BURST.COM
FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2003 AND
2002
BURST.COM AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Table of Contents
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Accountants’ Compilation
Report |
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Financial Statements: |
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Balance Sheets |
2 |
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Statements of Operations |
3 |
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Statements of Changes in Stockholders’ Equity |
4 – 5 |
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Statements of Cash Flows |
6 |
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Notes to Financial Statements |
7 – 24 |
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Of Burst.com, Inc. and
Subsidiaries
We
have audited the accompanying consolidated balance sheet of Burst.Com,
Inc. ( a Delaware corporation) and Subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated Statements of Operations, Changes in Stockholder's Deficit, and
Cash Flows for the year then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on that
consolidated financial statements based on our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The
accompanying consolidated financial statements for December 31, 2003 and 2002
have been prepared assuming the Company will continue as a going concern. As discussed in Note 2, the Company has
suffered recurring losses from operations and has a net capital deficit that
raises doubt about its ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 2.
The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
In
our opinion, the 2003 and 2002 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Burst.com, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States
of America.
_______________________________________
San Francisco, California
March 16, 2004
BURST.COM, INC. AND SUBSIDIARIES
Assets
2003 2002
Current assets
depreciation of $125,624 and $84,979
respectively 18,331 57,545
Other assets 968,283 2,700
Liabilities
and Stockholders' Equity
Current liabilities
Convertible preferred
stock, $.00001 par value,
20,000,000 shares authorized; none issued
outstanding - -
Common
stock, $.00001 par value; 100,000,000 shares
authorized; 25,433,036 and 22,681,771 shares
issued
and outstanding during 2003 and 2002
respectively 254 227
Additional
paid-in-capital 60,247,699 59,084,955
Accumulated
deficit (62,107,734) (61,531,409)
Total stockholders' deficiency (1,859,781) (2,446,227)
Total Liabilities and
Stockholders' Deficiency $ 1,290,636 $ 706,777
BURST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
Revenue $ 163,182 $ 191,950
Cost of revenues - -
Gross profit 163,182 191,950
Costs and expenses:
Research and development 53,837 13,540
General and administrative 348,799 576,646
Total costs and expenses 402,636 590,186
Loss from operations (239,454) (398,236)
Other income (expenses):
Gains on sale of assets - 17,550
Interest income 8,973 1,931
Interest expense (344,197) (524,036)
Total other income (expenses) (335,224) (504,555)
Income tax benefit (expense) (1,646) (5,419)
Net loss before extraordinary item (576,324) (908,210)
Net loss $ (576,324) $ (908,210)
Net loss per share, basic and diluted,
before extraordinary item $ (0.03) $ (0.03)
Net loss per share, basic and diluted $ (0.03) $ (0.04)
Weighted average number of common
shares outstanding 23,207,526 21,414,948
BURST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Common Stock
Shares Amount
Balance, December 31, 2001 18,734,958 187
Year ended December 31, 2002:
Common Stock issued in settlement with
prior officers 595,757 6
Common Stock issued in return for services 25,000 -
Common Stock issued to investors 2,537,535 26
Additional Common Stock issued during 2002 788,521 8
Balance,
December 31, 2002 22,681,771 227
Year ended December 31, 2003:
Stock options exercised 2,401,265 24
Common Stock issued in return for services 100,000 1
Common Stock issued to investors 250,000 2
Additional Common Stock issued during 2003 - -
Balance, December 31, 2003 25,433,036 254
BURST.COM, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER
31, 2003 AND 2002 (CONTINUED)
Additional
Paid-In
Capital Deficit Total
Balance, December 31, 2001 57,823,883 (60,623,200) (2,799,130)
Year ended December 31, 2002:
Compensation related to sale of common stock
to investors 839,974 - 839,974
Compensation related to issuance of common stock
For services 3,500 - 3,500
Stock issued in exchange for extension of notes 214,472 - 214,472
Stock issued in exchange for settlement
Of debt 17,268 - 17,268
Warrants and options issued with debt 160,859 - 160,859
Warrants exercised 24,999 - 24,999
Net loss - (908,210) (908,210)
Balance, December 31, 2002 $ 59,084,955 $ (61,531,410) $ (2,446,455)
Year ended December 31, 2003:
Stock issued in exchange for notes 965,583 - 965,583
Stock issued in exchange for settlement
Of debt 33,000 - 33,000
Warrants and options issued for debt 5,000 - 5,000
Warrants and options exercised 159,161 - 159,161
Net loss - (576,324) (576,324)
Balance, December 31, 2003 $ 60,247,699 $ (62,107,734) $ (1,860,035)
BURST.COM, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE YEARS ENDED DECEMBER
31, 2003 AND 2002
2003 2002
Cash flows from operating activities:
Net loss $ (576,324) $ (908,210)
Adjustments to reconcile net loss
to net cash used by operations activities:
Depreciation and amortization 40,644 46,084
Change in operating assets and liabilities:
Notes receivable (965,583) 17,460
Prepaid and other current assets (2,471) 9,967
Other assets - -
Accounts Payable (118,200) (280,135)
Accrued expenses 2,615 (106,892)
Accrued interest 169,362 165,347
Deferred revenue (161,200) (161,200)
Net cash used by operating activities (1,611,157) (1,217,579)
Cash flows from investing activities:
Purchase of property and equipment (1,432) (644)
Net cash used by investing activities (1,432) (644)
Cash flows from financing activities:
Proceeds from sale of stock, net of costs 550,502
Exercise of warrants and stock options 1,162,771 710,611
Payment of costs in connection with conversion
of preferred stock to common -
Proceeds from debt financing 104,836 595,199
Net cash provided by financing activities 1,267,607 1,856,312
Increase (Decrease) in cash and cash equivalents (344,982) 638,090
Cash and cash equivalents, beginning of year 644,202 6,111
Cash and cash equivalents, end of year $ 299,220 $ 644,201
NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Burst.com, Inc. and subsidiaries
(“The Company”) was incorporated in the State of Delaware as Instant Video
Technologies, Inc. On January 27, 2000, the Certificate of Incorporations was
amended to change the Company’s name to Burst.com, Inc.
The Company’s authorized capital stock
consists of 100,000,000 shares of common stock, $0.00001 par value per share,
and 20,000,000 shares of preferred stock, $0.00001 per share.
The board of directors has the authority, without action by the Company’s stockholders, to provide for the issuance of preferred stock in one or more classes or series and to designate the rights, preferences and privileges of each class or series, which may be greater than the rights of the common stock. The Company had no preferred stock outstanding as of December 31, 2003 and 2002.
The Company licenses burst
transmission software and intellectual property for use within commercial,
multimedia and interactive environments.
The burst technology allows for time compression and burst transmission
of video/audio programming that results in time-savings, network efficiency and
superior quality products.
The consolidated financial
statements include the accounts of Burst.com, Inc and its wholly-owned
subsidiaries, Explore Technology, Inc. and Timeshift-TV. All significant intercompany balances and
transactions have been eliminated.
The accompanying consolidated financial statements have been prepared in conformity with U.S generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and operations for the period. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. The Company’s most significant estimates are those related to the valuation of stock, stock options, and warrants in connection with equity and financing transactions.
Cash and cash
equivalents consist of money market accounts and other short-term investments
with an original or remaining term of three months or less.
NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF
CREDIT RISK
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash.
The Company
maintains cash balances at several banks. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. From time
to time, the Company had cash in financial institutions in excess of federally
insured limits.
INVESTMENTS
In accordance with
Statement of Financial Accounting Standards (SFAS No. 115) “Accounting for
Certain Investments in Debt and Equity Securities”, securities are classified
into three categories: held-to maturity, available-for-sale and trading. The Company’s investments consisted of
equity securities classified as available-for-sale. Accordingly, they were carried at fair value in accordance with
SFAS No. 115. Further, SFAS No. 115
requires that unrealized gains and losses for available-for-sales securities be
excluded from earnings and reported, net of deferred income taxes, as other
comprehensive income. As of December 31, 2003 and 2002, the Company had
disposed of all of its available for sale securities.
COMPREHENSIVE
INCOME
The Company had no
component of comprehensive income other than its reported amounts of net loss
applicable to holders of common stock.
LONG-LIVED
ASSETS
The Company periodically evaluates whether events and
circumstances have occurred that may warrant revision of the estimated life of
intangible and other long-lived assets, or whether the remaining balance of
intangible and other long-lived assets should be evaluated for possible
impairment. If and when such factors, events or circumstances indicate that
intangible or other long-lived assets should be evaluated for possible impairment,
the Company would make an estimate of undiscounted cash flows over the
remaining lives of the respective assets in measuring recoverability.
During the years ended December 31, 2001, the Company recognized
approximately $385,000 of impairment in
leasehold improvements, computers and equipment assets; Further description in
Note 4.
There were no impairments recognized in the year ended December 31,
2003 and 2002.
NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue in
accordance with Statement of Position (SOP) No. 97-2, “Software Revenue
Recognition”. Under the guidance of SOP
No. 97.2, no revenue is recognized until evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and collection is
probable. License fees and services are generally recognized as revenue ratably
over the license period.
Property and equipment are stated at
cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets that range
from three to five years. Replacements,
maintenance and repairs, which do not extend the lives of the respective assets
are charged to expense as incurred.
FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company’s financial instruments
consist primarily of cash and cash equivalents, accounts receivable, accounts
payable, and debt. The carrying amounts of such financial instruments
approximate their respective estimated fair value due to the short-term
maturities and approximate market interest rates of these instruments.
Earnings (loss) per share is computed in accordance with SFAS
No. 128, “Earnings per Share”. Basic
earnings per share is computed by dividing net income, after deducting
preferred stock dividends accumulated during the period, by the
weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period.
The following is a summary of the
securities that could potentially dilute basic loss per share in the future
that were not included in the computation of diluted loss per share because to
do so would be anti-dilutive.
NOTE 1 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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2003 |
2002 |
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Options |
3,013,332 |
5,907,497 |
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Warrants |
17,346,678 |
17,396,678 |
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Total |
20,360,010 |
23,304,175 |