
Company's stock at $1.00 per share and options to purchase 350,000 common shares
of the Company's stock at $5.00 per share. One-third of the options vest
annually beginning December 1, 2000. In the event of a termination of
employment, voluntarily or involuntarily, any vested options are note affected;
however, any unvested options terminate. In the case of a successful takeover
bid for the Company resulting in a change of control, all remaining options vest
immediately. In the event of a dismissal without cause, the Company is required
to pay Mr. Lovie a severance payment of one year base compensation.

Mr. Myers, the former President and Chief Operating Officer of the Company
entered into an Employment Agreement with the Company on January 13, 2000. The
Agreement provides for a base salary of $200,000 per annum. The Agreement also
provides for a singing bonus in the amount of $30,000. In addition, Mr. Myers
was granted option to purchase 210,000 common shares of the Company's stock at
$5.00 per share. One-third of the options vest annually beginning December 1,
2000. In the event of a termination of employment, voluntarily or involuntarily,
any vested option are not effected; however, any unvested options terminate. If
Mr. Myers is terminated without cause, all options not yet vested for the
12-month period after which the termination occurs become immediately vested. In
the case of a successful takeover bid for the Company, resulting in a change of
control, all remaining options vest immediately. In the event of a dismissal
without cause, the Company is required to pay Mr. Myers a severance payment of
one year base compensation.

Mr. Myers' employment with the Company was terminated on November 27, 2000.
In connection with a Settlement Agreement entered into on December 7, 2000
between Mr. Myers and the Company, among other things, Mr. Myers was granted
a severance of $130,000 and 140,000 of the options he was previously granted
under his employment agreement.

Directors of the Company were awarded 50,000 options at $5.00 or fair market
value, which vest over a three year period. Mr. Dittrick received 100,000
options as Chairman of the Board. Mr. Chell did not receive any options in
his capacity as a Director of the Company. In addition Mr. Killoran, who
terminated his directorship in January, 2001, received $100,000 in a
noncompete agreement. The Company reimburses its Directors for reasonable
costs incurred for attendance at meetings.

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

The following table sets forth the amount and nature of beneficial ownership of
the holders of five percent of any class of cMeRun's voting securities.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ---------- --------
<S> <C> <C> <C>

Series A Hammock Group Ltd. 2,000,000 100%
Convertible c/o Voyageur shares, held
Preferred Financial Services directly(1)(2)
129 Front Street,
Penthouse
Hamilton, Bermuda

Series B V C Advantage 2,166,667 76.5%
Convertible Limited Partnership shares, held
Preferred c/o Thomson Kernaghan directly(1)(3)
& Co. Limited
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2

Series B Southshore Capital 166,666 5.9%
Convertible Fund Ltd. shares, held
Preferred c/o CITCO Fund directly(1)(3)
Services
P.O. Box 13136
Shirley and
Charlotte Streets
Nassau, Bahamas

Common Cameron Chell 1,001,000 33.4%
Stock Chell.com
114,1215-13 St. S.E.
Calgary, AB T2G 3J4
</TABLE>

(1) The Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock are convertible into common stock on a one-for-one basis.

(2) The Series A Convertible Preferred Stockholders also hold warrants to
purchase 1,000,000 shares of the Company's common stock at a price of
$1.00 per share.

(3) The Series B Convertible Preferred Stockholders also held warrants to
purchase 1,400,000 shares of the Company's common stock at a price of
$2.50 per share.

<PAGE>

The following table sets forth the number of shares of cMeRun Common Stock
beneficially owned as of December 1, 2000 by each of the directors and executive
officers of cMeRun, and the directors and executive officers as a group. With
the exception of the holdings of Mr. Chell, who holds 33.4% of the outstanding
cMeRun Common Stock, none of the individual or collective holdings listed below
exceeds 1% of the outstanding cMeRun Common Stock. Except as indicated below,
all of the shares listed are held by the persons named with both sole voting
power and sole investment power. No member of the group is the beneficial owner
of cMeRun's Cumulative Preferred Stock.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CMERUN COMMON
STOCK BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED OF CLASS
------------------------ ------------------ --------
<S> <C> <C>
Cameron B. Chell 1,407,667(1) 41.31%
Theodora S. Convisser 0 --
Chad K. Corneil 0 --
Colin B. Curwen 50,000(2) 1.64%
Douglas H. Dittrick 0 --
Gordon A. Elliott 2,500 .08%
David C. Hayden 0 --
Richard A. Hronicek 1,000 .03%
Paula M. Hunter 41,667(2) 1.37%
Frank J. Killoran 0 --
Alan B. Levine 0 --
James S. Lovie 145,832(2) 4.63%
Gerald J. McGovern 33,333(2) 1.10%
Warren S. Talbot 50,000(2) 1.64%
All directors and officers
as a group (comprising the
14 persons listed above) 1,731,999 46.45%

</TABLE>

(1) Includes options to purchase 406,667 shares which are exercisable as of
December 1, 2000.

(2) Beneficial ownership represents options to purchase stock which are
exercisable as of December 1, 2000.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From the date of incorporation through the sale of its convertible preferred
stock, the working capital requirements of the Company were financed principally
by Chell.com Inc., a Calgary, Alberta based incubator of internet related
companies. The Chairman of Chell.com was the Chairman, and is now the Vice
Chairman, of the Company's Board of Directors. Since the commencement of fiscal
2001, Chell.com has advanced approximately $1,654,000 to the Company.

The Series B Stock was sold to an entity in which the Vice Chairman, a principal
shareholder of the Company, has an ownership interest.

<PAGE>

On September 18, 2000, CALP II Limited Partnership, a Bermuda limited
partnership ("CALP") and the holder of 50,000 shares of the Company's Series B
Preferred Stock, advanced the Company $1,000,000. The note provided for an
initial fee of 10,000 restricted shares of the Company's common stock, and for
an additional payment of 1,000 restricted common shares for each $100,000 or
portion thereof of unpaid principal for each 30 days or portion thereof after
November 15, 2000 that any principal of the note remains unpaid. As of the date
hereof, the Company has issued 30,000 restricted shares of common stock pursuant
to the terms of the note. The CALP note was filed with the Company's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2000, and is incorporated
herein by reference.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

See the attached exhibit list following the Company's signature for a list of
exhibits filed herewith.

(b) Reports on Form 8-K

DATE FILED ITEMS REPORTED
---------- --------------
12/22/2000 Regulation FD Disclosure

10/18/2000 Changes in Registrant's Certifying Accountant

<PAGE>

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

CMERUN CORP.

Dated: January 16, 2001 By: /s/ Gerald J. McGovern
---------------------------------
Gerald J. McGovern
Chief Financial Officer

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

January 16, 2001 /s/ Douglas H. Dittrick
---------------------------------------------------------
Douglas H. Dittrick
Chairman of the Board

January 16, 2001 /s/ Cameron B. Chell
---------------------------------------------------------
Cameron B. Chell
Vice Chairman of the Board

January 16, 2001 /s/ Chad K. Corneil
---------------------------------------------------------
Chad K. Corneil
Director

January 16, 2001 /s/ Gordon A. Elliott
---------------------------------------------------------
Gordon A. Elliott
Director

January 16, 2001 /s/ Alan B. LeVine
---------------------------------------------------------
Alan B. Levine
Director

January 16, 2001 /s/ James S. Lovie
---------------------------------------------------------
James S. Lovie
Director, Chief Executive Officer

January 16, 2001 /s/ Gerald J. McGovern
---------------------------------------------------------
Gerald J. McGovern
Chief Financial Officer and
Principal Accounting Officer

January 16, 2001
---------------------------------------------------------
Richard A. Hronicek
Director

January 16, 2001
---------------------------------------------------------
David C. Hayden
Director

<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Description
-------------------------------------------------------------------------------
<S> <C>
2.1 The Plan and Agreement of Merger dated as of December 9, 1999
among cmerun, inc. and Fundae Acquisition Corporation (1)

2.2 Agreement and Plan of Merger dated as of January 31, 2000 among
Fundae Acquisition Corporation, Fundae Merger Sub, Inc. and
C Me Run Corp. (2)

2.3 The Acquisition Agreement dated as of December 2, 1999 among C Me
Run Corp, C Me Run (Alberta) Ltd. and CMERUN Acquisition Corp. (2)

3(i).1 Articles of Incorporation filed March 16, 1995(3)

3(i).2 Articles of Amendment filed January 20, 1999 (3).

3(i).3 Articles of Amendment to Articles of Incorporation filed
December 2, 1999 (2)

3(ii).1 By-laws (3).

4.1 Corrected Certificate of Designation for Series A Convertible
Preferred Stock (4)

4.2 Corrected Certificate of Designation for Series B Convertible
Preferred Stock (4)

10.1 Warrant Agreement with Hammock (4)

10.2 Warrant Agreement with VCALP (4)

10.3 Warrant Agreement with Thomson Kernaghan & Co. Limited ("TKCL") (4)

10.4 Form of Registration Rights Agreement executed by Hammock, VCALP
and TKCL (4)

10.5 Letter Agreement dated January 28, 2000 with VCALP (4)

10.6 Consulting Agreement with Chell.com Inc. (4)

10.7 Office lease with One Cabot Road Investors, LLC (4)

10.8 Advertising Agency Agreement with Interactive Business Channel (4)

10.9 Amendment to Advertising Agency Agreement (4)

10.10 Letter Consulting Agreement with SmallCaps Online Group LLC (4)

10.11 Master Agreement to Lease Equipment dated March 30, 2000 by and between
Cisco Systems Capital Corporation and cMeRun Corp. (5)

10.12 Citrix iBusiness Application Service Provider Agreement by and between
Citrix Systems, Inc. and cMeRun Corp. (5)

10.13 Eggrock eco-Share Agreement dated March 7, 2000 by and between Eggrock
Partners, Inc. and cMeRun Corp. (5)

10.14 Master Services Agreement dated December 17, 1999 by and between Exodus
Communications, Inc. and cMeRun Corp. (5)

10.15 Employment Agreement made as of January 3, 2000 with James S. Lovie (5)

10.16 Employment Agreement made as of February 21, 2000 with Paula M. Hunter (5)

<PAGE>

<S> <C>
10.17 Employment Agreement made as of December 1, 1999 with Colin Curwen (5)

10.18 Employment Agreement made as of November 12, 2000 with Warren Talbot (5)

10.21 Promissory Note dated September 18, 2000 from cMeRun Corp. to CALP II
Limited Partnership (6)

10.22 Application Service Provider Agreement dated May 18, 2000 by and
between Corel Corporation and cMeRun Corp. (6)

10.23 ASP Services Agreement dated October 12, 2000 by and between Cyber
Beach Communications Corp. (6)

10.24 Promissory Note dated November 6, 2000 from cMeRun Corp. to Douglas H.
Dittrick (6)

10.25 ASP License Agreement dated October 10, 2000 by and between Individual
Software Inc. and cMeRun Corp. (6)

10.26 Microsoft Application Services Agreement dated May 9, 2000 by and
between MSLI, GP and cMeRun Corp. (6)

10.27 Letter Agreement dated August 10, 2000 by and between Niehaus Ryan
Wong, Inc. and cMeRun Corp. (6)

10.28 License Agreement dated November 15, 2000 by and between Simon &
Schuster, Inc. and cMeRun Corp. (6)

10.29 Master Lease Agreement dated April 19, 2000 by and between Steelcase
Financial Services Inc. and cMeRun Corp. (6)

10.30 Master Services Agreement dated May 19, 2000 by and between
StorageNetworks, Inc. and cMeRun Corp. (6)

10.31 ASP License Agreement dated September 1, 2000 by and between Winstruct
Inc. and cMeRun Corp. (6)

10.32 ASP License Agreement dated September 29, 2000 by and between Zane
Publishing, Inc. and cMeRun Corp. (6)

10.33 Employment Agreement made as of May 1, 2000 with Gerald J. McGovern (6)

10.34 cMeRun Corp. 2000 Equity Incentive Plan (6)

10.35 Option Grant Form of Agreement for Directors (6)

10.36 Option Grant Form of Agreement for Officers (6)

10.37 Option Grant Form of Agreement for Employees (6)

10.38 Proposal dated March 17, 2000 by and between Cisco Systems Capital
Corporation and cMeRun Corp. (6)

10.39 Master Lease Agreement dated July 6, 2000 by and between Cicso
Systems Capital Corporation and cMeRun Corp. (6)

10.40 Agreement between Douglas H. Dittrick and cMeRun Corp. dated October 11,
2000 (7)

10.41 Form of Amending Agreement, dated December 1, 2000 (7)

10.42 Form of Directorship Agreement (7)

10.43 Frank Killoran Non-Competition Agreement (7)
</TABLE>

<PAGE>

(1) Incorporated herein by reference from the Company's definitive information
statement 14c filed on December 28, 1999.

(2) Incorporated herein by reference from the Company's quarterly report on Form
10-QSB filed on February 11, 2000

(3) Incorporated herein by reference from the Company's Registration Statement
on Form 10-SB

(4) Incorporated herein by reference from the Company's Quarterly report on Form
10- QSB filed on June 6, 2000

(5) Incorporated herein by reference to the Company's amended quarterly report
on Form 10-QSB/A filed on December 6, 2000

(6) Incorporated herein by reference to the Company's quarterly report on Form
10-QSB filed on December 6, 2000

(7) Filed herein