SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

         [X]      Annual  report  under  Section  13 or 15(d) of the  Securities
                  Exchange Act of 1934

                  For the Fiscal Year ended: December 31, 2001

                                       OR

         [ ]      Transition  report under Section 13 or 15(d) of the Securities
                  Exchange Act of 1934

                  For the transition period from ____________ to ____________ .

                         Commission File No. 33-35580-D

                                 BURST.COM, INC.
              (Formerly known as Instant Video Technologies, Inc.)
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                  84-1141967
-------------------------------          ---------------------------------------
(State or Other Jurisdiction of          (I.R.S. Employer Identification Number)
Incorporation or Organization)

     613 Fourth Street, Suite 201
        Santa Rosa, California                           95404
----------------------------------------               ----------
(Address of Principal Executive Offices)               (Zip Code)

                                 (415) 391-4455
              (Registrant's Telephone Number, Including Area Code)

Securities Registered Under Section 12(b) of the Exchange Act:  None.

Securities  Registered  Under Section  12(g) of the Exchange  Act:

                         Common Stock $.00001 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes [ X ]  No [  ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

The  aggregate   market  value  of  the   Registrant's   Common  Stock  held  by
non-affiliates on March 31, 2002 was approximately $241,500 based on the closing
price of the Common  Stock as reported  on The Nasdaq Over the Counter  Bulletin
Board for that date.

As of March 31, 2002, there were 19,173,846  shares of the  Registrant's  Common
Stock outstanding.

<PAGE>

                                 BURST.COM, INC.

                          2001 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                     PART I

Item 1.  Business ..........................................................  3

Item 2.  Property .......................................................... 16

Item 3.  Legal Proceedings ................................................. 16

Item 4.  Submission of Matters to a Vote of Security Holders ............... 16

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related
           Stockholder Matters ............................................. 17

Item 6.  Selected Financial Data ........................................... 18

Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations ............................. 19

Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........ 29

Item 8.  Financial Statements and Supplementary Data ....................... 29

Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure ........................................ 29

                                    PART III

Item 10. Directors and Executive Officers of the Registrant ................ 30

Item 11. Executive Compensation ............................................ 32

Item 12. Security Ownership of Certain Beneficial Owners and Management .... 33

Item 13. Certain Relationships and Related Transactions .................... 34

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 36

         Signatures ........................................................ 38

Instant Video(R), Burstware(R), Burstaid(R), Faster-Than-Real-Time(R), Burstware
Conductor(R),  Burstware  Player(R),  and  Burstware  Server(R)  are  registered
trademarks of BURST.COM,  INC. All other names are trademarks  and/or registered
trademarks of their respective owners.


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<PAGE>

               SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS

     Some of the matters discussed under the captions "Business,"  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
elsewhere in this report include forward-looking statements. We have based these
forward-looking  statements on our current  expectations  and projections  about
future events, including, among other things:

     o    implementing our business strategy;
     o    maintaining sufficient cash balances to continue in operation;
     o    attracting and retaining  customers;  o obtaining and expanding market
          acceptance of the products and services we offer;
     o    forecasts  of  Internet  usage  and the size and  growth  of  relevant
          markets;
     o    rapid technological changes in our industry and relevant markets and
     o    competition in our market.

     In some cases, you can identify  forward-looking  statements by terminology
such as "may," "will," "should," "could," "predicts,"  "potential,"  "continue,"
"expects,"  "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar  expressions.  These  statements  are based on our current  beliefs,
expectations  and  assumptions  and  are  subject  to  a  number  of  risks  and
uncertainties. Actual results, levels of activity, performance, achievements and
events  may  vary  significantly  from  those  implied  by  the  forward-looking
statements.  A description of risks that could cause our results to vary appears
under the caption  "Risks and  Uncertainties"  in  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
report. These forward-looking statements are made as of the date of this report,
and except as required under applicable  securities law, we assume no obligation
to update them or to explain the reasons why actual results may differ.

                                     PART I

ITEM 1: BUSINESS.

THE COMPANY

     We are an  independent  provider  of  client/server  network  software  and
intellectual  property  for the  delivery  of video and audio  information  over
networks. Our office is located in Santa Rosa, California.  Our software manages
the delivery of video and audio  content over a variety of networks;  optimizing
network  efficiency and quality of service.  Our Burstware(R)  suite of software
products   enables   companies   to   transmit   video   and   audio   files  at
Faster-Than-Real-Time(R)speed,  which is  accomplished  by  utilizing  available
bandwidth  capacity in conjunction  with data  compression to send more video or
audio data to users than the players are  consuming  in real time.  This data is
stored on the user's machine for playing on demand, thus isolating the user from
noise and other network  interference.  The result is high quality,  full-motion
video  and  CD-quality  audio to the  end-user.  Burstware(R)  utilizes  various
components   of   our   international    patent    portfolio,    including   the
Faster-Than-Real-Time(R) delivery method.

     In January  2000,  we changed our name from  "Instant  Video  Technologies,
Inc." to  "Burst.com,  Inc." Our stock  trades on the  Nasdaq  over the  counter
bulletin board under the symbol "BRST".

     In  November  2000,  due to  insufficient  funds and sales to  support  our
organization,  we laid  off 77  employees  out of a total  of 95  employees  and
substantially  reduced our sales,  marketing and engineering  spending. In March
2001,  we laid off all but five of the  remaining  employees,  and  accepted the
resignations  of then Chief  Executive  Officer  Douglas Glen,  Chief  Financial
Officer John Lukrich,  and Vice President & General  Counsel  Edward Davis.  The
Chief Executive  Officer position was assumed by our Chairman,  Richard A. Lang,
and our Controller,  Jeffrey Wilson,  took over as Chief Financial  Officer.  In
October  2001,  the number of  full-time  employees  was  reduced to


                                       3
<PAGE>

two: Chief Executive  Officer  Richard A. Lang, and Vice  President,  Operations
Eric Walters. Since that date,  engineering,  licensing,  legal,  accounting and
other  support  services  are being  procured  on an  "as-needed"  basis  from a
combination  of  former  employees  providing  contract  services,  and  outside
consulting,  legal and accounting firms. In light of our reduced  operations and
limited  working  capital,  we have changed our mode of  conducting  business by
engaging in a business model that focuses on the licensing of existing  versions
of  Burstware(R),  with  product  enhancements  provided  as needed  by  outside
engineering contractors.  We also began discussions with both existing customers
and  new  customers  regarding  the  licensing  of  both  Burstware(R)  and  our
underlying patent portfolio.  These discussions  resulted in new revenues in the
amount of approximately  $57,000 during the fourth quarter of 2001. We currently
have five  customers  who are acting as resellers  and use our software in their
business.  Three customers accounted for 53%, 36% and 13%, respectively,  of our
total revenue in fiscal year 2001.

     In November  2001,  the Company  entered  into a  three-year  non-exclusive
Master Reseller  Licensing  agreement with Seo Yeong Digital,  of South Korea, a
company focused on the deployment and marketing of  video-on-demand  systems for
hotels and communities  within India. We received  $25,000 in the fourth quarter
of 2001 as a royalty payment towards the deployment of  video-on-demand  clients
in the Korean marketplace.

     At the end of 2001, we abandoned the operation of our Hosting Network,  due
to lack of funds required to operate the system (we may reintroduce this service
if such funds become  available in the future).  The Hosting Network  previously
provided a seven location delivery network that utilized Burstware(R) technology
to permit  clients to store  their  audio and video  content on our  servers for
delivery to end users over the Internet.  The Hosting Network was established to
showcase  the  Burst  technology   capabilities.   See  "Liquidity  and  Capital
Resources"  and "Risks and  Uncertainties"  under  "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results  of  Operations"  in Item 7 and
Financial Statements and Supplementary Data in Item 8 below.

INDUSTRY BACKGROUND

     In recent years,  several related technologies have converged to enable the
distribution of video and audio content over electronic communications networks.
As  network   bandwidth,   data  storage,   processing  power,  and  compression
technologies  have become  increasingly  available,  the demand for high quality
video  and  audio  over the  Internet,  as well as over  intranet  and  extranet
networks,  has expanded  rapidly.  The result of such  developments has been the
transition  of  the  Internet  from  a  static,   text-oriented  network  to  an
interactive environment filled with graphical and audio-visual content.

     Distributing audio-visual content over the Internet, or within an intranet,
offers  certain  advantages and  capabilities  not generally  available  through
traditional media, including consumer targeting and interactive  responsiveness.
As businesses have begun to recognize the cost,  inconvenience  and inefficiency
of  business  communication  tools such as audio and  videoconferencing,  online
communications   between    business-to-business,    business-to-consumer    and
business-to-employee have become commonplace

     In order to  capitalize  on this  expansion  in  Web-based  content  and in
anticipation  of the  implementation  of broadband  networks that will provide a
conduit for entertainment  content to be delivered into consumer  households via
the  Internet,  a  number  of  companies  developed  first  generation  software
solutions  intended  to  deliver  such  content  to the end  user.  These  first
generation  solutions  have  commonly  been  referred to as real-time  streaming
solutions  that allow for the  transmission  and remote  playback of  continuous
"streams" of media  content,  including live video and audio  broadcasts.  These
technologies  were  designed to deliver audio and video content over widely used
28.8 kbps narrow  bandwidth  modems and, to a limited  extent,  were  capable of
utilizing higher speed access provided by digital subscriber lines, cable modems
and other broadband  emerging  technologies.  Recently,  several  companies have
released or announced newer version streaming technologies that provide improved
viewing and listening quality as well as improved network utilization.


                                       4
<PAGE>

MARKET OPPORTUNITY

     Although current streaming technology represents a significant  advancement
over earlier  technologies,  it has historically  remained unable to provide the
client  with  reliable,   uninterrupted,   full-motion,   studio-quality  video,
particularly  video-on-demand,  or VOD,  and  CD-quality  audio.  That is, first
generation  solutions  rely  upon a  network  design  in  which  various  client
computers are connected to centralized server computers.  Typically,  one server
is intended  to service a multitude  of  clients.  During a typical  session,  a
server must deliver data in frequent and regular intervals, or just in time, for
the length of any  real-time  play of content.  For example,  a 30-minute  video
requires that constant  communication  between servers and clients be maintained
for 30 minutes of real-time viewing.  Moreover, in all cases involving real-time
streaming,  as the number of end users expands, the number of server connections
must also  increase at a ratio of 1 to 1.  Real-time  streaming  through  such a
network cannot scale  efficiently  and, given the  infrastructure  requirements,
remains costly. This is a particularly important limitation for the distribution
of  time-based  content  to home  televisions  via  broadband  connections.  The
inherently  poor  picture  quality and network  inefficiencies  associated  with
typical  real-time   streaming  solutions  are  prohibitive  to  the  successful
marketing of video-on-demand services to consumers.

     As real-time  streaming  expands  rapidly  online with  growing  demand for
audio-visual content,  client-centric delivery becomes increasingly  susceptible
to congestion and disruption within the established client-server universe. As a
result, a client's multimedia  experience  typically is interrupted or degraded.
Additionally,  the  number  of  real-time  connections  that  can be  maintained
simultaneously by the server is limited by processing power as well as bandwidth
availability.  This,  along  with  the  fact  that  a  server  tends  to  devote
disproportionate resources to the client with the most available bandwidth, also
reduces the quality as well as the  availability  of the video and audio content
to most users on the network.

     As a  result  of these  limitations,  plus the  fact  that  most  streaming
technology   involves   proprietary   encoding   schemes  and  limited  platform
acceptance,  widespread  dissemination of high-quality streaming content has yet
to occur within either the business-to-business or business-to-consumer  market.
Escalating  demand  within  these  markets  as  well  as the  need  for  quality
enhancement  of content  delivery  have  created a need for a software  solution
capable of  eliminating  network  disruptions  and  utilizing  client  bandwidth
efficiently.  During the later part of 2001, companies that had invested heavily
in  the  development  of  real-time   streaming   delivery  platforms  began  to
acknowledge  the  inherent  problems in the  existing  technology.  For example,
Microsoft  recently  announced  its  offering  of  "3rd  Generation"   streaming
approaches  that  promise  improved  viewing  and  listening  quality as well as
improved  network  utilization.  Real  Networks has  announced  "Turbo Play," an
improved Real Networks product  promising  better  streaming media quality.  See
"Competition" below.

     We believe that our intellectual property will be attractive to any company
that wishes to deliver digital media over electronic networks at a quality level
high enough to justify charging end users, content providers or advertisers.  As
a result, our business model involves developing  strategies that will enable us
to successfully  enforce our  intellectual  property and receive what we believe
will be  substantial  licensing  revenues as a result,  although there can be no
assurance that this will be the case.

THE BURST SOLUTION

     With our  patented  Burstware(R)  technology,  we  provide  a  server-based
intelligent  network  management  system  delivering  "Faster-Than-Real-Time(R)"
content  across a variety of networks.  Our software is designed to work equally
well  with  content  created  using any data  compression/decompression  (CODEC)
methodology.   The  Java-script  Burstware(R)  solution  ensures  a  consistent,
high-quality  experience over multiple platforms through optimization of network
resources and superior isolation of clients from network disturbances.

     In a Burst-Enabled(TM)  network, the server delivers "bursts" of content of
various  sizes and  frequencies,  as required,  into a  client-side  buffer at a
Faster-Than-Real-Time(R)  rate of  consumption.  On the client  side,  the local
buffer of stored, or cached, data acts as a reserve providing continuous play in
the event that data flow  across  the  network is  disrupted.  Once the  network
recovers, the local buffer is rapidly "topped off" at a Faster-Than-Real-Time(R)
rate.  Upon delivery  completion,  the server  disengages from the client and is
free  to  address  other  clients


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<PAGE>

awaiting content delivery, with service prioritized based on the client's buffer
level, rate of consumption, available bandwidth and other variables.

     Under typical network conditions, demand for media content rises and falls.
Real-time streaming's  architecture must allocate network bandwidth for the peak
demand,  wasting  bandwidth during lower demand  occurrences.  Bursting tends to
average out the peaks and troughs using an intelligent buffer management system.
Buffers   are   replenished   in   anticipation   of   client   needs  at  rates
Faster-Than-Real-Time(R). This intelligent network management reduces demand for
bandwidth at peak times.

     With the same amount of allocated  bandwidth,  Burstware(R)  supports  more
users with less  infrastructure.  In a November 2000 study by Approach,  Inc., a
research firm  specializing in the digital media market,  Burstware(R) was shown
to be up to 25% more bandwidth efficient than Microsoft's Windows Media System.

     With a need-based delivery model and the ability to service the same number
of clients using fewer network  resources,  Burstware(R)  technology also offers
quantifiable  savings over a wide variety of end user environments.  Simulations
have shown that Burstware's(R) intelligent network management system can provide
significant improvement in network efficiency,  or throughput,  when compared to
real-time  streaming.  The  Approach  report also  concluded  that the return on
investment  for a  content  provider  using  Burstware(R)  was  16% to 43%  more
favorable  than the  return  on  investment  for a similar  configuration  using
Windows Media System, beginning with version 6.4.

     During  all  phases  of  content  delivery,   Burstware's(R)  network-based
architecture  allows for continuous  monitoring of consumption  rates,  multiple
end-user needs, and changes in network conditions.  Using connection  acceptance
criteria,   Burstware(R)  can  determine  which  network  legs  or  servers  are
overburdened  and  then  shift  the  load  accordingly.   In  addition,  through
synchronizing  content  delivery  across  backup  servers  and  conductors,  the
Burstware(R) system creates a reliable failover for uninterrupted service in the
event of  component or network  failure,  thereby  eliminating  the need for the
client to request that the server resend the entire file.

     Developed with the flexibility of open standards,  the Burstware(R) network
management  elements are focused  exclusively on content delivery without regard
to proprietary CODEC or rendering  technologies,  leaving application developers
free to use  whichever  CODEC is  required  of their  application.  Burstware(R)
architecture  currently  supports numerous  encoding  schemes,  including MPEG1,
MPEG2,  MP3,  ASF, AVI and  QuickTime,  with the ability to adapt quickly to new
technologies as they are brought to market.  Moreover, the Burstware(R) solution
is platform  and player  neutral.  Burstware(R)  Server  operates  on  Microsoft
Windows  NT,  and  Windows  2000  Solaris  and  Linux  platforms  as  well  as a
Burst-Enabled(TM) Windows Media Player, and QuickTime for Windows.

     The intelligent  Burstware(R)  network resource  management features enable
multiple end user  applications  as well. With the capacity to deliver data in a
clear,  efficient and cost-effective manner, the Burstware(R) solution creates a
high-quality  audio-visual  experience  for the  end-user  and enables  powerful
business-to-business,      business-to-customer     and     business-to-employee
communication. Burstware(R) also gives producers, aggregators and developers the
ability to reach new markets with virtually  unlimited  access to vast libraries
of content.  With these various  applications,  Burstware's(R)  network delivery
mechanism  is  ideally   suited  for   numerous   industries   including   news,
entertainment,  retail  and  advertising  as well as local,  state  and  federal
governments and agencies.

BUSINESS OF THE COMPANY

Overview

     We are a provider and licensor of  Burstware(R)  software and  intellectual
property  for use  within  commercial,  multimedia,  and  interactive  networks,
including the  Internet.  We also intend to continue the expansion of the number
of  patents  contained  within  our  patent  portfolio  and  develop  additional
enhancements  to  Burstware(R)  that may be requested by customers  and as funds
permit


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<PAGE>

     The potential applications and uses of our technology are not limited to PC
media delivery  applications.  We have begun developing and  implementing  other
strategies  to  expand  Burst's  technology  to  other  potential   applications
including  video-on-demand  servers and multimedia hardware,  such as smart-TVs,
network  appliances and set-top  boxes,  multiplying  the potential  markets for
Burstware(R)-based products.  Additionally,  we have implemented a strategy that
focuses  on  the  licensing  of  our   Burstware(R)   software  and   underlying
intellectual  property to companies that  manufacture  and deploy complete video
and  audio-on-demand  systems. We have revised our pricing model to enable these
potential  customers to procure Burst technology on a "per-client"  basis,  thus
simplifying the revenue accounting process and providing customers with a way to
incorporate the costs of Burst technology as a one-time "fixed cost" that can be
amortized over the life of the client device.

Burst Technology

     Burstware(R) is a client-server software product that manages and optimizes
the delivery of high quality video and audio (time-based media) across broadband
networks.  The heart of Burstware's(R)  capabilities is embodied in its patented
"Faster-Than-Real-Time(R)"  transfers  of  data  that  enable  interference-free
time-based media delivery and playback.  The first "proof of concept" commercial
product was released in February 1999.

     The  Burstware(R)  video delivery  system  consists of one or more servers,
Burstware(R)  Conductors and client-side  players  interconnected by one or more
networks. Burstware(R) supports a broad array of encoding standards, although it
is  neutral   to   specific   compression   technologies.   This   multi-tiered,
client-server  system provides  enterprise-class  fail-over  protection combined
with full  scalability,  and can operate over a combination  of private LANs and
public broadband networks.

     Burstware(R)  is  designed  to  benefit  customers  through  the  following
capabilities  of the  product:  1) more  simultaneous  users of video  and audio
within the same bandwidth used by the  competition;  2) highest  quality viewing
experience  without  disruptions;  3)  low  cost,  scalable  expansion  to  meet
increased  numbers of users;  and 4) control over the effects of video and audio
on the enterprise network.

Strategy

     Burst.com's goal is to be the leading  provider of  "faster-than-real-time"
or  "Burst"  digital  media  delivery   technology  to  the   broadband-centered
media-on-demand   industry.  We  view  "faster-than-real   time"  technology  as
essential to the successful  deployment of commercially  viable  media-on-demand
systems,  which we believe  will  require  the  quality of service  and  network
efficiencies  that  such  technology  provides.  We  will  pursue  this  goal by
continuing the development of our patent portfolio as available funds permit and
by upgrading and licensing our proprietary software,  Burstware(R), to companies
that require our  technology  solution in order to achieve  commercially  viable
market  solutions.  We plan to enforce our patent rights and to build our patent
licensing  revenue to the extent we are  successful  in the  enforcement  of our
patent rights. We also plan to continue the licensing of our Burstware(R)  media
delivery  solution  to value added  resellers,  set-top  box  manufacturers  and
developers of media-on-demand systems, among others.

Develop Proprietary Technology

     Since  our  inception,  we have  been a  leader  in  developing  innovative
solutions to media delivery  problems.  Our Burstware(R)  architecture  provides
better  bandwidth   economies,   higher  reliability  and  a  superior  consumer
experience when compared to real time streaming  technologies.  We will continue
to enhance  the  technology  underlying  Burstware(R)  in  response  to customer
requests and as funds permit.  We will  accomplish this through a combination of
(a) the utilization of outside engineering  contract resources on an "as-needed"
basis;  (b) the publication of our client-side  source code to aid developers in
the creation of applications built on the Burstware  platform;  (c) the possible
licensing of our source code to very large customers capable of implementing and
supporting  Burstware(R) on a large scale and in turn providing us with revenues
commensurate  with the access to our source code.  Enhancements  may include the
development   of   Burstware(R)   extensions   supporting   live  events.   This


                                       7
<PAGE>

functionality,  which has already  been  developed  in a prototype  form,  would
permit   delivery  of  live  events  to  the  Windows  Media  Player  and  other
industry-standard  players  with the added  benefit of  "time-shifted"  viewing,
seamless   ad-insertion,   and  will  also  provide  "pausing"  and  "rewinding"
functionality to end users.

Extend our Patent Portfolio

     We regard  our  patent  portfolio  as  critical  to our  ability to realize
maximum value for our technology.  Since the company was first incorporated,  we
have had 33 U.S. and international patents issued, and we currently have another
nine patent  applications at different stages of prosecution within the U.S. and
international patent offices.

     Our patents address our Faster-Than-Real-Time(R)  media delivery mechanism,
various  implementations of this mechanism,  network resource optimization as an
extension  of  our  basic  intellectual   property,  and  elements  of  advanced
client-side  functionality.  Our patents have been issued in the United  States,
Australia, Europe, Korea, India, Japan and Canada.

License our Technology To Industry Leaders

     For the past several  years,  we have  pursued a strategy of selling  media
delivery software and hosting services. This strategy, combined with the greatly
reduced cash resources available as a result of the 2001 downturn in the capital
markets,  has not produced the level of revenues necessary to sustain our effort
to  compete   head-to-head   with   powerful   leaders  such  as  Microsoft  and
RealNetworks.  Our  revised  strategy  is to offer  to  license  our  technology
software and patents to one or more leading end-to-end  media-on-demand solution
providers,  and/or  set-top box  manufacturers.  We believe that  companies  who
license  our  technology  and  patents  will  obtain a  sustainable  competitive
advantage in terms of bandwidth efficiency,  reliability and user experience. We
believe  that we  will be able to  maximize  the  value  of our  technology  and
intellectual property assets through such licensing arrangements, although there
can be no assurance that this will be the case.

     Target  licensees  include (i) marketers of  server/client  software,  (ii)
infrastructure  providers,  such as  telecommunications  and cable companies and
(iii)   manufacturers   and   marketers  of  enabling   hardware  for  broadband
media-on-demand  services  to business  and  consumers,  including  "smart-TVs",
Personal Video Recorders (PVRs) and set-top box manufacturers.  We are currently
in discussions with several  companies whose business  activities are focused in
these areas.

Engineering and Product Development

     We believe  that our future  success  will depend in part on our ability to
enhance Burstware(R) and maintain our technological leadership.  Our willingness
to make  source  code  available  to  developers,  combined  with a focus on the
licensing to companies with substantial  technological  support  infrastructures
provides  us with a  mechanism  to see our  core  Burstware  product(s)  further
enhanced by other  companies and developers who enter into licensing  agreements
with us to enable them to  undertake  such  development.  Our  internal  product
development is being undertaken with outsourced engineering resources, primarily
engineers who formerly were our employees or  consultants  and are familiar with
the technology.  These  engineers are enhancing the core Burstware  product with
features that are being  requested by existing or prospective  customers who are
willing to pay for these improvements in our core product(s). We plan to provide
testing and quality assurance through outside resources as well, as required and
financed by our current and prospective customers.

     During  fiscal  years 2000 and 1999,  we made  substantial  investments  in
product  development  and related  hosting  activities  ($4,300,328  in 2000 and
$4,076,700 in 1999).  Research and  development  expenses  decreased to $188,223
during fiscal year 2001. The current version of Burstware(R)  has been developed
primarily by our former internal engineering staff and, in some instances,  with
the  assistance  of  external  consultants.  In March  1998,  we released a Beta
version of Burstware(R),  followed by subsequent  modifications during the year.
We released our first  commercial  (GA)  Burstware(R)  product suite in February
1999.  This  release  is a  client-server  software  product  that  manages  and
optimizes  the  delivery  of high  quality  video  and  audio  across  broadband
networks. The servers


                                       8
<PAGE>

become  intelligent  network  managers,  efficiently  allocating  bandwidth  and
scheduling burst delivery of multimedia content among multiple users.  Microsoft
Corporation's  Windows  NT/95/98  operating  systems  are  supported  on  client
machines, with Windows NT, Windows 2000, and Sun Microsystems' Solaris operating
systems  supported on servers in  client-server  networks.  Our software runs on
current versions of these platforms. In August 1999, we released support for the
Linux  platform  in  our  Version  1.1.3.  Also  in  August  1999,  we  acquired
Timeshift-TV,  Inc.  in a  stock-only  transaction  from  Richard A.  Lang,  our
Chairman and Chief Executive  Officer and two other individuals who subsequently
became  employees of ours.  Timeshift-TV  holds assets,  including  intellectual
property,  in the area of  time-shifted  real-time  broadcasting,  which we have
integrated into our advanced video and audio delivery solution.  We also plan to
license the  Timeshift-TV  intellectual  property  to other  parties for various
applications.  Our  success  in this area will be a function  of the  successful
prosecution of existing patent  applications  and the enforcement of any patents
that may issue  thereafter.  We recorded  $1,330,000  in expense for  in-process
research and development costs purchased in connection with this acquisition. In
November 1999, we released the capability to Burst-Enable(TM)  the Windows Media
Player in Version 1.2. In November 2000, due to  insufficient  funding and sales
to support  our  organization,  we laid off all but two  engineers  and cut back
drastically  in our  product  development  spending.  We laid off our  remaining
engineers in March 2001. We currently rely upon outside  engineering  resources,
primarily former engineering employees, to provide technical support services on
an "as-needed"  consulting  basis.  These individuals have been utilized in 2001
for product  enhancements and user required  modifications that were provided to
both Seo Yeong Digital and Cequent, two of our customers.

Product Offerings

Our suite of Burstware(R) software is summarized below:

          Burstware Component                          Features
------------------------------------        ------------------------------------

Conductor:                                  o Central management service

The     Conductor     manages    the        o Monitors all servers
distribution of player requests over
multiple     servers,      providing        o Centralized  point of control  for
scalability,   load   balancing  and          video and audio on network
reliable fail over
                                            o Scalable deployment of servers

                  Features                  o Add and remove servers as needed

                                            o Asynchronous

                                            o No performance bottlenecks

                                            o Reliable fail over mechanism

                                            o Load balancing

                                            o Replicated conductors

                                            o Audit trail logging


                                       9
<PAGE>

Server:                                     o Patented buffer management system

The server  "bursts"  media files to        o Provides    significant    network
player  memory  or disk  buffers  in          efficiencies  and enhanced  viewer
Faster-Than-Real-Time(R),   tracking          experience
buffer    levels   and    allocating
bandwidth accordingly.                      o Faster-Than-Real-Time(R)delivery

                                            o Provides  isolation  from  network
                                              problems

                                            o Traffic shaping

                                            o Limits   bandwidth  usage  to  the
                                              allocated bandwidth

                                            o Controls impact of video and audio
                                              on the network

                                            o Utilizes   optimized    connection
                                              acceptance criteria for guaranteed
                                              quality-of-service

                                            o CODEC-neutral

                                            o Replicated    server    for   load
                                              balancing and reliable fail over

                                            o Extensive    logging   of   client
                                              session statistics

Player:                                     Burst-Enabled(TM) Windows Media
                                            Player

Plays  data out of the local  buffer        o Burstware    Server(R)    delivers
to the end user,  shielding  the end          content to Windows Media Player
user from network disruptions.
                                            o Provides   both   disk-based   and
                                              RAM-based caching

                                            o Supports player scripting and high
                                              interactivity

                                            o Existing   Windows   Media  Player
                                              applications    can    easily   be
                                              burst-enabled

                                            o Works  in  a   browser   or  in  a
                                              standalone application

                                            o VCR-like     functionality     and
                                              controls

                                            o CODECS supported include:  MPEG-1,
                                              MPEG-2,  MP3, Windows Media Audio,
                                              and Apple Quicktime ASF

                                            Burstware(R)Java Based (JMF) Player

                                            o Player scripting

                                            o Works  in  a   browser   or  in  a
                                              standalone application

                                            o VCR-like     functionality     and
                                              controls

                                            o Supports  many  industry  standard
                                              CODECs

                                            Burst-Enabled  QuickTime for Windows
                                            Player

Architecture

     Burstware(R)  employs a multi-tier,  distributed  architecture to provide a
fully scalable and fault-tolerant  platform for high-quality multimedia delivery
and management.  The  architecture is designed to take advantage of the benefits
and minimize the  shortcomings of using an unreliable,  heterogeneous,  IP-based
network--such  as  the  Internet--for  reliable  multimedia  delivery  to a mass
audience.

Component Overview

     The central  management  component  of the  architecture  is the  Burstware
Conductor(R),  which manages and monitors the Burstware  Servers(R) and provides
the point of contact for burst-enabled client applications,  such as the Windows
Media Player.

     The Burstware  Server(R)  provides reliable media delivery to clients,  and
uses flow  optimization  algorithms to maximize  overall  bandwidth  throughput,
while  ensuring  that  each  client  is  allocated   sufficient   bandwidth  for
uninterrupted playback of video.


                                       10
<PAGE>

     Burst-enabled   client  applications   provide  an  intelligently   managed
client-side  cache,  and co-operate with the conductor and server to provide the
playback  of video and audio  exactly as the file was  encoded,  with no jitter,
dropped frames, or signal degradation.

Media Delivery Procedure

     When a  Burst-Enabled(TM)  client  requests  a media  file,  it  contacts a
conductor  with a request for service.  The conductor  intelligently  routes the
client to the server that offers the best point of service for the request.  The
client then establishes a two-way reliable TCP/IP connection to the server,  and
delivery and playback of the media file begins.

     The client continuously  provides feedback to the server about how fast the
media  file is  being  consumed,  the  state of the  client  buffer,  and  other
information.  This  data  from  all  clients  is  fed  into  the  server's  flow
optimization  algorithm  described above, and the server uses the flow algorithm
to  schedule  delivery  of data to  clients  at the rate that  maximizes  use of
network resources and minimizes the likelihood of buffer starvation.  Flow rates
are continuously adjusted as network conditions and server loads change.

Advantages

     Burstware's(R) multi-tiered architecture offers two key advantages over the
traditional two-tier streaming  architecture:  enterprise-class  scalability and
mission-critical fault tolerance.

Scalability

     The Burstware(R) system is highly scalable, and can grow from one server to
hundreds of servers in a manner that is completely transparent to clients. Since
only the conductors are aware of the location and number of servers, new servers
can be added and  existing  ones moved or removed  without any updates to client
applications.  One  conductor  can support and manage  hundreds of servers.  The
conductor  continually monitors server loads and routes incoming client requests
to the least loaded eligible server,  providing  intelligent load balancing that
goes far beyond such simple schemes as round robin routing.

     Because  client  interaction  with the  conductor is limited to the initial
request for service,  a single conductor domain can easily scale to support tens
of thousands of concurrent client connections.  Additionally  scalability can be
achieved by employing multiple  conductor domains,  which can be integrated with
third-party IP routing solutions.

Fault Tolerance

     Burstware(R) achieves complete  fault-tolerance,  including no single point
of failure,  by fully replicating all components in the system. The conductor is
replicated in kind, and  burst-enabled  clients can contact either conductor for
service.  Additionally,  each  server is  automatically  configured  to  provide
failover  protection  for all other servers  containing  the same media content.
Servers and conductors can be added and subtracted at runtime  without  shutting
down other system components.

     If a server  fails or becomes  unavailable  for any reason,  including  the
failure of a network  link from the client to the server,  all clients that have
lost  contact  with the  server  are  automatically  routed  to  other  servers.
Burstware(R)  establishes  a new  connection  to an  available  server  for each
client, and the new server picks up multimedia delivery exactly where the failed
server left off. Since the  client-side  buffer provides the ability for clients
to disconnect  and  re-connect  without  impacting the viewing  experience,  the
viewer is unaware that any failure has occurred.


                                       11
<PAGE>

Technology

     The design  mission for  Burstware(R)  technology is to provide the premier
platform for the  management  and delivery of digital  video and audio  content.
Burst.com  has  recognized  the  needs of the  marketplace  for a  product  that
provides  quality,  reliability  and  manageability  far  beyond  what  existing
streaming solutions can deliver.

     Burstware's(R) design takes advantage of emerging trends in technology such
as   available   client-side   storage  and  network   bandwidth  to  provide  a
forward-thinking,  flexible and highly effective approach to multimedia delivery
and management.  The engineering team that created our Burstware  product(s) and
the current  engineering  consulting  team has  extensive  experience in network
protocols,  distributed  multi-tiered  architectures,  digital video,  real-time
control  systems,  and  optimization   algorithms.   As  a  result,  we  believe
Burstware(R)  is well equipped to address the  escalating  demand for multimedia
applications.

Architected for Industry Trends

     By taking the caching model all the way to the client,  Burstware(R) is the
first adopter in a new paradigm for  multimedia  delivery,  and is positioned to
take advantage of the trends toward  broadband  networks and inexpensive  client
storage.  Designed  to  optimize  expensive  resources  such  as  bandwidth  and
server-side   hardware  by  utilizing  freely  available   client-side   storage
resources, Burstware(R) provides an advanced network management and optimization
platform for audio and video content delivery.

     Central to the Burstware(R) technology are the scheduling algorithms in the
Burstware  Server(R),  which  schedule  bursts of data of varying  size and time
intervals  to  each  client.  The  Burstware(R)  Scheduler  employs  proprietary
algorithms to guarantee each client quality of service while  optimizing the use
of bandwidth and other network resources.

     The Burstware  Server(R)  Scheduling  Engine  consists of a Call  Admission
Control System, or CAC, a Flow Optimizer and a Flow Engine. The CAC ensures that
a new  client  is  accepted  onto the  network  only if its  admission  will not
compromise  quality of service to existing  clients or to the new client.  It is
worth noting that a configurable  "burst margin" of bandwidth is held in reserve
by the CAC for use by the Flow  Optimizer as described  below.  Clients that are
rejected by one Burstware Server(R) are transparently routed to another,  making
the end user  unaware  that one of the  Burstware  Servers(R)  has  reached  its
maximum utilization.

     The Flow Optimizer  calculates  the amount of data to deliver,  or the flow
rate, to each client in order to maximize Burstware  Server(R)  throughput while
ensuring  that each  client  receives  sufficient  data flow for  uninterrupted,
continuous  playback.  The  burst  margin  that is held  in  reserve  by the CAC
algorithm  is  available  for  allocation  by the Flow  Optimizer,  which forces
delivery  of content in  faster-than-real-time  even under  heavy  network  load
scenarios.  Overall,  this process exerts upward pressure on client-side  buffer
levels, ensuring a jitter-free viewing experience.

     The Flow Engine is a low level  sub-system  responsible  for  achieving the
session flow rates imposed by the Flow  Optimizer.  It advances  through disk or
cache  resident  content files and paces the  transmission  of the video data as
bursts over the outgoing  transmission  control protocol connections linking the
server to each player.  Incoming status  notifications  from each player provide
any needed feedback on actual flow rates and downstream buffer conditions.

     These  optimization  algorithms  enable a  single  Burstware  Server(R)  to
simultaneously  deliver  files  ranging the full  spectrum of encoded bit rates,
from ASF files  designed  for 28.8 modems to MPEG-2  files  encoded at 8 Mbps or
more, to a wide variety of clients with  radically  different  connectivity  and
other capabilities, while maintaining the highest quality viewing experience for
each client.


                                       12
<PAGE>

Application-Level Quality of Service in Unpredictable Networks

     One of the challenges of IP-based  video  delivery  systems is to provide a
smooth,  uninterrupted  video  experience in the face of the variable  bandwidth
capacities  and network  latencies  of a  packet-switched  network.  Traditional
streaming solutions,  by delivering data just in time for display to the client,
are highly sensitive to moment-to-moment variations in the network capacities at
each link  between the client and server.  Whenever  bandwidth  capacities  fall
below the encoding rate of the video, even briefly, video quality will suffer.

     As described in the above section,  Burstware(R)  is able to provide a high
quality of service by employing a sophisticated client  cache-management  scheme
and   delivering   video   data    faster-than-real-time    consumption.    This
application-level  quality of service is far less expensive  than  network-layer
quality of service, or QoS, schemes, which require that every router between the
client and server be able to guarantee  that bandwidth and latency fall within a
narrow,  specified range.  Application-level QoS has the additional advantage of
working across network segments that are not capable of providing  network-layer
QoS.

     Application-level   QoS  also  enables  the  use  of  higher-quality  video
encodings across channels with variable bandwidth capacity.  Real-time streaming
architecture  requires  that  videos be encoded at a rate less than the  minimum
bandwidth between the client and the server. Burstware(R), on the other hand, is
resilient to the average bandwidth between client and server,  allowing delivery
of higher bit rate encodings.

Network Management Capabilities

     A significant barrier to widespread adoption of streaming  technologies has
been reluctance on the part of network managers to subject their networks to the
unpredictable  and demanding  requirements of traditional  streaming  solutions.
With Burstware(R),  bandwidth use can be controlled at various levels, including
the entire Burstware domain, an individual Burstware Server(R) or locally on the
client side. Bandwidth limits can be adjusted  dynamically at runtime,  allowing
sophisticated traffic shaping over time and space.  Content-specific caching and
routing  controls  also provide  users with the  flexibility  needed for today's
applications.

     Client configuration  parameters include those for network optimization and
control,  content  protection,  and player  behavior.  These  parameters  can be
centralized  in  a  web  page  or  customized  by  individual  clients,   giving
application  developers  a high  degree  of  control  over  their  video-enabled
applications.

Open Architecture

     One of the  keys  to  adoption  of new  technologies  is a high  degree  of
interoperability  with  existing  hardware and software.  Burstware(R)  has been
designed from the ground up to have open  architecture  at every product  level,
allowing easy integration with a wide variety of third-party solutions.

     The ability to  interoperate  with other  applications  is  accomplished at
several different levels. A wide variety of  industry-standard  players, as well
as  other   applications,   can  be  Burst-enabled  using  our  Player  Software
Development   Kit.   Burst-enabled   players   retain  all  of  their   existing
functionality, thus facilitating integration of an existing Windows Media Player
web  application,  for  example,  to  the  Burstware(R)  delivery  system  (This
discussion not required  here)Integration with third-party automated billing and
report generation tools is accomplished with the Burstware(R) Log Toolkit, which
provides both an XML-based and an ODBC-based data transfer  capability.  We also
believe that external cache  management  systems such as those offered by Akamai
and Inktomi can integrate with Burstware(R)  through our  directory-based  media
management system.

     Portability  is  another   important   aspect  of  an  open   architecture.
Burstware(R)  is a  software-only  solution  and the  Burstware  Servers(R)  and
Conductors  are written  almost  entirely in Java,  allowing easy porting as new
hardware  and  OS  platforms  become   available.   Additionally,   interprocess
communication  is 100%  IP-based  and runs on nearly all modern  networks,  both
wired and wireless. This highly portable implementation allows Burstware to take


                                       13
<PAGE>

immediate  advantage  of  new  advances  in  hardware  such  as  multiprocessor,
multi-NIC, SMP Servers, advanced storage systems and wireless technologies.

Competition

     We compete in markets that are rapidly evolving and intensely  competitive.
We have experienced and expect to continue to experience increasing  competition
from current and potential competitors, many of which have significantly greater
financial, technical, marketing and other resources.

     In addition to Burst,  there are two significant media delivery  companies,
Microsoft  and Real  Networks,  that  compete in similar  market  segments.  The
Burstware(R)  product  is priced  similarly  to  products  offered  by our major
competitors,  but competition is based primarily on features and  functionality.
Our  competitors  have  traditionally  used  real-time  streaming  technology as
opposed to our  Faster-Than-Real-Time(R)  solution.  Real Networks and Microsoft
have  concentrated on the consumer  markets.  Real Networks,  Microsoft and to a
lesser degree Apple are moving into the business-to-business  markets with large
clients  such as 3Com and  Northrup  Grumman.  There  has been for the most part
limited competition in the broadband arena. Because of our patent portfolio,  we
are  able  to  offer  unique   competitive   advantages  in  network  efficiency
management,  scalability  and  reliability  features  and  functionality.  While
Burstware can deliver  multimedia  content in a real-time mode, our architecture
is  ideally  suited to  capitalize  on the  growth  in  broadband  networks  and
inexpensive storage by implementing our  "faster-then-real-time" or "burst" mode
of digital media delivery.

     Real Networks

     RealSystem G2 is a fully integrated  encoder,  server,  splitter/cache  and
player  system.  Real  Networks is dominant in the  Internet  market and the low
bandwidth   applications,   which  have  primarily   centered  around  news  and
entertainment  markets.  With its  dominance  in the  consumer  market and brand
awareness,  Real Networks is gaining ground in the business  sector with clients
like 3Com,  Boeing and General  Electric.  We believe that Real Networks' use of
real-time  streaming  technology,   its  lack  of  network  management  and  its
CODEC-dependence    will   give   us   a    competitive    advantage    in   the
business-to-business market. To effectively deploy Real Networks for a broadband
application,  the software must be bundled with Digital BitCasting,  and Inktomi
(or similar edge-caching product).  Real Networks has announced "Turbo Play," an
improved Real Networks product promising better streaming media quality.

     Windows Media

     Windows Media  Technologies  provides an end-to-end  solution for streaming
multimedia,  from  content  authoring  to delivery  to  playback.  Microsoft  is
building brand strength by bundling Windows Media with other Microsoft Products.
Windows Media Technologies has historically targeted the streaming audio segment
by being the only streaming media platform to feature  FM-stereo  quality over a
modem and improved piracy protection..  Windows Media has traditionally  claimed
that it relies on real-time  streaming  technology  to deliver  video and audio.
Consumers   with  the  Windows  Media  Player  (a  component  of  Windows  Media
Technologies) can use the Burst-Enabled(TM) Windows Media Player to increase the
content quality, reliability and efficiency of their network. Microsoft recently
announced its offering of a new generation  streaming  technology  that promises
improved viewing and listening quality as well as improved network utilization.

     Others

     There are other  companies  who offer  streaming  media  solutions  for the
Internet and corporate  intranets.  Many claim to have streaming media solutions
for corporate training, distance education, health care, and entertainment. Some
companies  offer media  servers with the ability to stream  content to up to 500
desktops  at one time.  Others  offer  content  management  and  media  players.
Burstware(R)'s potential competitors offer no or limited network management, and
viewing  and  listing  quality is  uniformly  poor.  This is a rapidly  evolving
market.  Most  competitors,  current  and  potential,  will have  access to more
resources than are available to us at this time.


                                       14
<PAGE>

Sales and Marketing

     While we pursue Burstware(R) software and patent licensing arrangements, we
will continue to support our value added  resellers  and software  customers Seo
Yeong  Digital,  Cequent and TVN  Entertainment  on an  as-needed  basis,  using
outside  engineering  consultants  as well as pursue new  customers.  Our target
market is  comprised of large  companies  involved in the  enablement  or direct
sales and/or  manufacture  of digital  media-on-demand  solutions.  In addition,
potential  customers include  businesses or other end-users that desire to send,
receive or effectively  manage  high-quality  video and audio content over their
own networks or to outside customers through the Internet.  Applications include
corporate   communications,    education,    advertising,    entertainment   and
broadcasting. .

     We currently  market to our customers  through direct sales,  but intend to
retain outside sales  representatives and additional value added resellers.  The
internal  sales  organization  consists  of  one  outside  individual  providing
services on a commission basis, our CEO and our VP of Operations, as required.

     We do not  believe  that there is any  significant  seasonality  that would
affect sales of our products or services.  As of December 31, 2001, there was no
backlog of unfilled orders for our products.

Patents and Trademarks

     Our business is highly dependent on our patent portfolio. We have nine U.S.
patents.  The early patents  describe a broad class of systems that allow a user
to view, edit, store video  information and send and receive the data associated
with that video information over networks in less time than is normally required
to  view or  listen  to the  content.  The  later  patents  describe  particular
distribution methods designed to deliver video information to remote systems.

     Our core  patents  describe  systems  that are able to send and  receive  a
high-quality  video or audio segments or programs,  store  received  information
locally, manipulate that information with editing,  processing,  compression and
decompression  tools,  display the signal for viewing and optionally re-send the
manipulated    information    on   to   other    such    machine    systems   in
faster-than-real-time.  Our current patents will expire on various dates in 2007
through 2016.

     We have two European  patents that  incorporate  the subject  matter of the
first six U.S. patents,  three Australian patents,  one South Korean patent, one
Japanese patent, two Indian patents,  and one Canadian patent. We have filed for
a number of additional domestic and international patents.

     In addition to protecting the Burstware(R)  product offerings,  our patents
have  broader  application  as  various  market  applications  appear,  and  our
potential to license our intellectual  property expands into additional vertical
market segments.

     We view our portfolio as a critical component in gaining relationships with
strategic  partners.  Potential  licensees  include companies such as server and
client  manufacturers,   bandwidth  providers,  content  aggregators,  copyright
owners, and other hardware manufacturers.

     Our  plan  is to  establish  the  value  of our  patent  portfolio  through
successful  enforcement  of our  patent  portfolio,  and  subsequently  to  seek
licensing  revenues  from  any  companies  who  seek  to  utilize  our  patented
technology  in their  products  or  services.  We have  assembled  a  matrix  of
potential  licensing  candidates  whose goods  and/or  services we believe  will
require them to license our  technology  in order to avoid being in violation of
our patents.


                                       15
<PAGE>

     We  have  registered  the  trademarks  "INSTANT  VIDEO(R)",   BURSTWARE(R),
BURSTAID(R),   FASTER-THAN-REAL-TIME(R),   BURSTWARE   CONDUCTOR(R),   BURSTWARE
PLAYER(R) and BURSTWARE  SERVER(R)," in the United States, as well as in certain
countries in Europe and Asia.

Employees

     We laid off 77 employees in November 2000 and 11 employees on April 1, 2000
due to insufficient  funding and revenues to support our  organization.  Several
former employees have agreed to avail themselves on a contract basis, should the
need and funding  arise.  As of March 31, 2002, we had two full-time  employees,
our  Chief  Executive  Officer  Richard  A.  Lang  and  our  Vice  President  of
Operations,  Eric  Walters.  We have never  experienced  a work  stoppage and no
personnel  are  represented  under  collective  bargaining  agreements.  We  are
utilizing  contract  services on an as-needed basis to provide support  services
such as accounting, legal, technical and administrative.

ITEM 2. PROPERTY.

     We presently  occupy  approximately  450 square feet of office space at 613
Fourth Street, Suite 201, Santa Rosa, California,  under a lease that expires at
the end of March 2002, with the option to extend to an additional one year term.
The lease  provides  for rent of $900 per  month.  We believe  that our  current
facility is suitable and sufficient to accommodate  our operating  needs for the
foreseeable  future.  To the extent  that we are  successful  in  restoring  and
expanding our current level of operations,  we may need additional space,  which
we believe is readily available in proximity to our current office at comparable
lease rates.

ITEM 3. LEGAL PROCEEDINGS.

     On January 17, 2001, the Company filed for arbitration in an action against
Whit  SoundView  f/k/a  E*Offering.  The  action  was  filed  with the  American
Arbitration Association in San Francisco. The dispute involves the rescission of
an exclusive  investment  banking  agreement and return of fees. This action was
settled in October  2001 under an  agreement to abandon the dispute with no cash
payments or obligations by either party to the other,  and full mutual  releases
of liability.

     We are not aware of any material  legal  proceedings  pending or threatened
against us.

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

None


                                       16
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

     Our common stock is traded on the Nasdaq  OTCBB (Over The Counter  Bulletin
Board under the symbol (prior to January, 2001, our common stock had been traded
on the Nasdaq SmallCap Market).  The following table sets forth the closing high
and low bid prices of the Common Stock for the periods  indicated.  These prices
are  believed  to be  representative  inter-dealer  quotations,  without  retail
markup,  markdown or commissions,  and may not represent  prices at which actual
transactions occurred.

                                                        Bid
                    2001                        ----------------
                -----------
                1st Quarter                     $1.190    $0.188
                2nd Quarter                     $0.500    $0.130
                3rd Quarter                     $0.190    $0.035
                4th Quarter                     $0.080    $0.035

                    2000
                -----------
                1st Quarter                     $ 18.375  $  7.75
                2nd Quarter                     $  9.6875 $  4.75
                3rd Quarter                     $  8.625  $  4.625
                4th Quarter                     $  5.75   $  0.25

The number of holders of record of the Company's  $.00001 par value Common Stock
at December 31, 2001, was approximately  288. The closing bid price of our stock
was $0.04 and $0.03 at December 31, 2001 and March 31, 2002, respectively.

DIVIDENDS

     No  dividends  have been paid with  respect to our stock.  At December  31,
2001, we had an accumulated  deficit of  approximately  $60.6 million and, until
this  deficit is  eliminated,  we do not intend to pay any  dividends.  Although
holders of common stock are entitled to receive dividends, if and when, declared
by our Board of Directors,  it is anticipated  that any and all future  earnings
for the  foreseeable  future  will be  retained,  consistent  with the  Board of
Director's  historical  policy,  to fund  operations  and any necessary  capital
improvements.

RECENT SALES OF UNREGISTERED SECURITIES

     On January 30, 2001, we sold 1,500,000  shares of our common stock to Eagle
Wireless  International,  Inc. in exchange  for 400,000  shares  common stock of
ClearWorks.net, Inc. (a wholly owned subsidiary of Eagle Wireless International,
Inc.).

     In  November  and  December  2000 and  during  2001,  we issued to  certain
investors,  including  Gordon Rock, one of our principal  stockholders,  secured
promissory notes in the aggregate principal amount of $1,300,000 and warrants to
purchase an aggregate of 5,933,333 shares of our common stock at exercise prices
ranging  from $0.15 to $0.30 per share.  Such  promissory  notes are  secured by
security interests in all of our assets.

     In March 2001, we issued to an individual investor a 10% promissory note in
the  principal  amount of $100,000,  collateralized  by 100,000  shares of Eagle
Wireless  International,  Inc.  common  stock.  In  connection  with  this  note
issuance, in March 2001, we reduced the exercise price, from $5.00 to $0.875 per
share,  of warrants  held by the  investor to purchase  98,870  shares of common
stock and issued to the  investor  new  warrants  to purchase  50,000  shares of
common stock at $0.875. The loan was repaid in full in May 2001.


                                       17
<PAGE>

     During 2001,  we issued 9%  convertible  notes  payable to Draysec  Finance
Limited, one of our principal shareholders, in the aggregate principal amount of
$100,000,  with interest and principal due in February and March 2002. The notes
are convertible  into a new series of preferred stock at a per share  conversion
price of $5.00 at the option of the noteholder. In November 2001, Draysec agreed
to extend the due date of the loan to November 21, 2002.  In  consideration  for
this extension,  we reduced the exercise price of warrants to purchase shares of
our common stock held by Draysec from $5.00 to $0.30 per share.

     In July  2001,  we granted to  Silicon  Prairie  Partners,  LP an option to
purchase  250,000  shares of our common  stock at an exercise  price of $.18 per
share.  Silicon Prairie Partners,  LLP is an affiliate of John J. Micek III, one
of our directors.  In February  2002,  this option was exercised with respect to
138,888 shares at an aggregate option exercise price of $25,000.

     In December  2001,  we issued  warrants to purchase an  aggregate of 80,000
shares  of our  common  stock at an  exercise  price of $0.30  per share and two
three-year  promissory notes in the aggregate amount of $20,000 to two law firms
in consideration for the cancellation of outstanding legal fees in the aggregate
amount of $81,960.

     In  December  2001,  we issued an option to purchase  50,000  shares of our
common stock at an exercise price of $0.30 per share and a three-year promissory
note  in the  amount  of  $32,000  to a  consultant  in  consideration  for  the
cancellation of outstanding consulting fees in the amount of $32,000.

     In January 2001, we granted  options to purchase  150,000  shares of common
stock exercisable at $0.2812 per share to an independent contractor and in April
2001 we granted options to purchase  100,000 shares of common stock  exercisable
at $0.1875 per share to an employee.

     Warrants to purchase an aggregate  of 4,843,371  shares of our common stock
at an initial  exercise  price of $5.00 per share  issued in January  2000 and a
warrant to purchase  857,633  shares of our common stock at an initial  exercise
price of $5.83 per share issued in August 2000 contain anti-dilution  provisions
that adjust the exercise prices and the number of shares exercisable  thereunder
if shares of our common stock are issued or deemed  issued at prices below these
warrant exercise prices. The issuance of the warrants described above as well as
the issuance of additional  warrants to purchase an aggregate of 433,333  shares
of our  common  stock in 2002 at a  warrant  exercise  price of $0.30  per share
resulted in a decrease in the  exercise  price of the January  2000  warrants to
$4.30 per share and an increase of 831,262 warrant shares.  These issuances also
resulted in a decrease in the exercise price of the August 2000 warrant to $5.01
per share and an increase of 148,340 warrant shares.

     The  sales  of  the  above   securities  were  deemed  to  be  exempt  from
registration  under  the  Securities  Act of 1933,  as  amended  (the  "Act") in
reliance on Section 4(2) of the Act,  Regulation D and /or Rule 701  promulgated
under  the  Act.  In  each  such  transaction,   the  recipients  of  securities
represented  that  they  were  accredited  investors  and  intended  to  acquire
securities for investment  only and not with a view to or for sale in connection
with  any  distribution  thereof.   Appropriate  legends  were  affixed  to  the
securities issued in such transactions.

ITEM 6. SELECTED FINANCIAL DATA

     The following  selected  financial data should be read in conjunction  with
our financial  statements  and related notes and  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this  report.  The  statement  of  operations  data for the fiscal  years  ended
December  31,  1998 and  December  31,  1997 and the  balance  sheet  data as of
December 31, 1998 and 1997 are derived from financial statements audited by KPMG
LLP, independent  certified public accountants but that are not included in this
report.  The  statements of operations  data for the fiscal years ended December
31,  2000 and 1999 and the balance  sheet data as of December  31, 2000 and 1999
are derived from financial  statements audited by BDO Seidman,  LLP, independent
certified public accountants,  and, except for the balance sheet data for fiscal
year ended  December 31,  1999,  are  included  elsewhere  in this  report.  The
statement of operations data for the fiscal year ended December 31, 2001 and the
balance sheet data as of December 31, 2001 are derived from financial statements
audited by Berenfeld, Spritzer, Schecter and Sheer, independent certified public
accountants,  and are included elsewhere in this report.  Historical results are
not necessarily indicative of the results to be expected in the future.


                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended December 31,
                                               ------------------------------------------------------------------------------------
                                                   2001             2000               1999              1998              1997
                                               -------------     ------------      ------------      ------------      ------------
<S>                                            <C>               <C>               <C>               <C>               <C>
Statement of Operations Data:

Revenue                                        $    138,019      $    499,376      $         --      $     15,000      $    247,879
                                               =============     ============      ============      ============      ============

 Loss from operations                          $  (3,706,639)    $(19,556,700)     $(11,509,619)     $ (4,663,867)     $ (1,928,637)
                                               =============     ============      ============      ============      ============
 Extraordinary gain, net of taxes              $    399,279      $         --      $         --      $
                                               =============
 Net loss                                      $ (3,577,322)     $(19,609,984)     $(12,977,729)     $ (6,916,420)     $ (2,062,373)
                                               =============     ============      ============      ============      ============
Beneficial conversion feature of
Series B Preferred Stock                       $         --      $         --      $         --      $ (8,762,425)     $         --
                                               -------------     ------------      ------------      ------------      ------------

Net loss applicable to Common
Stockholders                                   $ (3,577,322)     $(19,609,984)     $(12,977,729)     $(15,678,845)     $ (2,062,373)
                                               =============     ============      ============      ============      ============

Basic and diluted net loss per
common share:                                  $       (.17)     $       (.98)     $      (1.42)     $      (2.35)     $      (0.39)
                                               =============     ============      ============      ============      ============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                -----------------------------------------------------------------------------------
                                                   2001              2000              1999              1998              1997
                                                -----------       -----------       -----------       -----------       -----------
<S>                                             <C>               <C>               <C>               <C>               <C>
Balance Sheet Data:

Cash and cash equivalents                       $     6,112       $   296,584       $   302,979       $ 2,212,141       $    20,551
Total assets                                    $   141,554       $ 1,662,133       $ 1,091,826       $ 3,249,622       $   155,191
Long-term obligations                           $   274,970       $        --       $        --       $        --       $    16,833
Stockholders' equity  (deficit)
                                                $(2,799,130)      $(1,192,730)      $(5,464,646)      $ 2,793,358       $  (983,267)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

     Certain statements contained in the following  Management's  Discussion and
Analysis of Financial  Condition and Results of Operations,  including,  without
limitation,   statements   containing  the  words   "believes,"   "anticipates,"
"estimates," "expects," and words of similar meaning, constitute forward-looking
statements which involve risks and  uncertainties.  Burst's actual results could
differ materially from those anticipated in these forward looking  statements as
a result of certain factors,  including those factors set forth under "Risks and
Uncertainties" below.

GENERAL

     We are an  independent  provider  of  client/server  network  software  and
intellectual  property  for the  delivery  of video and audio  information  over
networks. Our principal executive offices are located in Santa Rosa, California.
Our  software  manages the  delivery  of video and audio  content  over  various
networks,  including the Internet and corporate  intranets,  optimizing  network
efficiency and quality of service.  Our Burstware(R)  suite of software products
enables companies to transmit video and audio files at  Faster-Than-Real-Time(R)
speed,  which is accomplished  by utilizing data  compression  and/or  available
bandwidth  capacity  to send more video or audio data to users than the  players
are demanding. This data is stored on the users' machines for playing on demand,
thus isolating the user from noise and other network interference. The result is
high  quality,  full-motion  video and  CD-quality  audio to the  end-user.  Our
revenue is derived from fees for software licenses.

     We have incurred significant losses since our inception, and as of December
31,  2001,  we had an  accumulated  deficit of  $60,623,200  and cash on hand of
$6,112. Our operating expenses as of December 31, 2001


                                       19
<PAGE>

were approximately $75,000 per month. As of March 31, 2002, we had approximately
$30,000 cash on hand. As previously  disclosed,  we had been pursuing a business
plan  that  envisioned  raising  significant   additional  capital  to  continue
developing  and  marketing our products.  However,  sales of our newly  released
products  have been  slower than  expected  and we have not been  successful  in
raising the  additional  capital  necessary to implement  our original  business
plan. We believe that in view of the limited  market demand for our products and
the change in market  conditions  that emerging new  technology  companies  have
faced since April of 2000, it no longer appears  realistic for us to pursue such
a comprehensive, capital intensive plan. Consequently, we have reduced projected
operating expenses to approximately $75,000 per month,  primarily by closing all
of our marketing  offices and reducing our  workforce  from 95 to two (our Chief
Executive  Officer  and  Vice  President,  Operations).  Our  goal  is  to  seek
additional  financing from accredited  investors to maintain limited  operations
and  to  fund  our  pursuit  of   software   and  patent   portfolio   licensing
opportunities.  We are also pursuing strategic relationships with companies that
can  benefit  from our  technology.  There can be no  assurance  that we will be
successful  in our  efforts to raise  capital  or, if  successful,  that we will
succeed in efforts at licensing and strategic partnering, in which case we would
be  required  to  terminate  our  operations.  See also  "Liquidity  and Capital
Resources" below.

RESULTS OF OPERATIONS

Revenue

     During the year ended December 31, 2001, we earned revenue in the amount of
$138,019  compared  to  $499,376  for fiscal  year  2000.  These  revenues  came
primarily from two new customers,  Cequent, an American video on demand services
company,  and Seo Yeong Digital,  of Korea. We also collected  patent  licensing
revenues  from TVN  Networks,  which  were due to us from a  licensing  contract
signed in 1999. During 2001, one customer,  Cequent, accounted for approximately
53% of  revenues.  Two  other  customers,  Seo  Yeong  Digital  and LoFi  Media,
accounted for 26% and 13%, respectively of our revenues during fiscal year 2001.
During 2000, our customer Interzest accounted for 60% of our revenues.  No other
single customer accounted for more than 10% of revenues.

     We had revenue of $499,376 for the year ended  December 31, 2000,  compared
to no revenue  for the same  period in 1999,  primarily  from  licensing  of our
Burstware  media delivery  software and operation of our media hosting  service,
which has since been closed. We released our first product, Burstware(R) Version
1.1,  to  the  public  in  February  1999,  and in  November  1999  we  released
Burstware(R)  Version 1.2, which contained the  Burst-Enabled(TM)  Windows Media
Player. In 1999 we recruited key sales, marketing,  and development contributors
and signed six reseller agreements.  Customer evaluations were undertaken during
the second half of 1999 and initial  sales  commenced in February  2000.  During
2000, we also introduced our content hosting service, which enabled customers to
store their audio and video content on our Burstware(R)  servers for delivery to
their end-users. We discontinued this service in 2001.

Cost of Revenue

     We had no cost of revenue for the year ended December 31, 2001. The product
cost of revenue recorded for 2000, in the amount of $30,764, consisted primarily
of the cost of equipment  purchased  from a  third-party,  which was resold to a
customer in connection with a software sale.  Resale of equipment is not part of
our sales  strategy,  and we do not plan to make such  sales to any  significant
degree in the future.  We had no cost of revenue for the year ended December 31,
1999.


                                       20
<PAGE>

Operating Expenses

     Operating  expenses were  $3,459,699 for the year ending December 31, 2001,
excluding  equipment  losses and  write-downs  discussed  below,  as compared to
$18,712,381  during fiscal year 2000. This resulted in total operating  expenses
decreasing by $15,252,682  for the year ending December 31, 2001, as compared to
fiscal  year 2000.  Operating  expenses  consist  of  research  and  development
expenses, sales and marketing expenses, losses on abandonment,  disposition, and
write-downs of equipment and general and administrative expenses.

Sales and Marketing

     For the year ending  December 31, 2001,  sales and marketing  expenses were
$120,710, as compared to $8,175,525 during fiscal year 2000. Sales and marketing
expenses  were  substantially  lower  during  2001,  due to our greatly  reduced
operating  scope  and  lack of  operating  capital.  As of April  2,  2001,  all
remaining  sales and marketing staff were laid off, and all remote sales offices
had been closed.

     During the year ended December 31, 2000, the $3,990,008,  or 95%,  increase
in sales and marketing  over the year ended  December 31, 1999,  was primarily a
result  of  increased   advertising  and  other  marketing   related   expenses,
compensation and employee related expenses, sales commissions and travel costs.

Research and Development

     For the year ending December 31, 2001,  research and  development  expenses
were  $188,223 as compared to $4,300,328  during fiscal year 2000.  Research and
development expenses consisted primarily of contract labor expenses incurred for
enhancements  to  and  maintenance  of our  Burstware(R)  technology  and  other
operating costs. The decrease for the year ending December 31, 2001 is primarily
attributable  to  elimination  of  the  in-house   engineering  staff  that  had
previously  developed  and enhanced our  software  technologies.  As of April 2,
2001,  none  of  the  research  and  development  staff  remained  as  full-time
employees, and we substantially reduced our product development spending.

     During the year ended December 31, 2000, the $223,596,  or 5 %, increase in
research and development expenditures over the year ended December 31, 1999, was
primarily  attributable  to increases in the number of engineers  that developed
and enhanced our software technologies.

Impairment of Long Lived Assets

     We review our long-lived  assets for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets  exceeds the fair value of the  assets.  For the year ended
December  31, 2001,  losses on  abandonment,  disposition,  and  write-downs  of
equipment were $384,959 as compared to $1,312,931 during fiscal year 2000 (there
were no such losses in fiscal year 1999). The losses for 2000 resulted primarily
from impairment in our leasehold  improvements,  computers and equipment  assets
located at our then  principal  office as a result of our layoff of 77 of our 95
employees at the time. The reasons for the 2001  impairment  review were related
to the layoff of 16 of 20 full time  employees (80% of our total staff) in March
2001.  The  writedown  itself  included  both  the net book  value of  abandoned
equipment and leasehold  improvements and a reduction to estimated fair value of
certain remaining equipment and computers.

General and Administrative

     For the year ending December 31, 2001, general and administrative  expenses
were $3,150,766 as compared to $6,236,528  during fiscal year 2000.  General and
administrative   expenses  consist   primarily  of  compensation  and  fees  for
professional  services,  and the decrease in absolute dollars is attributable to
the substantial  reduction in our operations as a result of insufficient  funds.
We believe that general and  administrative  expenses  will  continue at reduced
levels for the foreseeable future.


                                       21
<PAGE>

     During the year ended December 31, 2000, we incurred a $2,989,158,  or 92%,
increase in general and administrative  expense over the year ended December 31,
1999, which resulted from additional  personnel,  equipment and facilities costs
to support increased operations.

     We had net loss from  operations of $3,706,639 for the year ending December
31, 2001, as compared to  $19,556,700  during fiscal year 2000.  This was an 81%
decrease for the year ending  December  31, 2001,  over the same period in 2000.
The decreased overall  year-to-date loss resulted from the reduced  expenditures
discussed above.

     Total other expense net was $514,681 for the year ending December 31, 2001,
as  compared  to $53,284 for the 2000  fiscal  year.  The  increase in net other
expenses  was  substantially  due to a  $324,430  loss  from  the  sate of Eagle
Wireless  International,  Inc. common stock and a $373,752  increase in interest
expense  resulting  from  additional  debt  financing  during 2001,  offset by a
$269,733 gain of sale of assets.  Total other expense net was $1,468,110 for the
1999 fiscal year.  The decrease in net other  expenses from 1999 to 2000 was due
to a  $1,414,826  decrease in  interest.  The  decrease in interest  expense was
primarily  due to  reduction of debt and  associated  interest  expense  through
conversion to common stock in our January 2000 private placement and an increase
in interest income earned on the proceeds of equity financings.  These decreases
in net other  expenses  were offset by non-cash  expense  recorded in connection
with  additional  shares of common stock issued  without cash  consideration  to
investors in our January 2000 financing. .

Extraordinary Gain

     During  2001,  we entered  into  settlement  agreements  with  vendors  and
creditors   pursuant   to  which  we   recognized   approximately   $643,000  of
extraordinary gain.

LIQUIDITY AND CAPITAL RESOURCES

     Our immediate goal is to seek financing to maintain limited  operations and
continue to license our Burstware(R)  product and explore the enforceability and
monetization of our patent portfolio.  We believe that we need at least $700,000
in  additional  financing  to continue our  operations  through  December  2002.
However,  any  projection  of future  cash  needs and cash  flows is  subject to
substantial uncertainty.

     Operating  expenses to date have been  funded  primarily  through  debt and
equity  financing.   Our  operating  expenses  as  of  December  31,  2001  were
approximately  $75,000 per month.  As of March 16,  2002,  we had  approximately
$20,000  cash  on  hand.  We  have  reduced  projected   operating  expenses  to
approximately  $75,000  per month by reducing  our  workforce  to two  full-time
employees and utilizing outside independent  contractors on an "as-needed" basis
for all our support services, including engineering, administrative,  licensing,
legal and accounting.

     In 2001, our operating expenses were met by a combination of loan financing
and very modest revenues from the sales of our  Burstware(R)  product and patent
licensing.  During  the year,  we raised  $1,000,000  from loan  financing  from
secured creditors (and repaid $100,000) and recognized $138,019 in revenues from
Burstware(R) and patent licensing. Based on our inability to reduce expenditures
to a further degree, we believe that operating  requirements cannot currently be
met without immediate additional financing.  We are currently in negotiations to
obtain  additional  financing of approximately  $700,000 through the issuance of
secured  debt and  warrants to purchase  our common  stock.  We believe  that if
successful  in  obtaining  this  additional  capital,  based  upon  our  reduced
operating costs, we will be able to operate until December 2002 without the need
for additional  financing,  although there can be no assurance that this will be
the case. During this period, we plan to focus our efforts on the exploration of
our ability to enforce our patent  rights,  the  licensing  of our  Burstware(R)
product and  attracting at least one large  strategic  partner and investor that
will enable us to continue to develop and market our technology within


                                       22
<PAGE>

the scope of our  business  goals.  In the  event  that we are  unsuccessful  in
obtaining  this  additional  capital  we  would be  required  to  terminate  our
operations.

     On January 30, 2001, we sold 1,500,000  shares of our common stock to Eagle
Wireless  International,  Inc. in exchange  for 400,000  shares  common stock of
ClearWorks.net, Inc. (a wholly owned subsidiary of Eagle Wireless International,
Inc.).  In a separate  transaction,  the  Company  executed  a software  license
agreement  with Eagle  Wireless in exchange for 104,000 shares of Eagle Wireless
stock. On January 30, 2001, our common stock was valued at $0.5625 per share and
ClearWorks.net, Inc. common stock was valued at $3.40 per share. During 2001, we
sold all of the  Eagle  Wireless  stock and all of the  ClearWorks.net  stock at
varying prices, to provide cash for our continued operations.

RECENT DEVELOPMENTS

     Since December 2001, we successfully  negotiated a settlement of our former
San  Francisco  office lease for a combination  of 300,000  shares of our common
stock and a three-year  promissory note for $50,000.  This eliminated a previous
landlord claim for approximately  $1,229,000.  In addition,  we have reduced our
trade payables that were 90 days or more outstanding by  approximately  $785,000
(53%), through negotiated  settlements,  which included the issuance of warrants
to purchase  an  aggregate  of 80,000  shares of our common  stock,  and in some
cases,  the  issuance  of notes  and small  cash  payments.  We also  eliminated
additional  debt  to one  creditor  in the  aggregate  amount  of  approximately
$629,000.  We also reached  settlements  with former  executive  officers and an
employee  pursuant to which we eliminated an aggregate  amount of  approximately
$975,000  in debt in  consideration  for the  payment  of cash of  approximately
$15,000,  the  issuance of an  aggregate  of 494,946  shares of our common stock
(having a fair market value of  approximately  $19,696) and  additional  debt to
such individuals in the aggregate amount of approximately  $106,735,  payable in
three years  without  interest.  We also are  renegotiating  debts owed to other
former employees. If we are successful in these negotiations, we could eliminate
up to approximately $150,000 of debt.

RISKS AND UNCERTAINTIES

Liquidity

     The opinion from our auditors on our December 31, 2001 financial statements
contains a paragraph  suggesting that substantial doubt exists about our ability
to  continue  as a  "going  concern."  At  the  time  of  this  report,  we  had
insufficient cash reserves and receivables  necessary to meet forecast operating
requirements.  In  the  event  we  are  unsuccessful  in our  efforts  to  raise
additional funds, we will be required to significantly reduce cash outflows and,
possibly, discontinue our operations.

Risks Relating to Burst.Com, Inc.

We are not currently profitable and may not achieve profitability.

     We have a history of losses and are likely to  continue to incur net losses
at least  through the year 2002. As the result of having  significantly  reduced
operating expenses, we will not need to generate as high of revenue levels as in
previous  years in order  to  continue  operations.  We will,  however,  need to
generate additional revenues to achieve profitability, which may not occur. Even
if  we  achieve  profitability,   we  may  be  unable  to  sustain  or  increase
profitability. in the future.

We will need immediate financing in order to continue our operations, and we may
not be able to raise immediate financing on favorable terms, or at all.

     We need to raise immediate capital to continue our operations and implement
our plans to  respond  to  competitive  pressures,  or  otherwise  to respond to
unanticipated  requirements.  We are currently offering secured promissory notes
and  warrants  directed to  strategic  investors.  The terms of such  financing,
including the interest rate


                                       23
<PAGE>

and  maturity  dates of such  notes and the number  and  exercise  price of such
warrants,  will be  subject  to  negotiations  between  us and  the  prospective
investors, We cannot be certain that we will be able to obtain this or any other
future  financing  on  commercially  reasonable  terms or at all. Our failure to
obtain  immediate  financing,  or  inability to obtain  financing on  acceptable
terms,  could require us to limit our plans,  incur  indebtedness  that has high
rates of interest or substantial restrictive covenants,  issue equity securities
that will dilute your holdings, or discontinue all or a portion of our remaining
operations.

     Our future success in the licensing of our Burstware(R)  product may depend
on our ability to keep pace with technological  changes, which could result in a
loss of revenues.

     The emerging video streaming and content delivery industry is characterized
by:

     o    rapidly changing technologies;
     o    frequent new product introductions; and
     o    rapid changes in customer requirements.

Video streaming technologies have reached commercially acceptable levels only in
the last several years and are continuing to experience  numerous changes.  As a
result, we must be able to maintain and extend our  technological  edge in order
to ensure that our products remain commercially viable. We intend to provide the
source code to our  software to select  customers  so that they can design their
own  improvements  in our product.  We also intend to make  enhancements  to our
software through the use of outside engineering  contractors,  on an "as-needed"
basis, paid for by our customers.  There is no guarantee that we will be able to
implement either of these two strategies. Failure to do so could severely impair
our  ability to  successfully  market our  current  Burstware(R)  software  as a
stand-alone media delivery solution.

     Our  Burstware(R)  products  must comply with a number of current  industry
standards and practices established by various international bodies. Our failure
to comply with evolving  standards,  including  industry  standard CODECS,  will
limit  acceptance of our products by market  participants.  If new standards are
adopted in our  industry,  we may be required to adopt  those  standards  in our
products.  It may take us a  significant  amount of time to  develop  and design
products  incorporating  these new standards.  We may also become dependent upon
technologies  developed by third parties and have to pay royalty fees, which may
be substantial,  to the developers of the technology that  constitutes the newly
adopted standards.

     Our products are technologically complex and are designed to interface with
third-party  products,  such as  Microsoft's  Windows  Media  Player(R)  and the
QuickTime(R) Player using publicly disseminated  application program interfaces,
or APIs.  Modifications to the APIs for these third-party products could require
further  development  effort on our part to continue to make the interface  work
properly  or, in some  cases,  result in an  inability  of our  products to work
properly with third-party products. There is no assurance that these development
efforts or similar  kinds of changes will be  successful  or that we can develop
new products  effectively and quickly enough to avoid loss of revenues or market
share.

If we do not  develop  new  products  or new  product  features  in  response to
customer  requirements  or in a timely way,  customers may not buy our products,
which would seriously harm the software licensing portion of our business.

     The software  media  delivery  industry is rapidly  evolving and subject to
technological change and innovation. In order to continue to pursue the software
licensing  side of out  business,  we must  continue to enhance our  products by
adding new product  features and  introduce new products in response to customer
requirements.  If we fail to do so or in a timely manner,  our customers may not
buy our products, resulting in serious harm to our business.

We will not be able to sell  sufficient  quantities of our software  products to
sustain a viable  software  licensing  business if the market for software media
delivery  products does not develop or if a competing  technology  displaces our
products.


                                       24
<PAGE>

     The software media delivery market is in the early stage of development and
is  still  evolving.  For  example,  telecommunication  companies  such  as  SBC
Communications,  Inc.  intend to develop  products and  services for  delivering
video  content to their  customers  through  digital  subscriber  line,  or DSL,
networks.  While we believe that our products can be  successfully  incorporated
into DSL and other  broadband  networks,  further testing and development of our
products in a DSL network and other  broadband  environments  will be necessary.
There can be no assurance  that our products  can be  successfully  incorporated
into DSL or other broadband  networks or that companies  operating such networks
will purchase our products. Our lack of product  diversification exposes us to a
substantial  risk of loss in the event that the software media  delivery  market
does not  develop or if a  competing  technology  replaces  our  software.  If a
competing  technology  replaces  or  takes  significant  market  share  from the
products that our software support,  we will not be able to sell our products in
quantities sufficient to grow our business.

We rely upon our sales of a small number of products, and the failure of any one
of our products to be  successful in the market could  substantially  reduce our
revenue .

     We rely on  licensing of a small  number of existing  software  products to
generate  substantially  all of our revenue and we currently are not  developing
any additional software products. Consequently, if our existing products are not
successful  our  sales  could  decline  materially,  which  harm  our  financial
performance.

Our  software  products  generally  have long sales  cycles  and  implementation
periods,   which  increase  our  costs  in  obtaining   orders  and  reduce  the
predictability of our earnings.

     Our products are technologically  complex.  Prospective customers generally
must make a  significant  commitment  to test and  evaluate  our software and to
integrate  it into  their  products.  As a result,  our sales  process  is often
subject to delays  associated  with lengthy  approval  processes.  For these and
other  reasons,  the initial sales cycles of our new software  products has been
lengthy,  recently averaging approximately four to six months from initiation in
late  1999 to  completion  in 2000.  We  expect  that  future  sales  will  also
experience lengthy sales cycles.

     Our  products are often  embedded in our  customers'  web pages.  Since the
proper  development of video enabled web pages requires a relatively  high level
of technological  expertise,  we may be required to provide professional service
support to our customers in this area. There can be no assurance that we will be
able to continue to staff  adequately for and deliver the level of  professional
services required, or that we will be able to charge the customer fully for this
work. The result could be further  impediments to sales and possibly higher than
anticipated costs of sales.

Long sales cycles are also subject to a number of  significant  risks over which
we have  little or no control and that are not  usually  encountered  in a short
sales span. These risks include our customers' budgetary  constraints,  internal
acceptance reviews and cancellation. In addition, orders expected in one quarter
could  shift to  another  because of the  timing of our  customers'  procurement
decisions.  The time required to implement  our products can vary  significantly
with the needs of our customers and generally lasts for several  months;  larger
implementations  can  take  several  calendar  quarters.  This  complicates  our
planning process and reduces the predictability of our financial results.

We may not be successful in protecting our intellectual property.

     Our  success  will  depend,  in large  part,  on our ability to protect the
intellectual property that we have developed through patents,  trademarks, trade
secrets, copyrights,  licenses and other intellectual property rights. We cannot
guarantee  that we will be able to protect  our  intellectual  property.  We are
subject to a number of risks relating to intellectual property rights, including
the following:

     o    the means by which we seek to protect our  proprietary  rights may not
          be adequate to prevent others from  misappropriating our technology or
          from  independently  developing or selling technology or products with
          features based on or similar to ours;


                                       25
<PAGE>

     o    Legal standards relating to the validity,  enforceability and scope of
          protection of proprietary  rights in  Internet-related  businesses are
          uncertain and still evolving;
     o    our  products  may be sold in  foreign  countries  that  provide  less
          protection  to  intellectual  property  than is  provided  under U.S.,
          Japanese or European community laws;
     o    our  intellectual  property  rights  may be  challenged,  invalidated,
          violated or  circumvented  and may not provide us with any competitive
          advantage; and
     o    our  patents  pending  may not be  approved  or may be only  partially
          approved.

As a result,  we cannot predict the future viability or value of our proprietary
rights and those of other companies within the industry.

If our proprietary technology infringes upon the intellectual property rights of
others,  our costs could  increase  and our  ability to license our  products or
patents could be limited.

     We are not aware of any activity  that may be  infringing  any  proprietary
right of a third party. There can be no assurance,  however, that aspects of our
technology  would not be found to violate the  intellectual  property  rights of
other parties. The resulting risks include the following:

     o    other  companies  may hold or obtain  patents or may  otherwise  claim
          proprietary rights to technology that is necessary to our business;
     o    if we violate the  intellectual  property rights of other parties,  we
          may be required to modify our products or intellectual  property or to
          obtain a license to permit their continued use; and
     o    any future  litigation to defend us against  allegations  that we have
          infringed upon the rights of others could result in substantial  costs
          to us, even if we ultimately prevail.

     There are a number of companies  that hold  patents for various  aspects of
the technology  incorporated in our industry's standards (i.e. technologies that
deliver or manage audio and video  content such as Java,  Video,  Audio,  Vector
Graphics,  Shockwave,  and  Cursors.) We expect that  companies  seeking to gain
competitive  advantages will increase their efforts to enforce any patent rights
that they may have.  The  holders  of patents  from  which we have not  obtained
licenses  may take the  position  that we are  required to obtain a license from
them.  We cannot be certain that we would be able to negotiate any license at an
acceptable  price.  Our  inability  to do so could  substantially  increase  our
operating  expenses  or  require us to seek and  obtain  alternative  sources of
technology necessary to produce our products.

We began our current  product line of software  only  recently and, as a result,
your ability to evaluate our prospects may be limited.

     Although we have been operating since 1993, we have only recently commenced
sales of our present  product  line of media  delivery  software.  Prior to that
time, we sold custom  designed  software  products,  which we do not  anticipate
selling in the future. Our limited operating history with respect to our current
software may limit your ability to evaluate our prospects because of:

     o    our limited historical financial data relating to sales of our current
          software;
     o    our unproven potential to generate profits; and
     o    our limited  experience in addressing  emerging trends that may affect
          our software business.

     As a young  company that  recently  commenced a new product  line,  we face
risks and  uncertainties  relating to our ability to implement our business plan
successfully.  You should consider our prospects in light of the risks, expenses
and difficulties we may encounter.


                                       26
<PAGE>

We may experience  fluctuations in our future operating results, which will make
predicting our future results difficult.

     These fluctuations may result from a variety of factors, including:

     o    market  acceptance  of our products,  including  changes in order flow
          from our largest  customers,  and our  customers'  ability to forecast
          their needs;
     o    the timing of new product announcements by our competitors;
     o    the lengthy sales cycle of our products;
     o    increased  competition,  including  changes  in  pricing  by us or our
          competitors;
     o    delays in deliveries by our suppliers and subcontractors;
     o    currency exchange rate fluctuations; and
     o    general  economic  conditions  in the  geographic  areas  in  which we
          operate.

     Accordingly,  any  revenues or net income in any  particular  period may be
lower than our  revenues  and net income in a preceding  or  comparable  period.
Period-to-period comparisons of our results of operations may not be meaningful,
and you should not rely upon them as indications of our future  performance.  In
addition,  our  operating  results may be below the  expectations  of securities
analysts and investors in future periods. Our failure to meet these expectations
will likely cause our share price to decline.

Our products could contain  defects,  which would reduce sales of those products
or result in claims against us.

     We develop  complex  software for media  delivery,  content  management and
storage. Despite testing, software errors have been found in our product and, in
some cases,  our  product's  performance  when  initially  deployed  has not met
customer  expectations.  To date,  we believe that all of the errors in question
have been resolved.  There can be no assurance,  however, that other errors will
not occur, as errors such as these are common in the development of any software
product. Additional errors in our product could result in, among other things, a
delay in  recognition  or loss of  revenues,  loss of market  share,  failure to
achieve market acceptance or substantial  damage to our reputation.  We could be
subject to material  claims by customers,  and we may need to incur  substantial
expenses  to correct  any  product  defects.  We do not have  product  liability
insurance to protect us against losses caused by defects in our products, and we
do not have "errors and omissions" insurance.  As a result, any payments that we
may need to make to satisfy our customers may be substantial.

We depend  on a  limited  number of key  personnel  who  would be  difficult  to
replace,  and we may not be able to attract and retain  management and technical
personnel.

     Because our  products are complex and our market is new and  evolving,  the
success of our business depends in large part upon the continuing  contributions
of our management and technical personnel. The loss of the services of either of
our two current employees, Richard A. Lang, our Chairman of the Board, and Chief
Executive  Officer and Eric Walters,  our Vice  President of  Operations,  would
substantially  interfere  with our  operations.  We do not have key person  life
insurance policies covering any of our employees.  We are currently seeking such
insurance  coverage for Mr. Lang.  The insurance  coverage that we may secure on
Mr. Lang may be insufficient to compensate us for the loss of his services.

                         Risks Relating to Our Industry

If software media  technology or our method of  implementing  this technology is
not accepted, we will not be able to sustain or expand our business.

     Our future  success  depends on the  growing  use and  acceptance  of video
applications  for PCs and  set-top  boxes  including  the growth of video on the
Internet.  The market for these  applications is new, and may not develop to the
extent  necessary  to  enable  us to  expand  our  business.  We  have  invested
significant  time and resources in the


                                       27
<PAGE>

development  of products for this market.  If the target market for our solution
does not grow, we may not obtain any benefits from these investments.

The  markets  in  which  we  operate  are  highly  competitive,  and many of our
competitors have much greater  resources than we do, which may make it difficult
for us to become profitable.

     Competition  in our  industry  is  intense,  and we expect  competition  to
increase.  Competition  could force us to charge lower prices for our  products,
reduce demand for our products and reduce our ability to recover development and
manufacturing costs.

     Some of our competitors:

     o    have greater financial, personnel and other resources than ours;
     o    offer a broader range of products and services than ours;
     o    may be able to  respond  faster  to new or  emerging  technologies  or
          changes in customer requirements than we can;
     o    may have a more substantial distribution network than ours;
     o    benefit from greater purchasing economies than we do;
     o    offer more aggressive pricing than we do; and
     o    devote  greater  resources to the promotion of their  products than we
          do.

     We will not be able to  compete  effectively  if we are not able to develop
and implement appropriate strategies to address these factors.

Internal development efforts by our customers and new entrants to the market may
increase competition.

     In the future,  some of our customers may internally  develop products that
will replace the  products  that we currently  sell to them.  In addition,  some
leading  companies,  with  substantially  greater  resources  than we have,  may
attempt to enter our market.  The recent growth in the market for media delivery
and related technologies is attracting large entrants.

We depend on the continued growth and commercial acceptance of the Internet.

     Our  business  will be  adversely  affected  if usage of the  Internet  and
broadband  access does not continue to grow as  anticipated.  This growth may be
inhibited by a number of factors, such as:

     o    inadequate network infrastructure;
     o    inconsistent quality of service;
     o    lack of cost-effective broadband high-speed services;
     o    lack of cost-effective storage; and
     o    security concerns.

     Even  if  Internet   use  and   broadband   access   grows,   the  Internet
infrastructure  may not be able to  support  future  growth  adequately  and its
reliability and quality of service may suffer.  In addition,  numerous  websites
have experienced service interruptions due to outages and other delays occurring
internally and throughout the Internet network infrastructure.  If these outages
or delays occur  frequently in the future,  Internet  usage, as well as usage of
our products, could grow more slowly or decline.

     Delivery of video using the Internet is an emerging  business.  Many of our
customers are new companies that are innovating and counting on  Burstware(R) to
provide a  technological  edge.  Because many of these companies are early stage
enterprises  without  revenues,  they  may  delay  payment  or  fail  to pay our
invoices.  For this reason,  we have deferred a  substantial  portion of revenue
booked until  collectibility  has been assured.  There is no assurance that this
revenue will ultimately be collected and recognized or that future bookings will
not be deferred.


                                       28
<PAGE>

We may face  government  regulation  and  legal  uncertainties  relating  to the
Internet.

     Currently,  there are few laws or regulations  that  specifically  regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted   that   address   issues  such  as  user   privacy,   pricing  and  the
characteristics  and quality of  products  and  services.  For  example,  recent
federal  legislation  prohibits the transmission of certain types of information
and content over the Internet. In addition, several telecommunications companies
have petitioned the Federal  Communications  Commission to regulate Internet and
on-line  service  providers  in a  manner  similar  to long  distance  telephone
carriers and to impose access fees on such  providers.  This could  increase the
cost of  transmitting  data over the  Internet.  Moreover,  it may take years to
determine the extent to which  existing laws relating to issues such as property
ownership, libel and personal privacy apply to the Internet.  Finally, state tax
laws and regulations relating to the provision of products and services over the
Internet are still developing. If individual states impose taxes on products and
services  provided over the Internet,  the cost of our products and services may
increase and we may not be able to increase the price we charge for our products
to cover these costs.  Any new laws or  regulations  or new  interpretations  of
existing laws and regulations  relating to the Internet could  adversely  affect
our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     At December 31, 2001, we had no funds  invested in any  securities or money
market funds.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMTARY DATA

     The  Report of the  Independent  Public  Accountants  and the  accompanying
financial  statements  and notes to the  financial  statements  are on pages F-1
through  F-25.  Financial  statement  schedules  are not  required and have been
omitted.

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

     Our  independent  auditors for fiscal year 2000 were BDO  Seidman,  LLP. On
March 7, 2002,  we  appointed  Berenfeld,  Spritzer,  Schecter  and Sheer as our
independent  auditors for the fiscal year ended December 31, 2001. The change in
independent  auditors was  recommended  by the  Company's  audit  committee  and
approved by the Board of  Directors  in light of our reduced  operations  and in
order to reduce  auditing  expenses.  The  independent  auditor's  report of BDO
Seidman,  LLP for the fiscal years ended December 31, 1999 and 2000, dated April
9, 2001, stated that "the Company has suffered  recurring losses from operations
and has a net capital deficit that raise  substantial doubt about its ability to
continue as a going concern."  During fiscal years 1999 and 2000 and through the
date of the change in auditors,  there were no disagreements between the Company
and BDO  Seidman,  LLP on any  matter of  accounting  principles  or  practices,
financial  statement  disclosure,  or  auditing  scope  or  procedure.  Prior to
engaging Berenfeld,  Spritzer,  Schecter and Sheer, neither we nor anyone on our
behalf  consulted  with such firm  regarding (i) the  application  of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on our financial statements, or (ii) any
matter that was either the subject of a disagreement or a reportable event.


                                       29
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Our  executive  officer,  key employee and  directors  and their ages as of
December 31, 2001, are as follows:

      Name                  Age                  Position
--------------------------------------------------------------------------------
Richard A. Lang             48   Chairman, President, Chief Executive Officer
                                    and Chief Financial Officer
Eric H. Walters             45   Vice President, Operations
Trevor Bowen (1)(2)         52   Director
John J. Micek III (1)(2)    49   Director and Secretary
Brian Murphy (2)            46   Director
Barry L. Ritholtz           40   Director

(1)  Member of the compensation committee
(2)  Member of the audit committee

     The  following  sets  forth  biographical  information  as to the  business
     experience  of each  Executive  Officer and Director of the Company for the
     year ended December 31, 2001:

     Richard A. Lang is our Chairman of the Board,  President,  Chief  Executive
Officer and Chief Financial Officer.  From September 1997 through the end of May
2000 he served as President and from  September  1997 through  September 2000 he
served as Chief  Executive  Officer.  From January 31, 1997 through August 1997,
Mr. Lang served as one of our directors.  Mr. Lang served as our Chairman of the
Board and  Treasurer  until  January 31, 1997.  He had served as Chairman of the
Board,  Chief  Executive  Officer and Treasurer  from December 1993 to September
1995  and as a  Director  since  August  1992.  He has  been a  Director  of our
subsidiary,  Explore  Technology,  Inc.,  since February 1990, and served as its
President  from  February  1990 to August 1992.  Mr. Lang has presided  over the
development of our patent  portfolio.  He is the inventor of record for the bulk
of our Intellectual Property. Mr. Lang was also a co-founder of Go-Video,  Inc.,
Scottsdale,  Arizona and co-inventor of Go-Video's  patented dual-deck VCRs. Mr.
Lang received his A.A. degree from Scottsdale  College.  Starting April 1, 2001,
Mr. Lang has again become Chief Executive Officer as a result of the resignation
of Douglas Glen.

     Trevor  Bowen is a partner  in  Principle  Management  Limited,  an artiste
management company with offices in Dublin and New York. He was a partner in KPMG
LLP for eleven years before joining  Principle  Management  Limited in 1996. Mr.
Bowen holds a number of directorships  in companies in the media,  entertainment
and film business. Mr. Bowen also holds a number of non-executive  directorships
and is Chairman of an  international  consulting  group.  Mr.  Bowen  received a
Bachelor of Business  Studies degree from Trinity College Dublin and is a Fellow
of The Institute of Chartered  Accountants  in Ireland.  He has also completed a
Corporate Finance Course at Harvard University.

     John J. Micek III has been one of our directors since April 1990, Secretary
and Treasurer since January 1994, and served as our President from April 1990 to
August 1992.  Mr.  Micek  currently  serves as  President of Universal  Warranty
Insurance located in Palo Alto, California,  and Omaha,  Nebraska.  From 1994 to
1997, Mr. Micek served as general counsel for U.S.  Electricar in San Francisco,
California.  From January 1989 to March 1994,  Mr. Micek  practiced  law in Palo
Alto, California.  He has served as a Director of Armanino Foods of Distinction,
Inc., a publicly-held specialty food manufacturer in Hayward,  California, since
February 1988. He also serves as a Director of Universal Group,  Inc., a Midwest
group  of  insurance   companies,   and  Cole  Publishing  Company  in  northern
California. He received a Bachelor of Arts Degree in History from the University
of Santa Clara and a Juris Doctorate from the University of San Francisco School
of Law.


                                       30
<PAGE>

     Brian Murphy has been one of our  directors  since  January  1997.  He is a
partner in O.J. Kilkenny & Company,  Chartered  Accountants  specializing in the
entertainment industry with offices in London, England and Dublin,  Ireland. The
firm  provides a wide range of services to their  clients,  consisting  of major
international  entertainment artists, covering all areas of financial management
and audit and accountancy  advise. Mr. Murphy is involved at the executive level
with a number of companies in the media and entertainment business, particularly
in the  field of  digital  post-production,  film  and  television.  Mr.  Murphy
received a Bachelors  Degree in Commerce  from Dublin  University,  and became a
fellow of the Institute of Chartered Accountants in Ireland,  England and Wales.
Mr.  Murphy  became one of our directors as  representative  of Draysec  Finance
Limited, one of our principal stockholders.

     Barry L. Ritholtz has been one of our directors since March 8, 2002.  Since
March 2001, he has been the Market  Strategist for Weatherly  Securities,  which
has since merged with Ehrenkrantz King Nussbaum, a brokerage firm and investment
bank  headquartered  in Garden City, New York. Mr.  Ritholtz is responsible  for
writing the firm's Daily Pre-opening Comments and its biweekly Market Commentary
for the firm's  brokers,  portfolio  managers and clients.  He also develops and
maintains  the Model  Portfolio  used as the basis of managed  monies by private
banking  portfolio  managers.  Mr.  Ritholtz  has served as research  editor for
MacToday,  a desktop  publishing  magazine and frequently  publishes articles on
finance and technology  issues. He has been a contributor to CBS Marketwatch and
his perspective on the markets have been quoted by various media,  including Dow
Jones, Good Morning Silicon Valley, thestreet.com and the San Jose Mercury News.
Mr. Ritholtz is also the founder of W3 Ventures, Ltd., a technology strategy and
consulting  firm.  From  January  2000  to  February  2001,  he  was  Investment
Strategist for Auerbach,  Pollack & Richardson,  a New York investment bank, and
from October 1998 to January 2000,  he was  Investment  Strategist  for Trautman
Kramer,  a New York  investment  bank.  From January 1996 to February  1998, Mr.
Ritholtz  was a  securities  trader for A.J.  Michaels,  a West Islip,  New York
securities  broker. Mr. Ritholtz received a Bachelor of Arts Degree in Political
Science from State  University of New York at Stony Brook and a Juris  Doctorate
(cum laude) from the Benjamin N. Cardozo School of Law.

     Eric  H.  Walters,  a key  employee,  has  served  as our  Vice  President,
Operations  since October 2001,  where he is responsible for our  administrative
operations  as well as  intellectual  property  management.  From  March 2000 to
October 2001,  Mr. Walters  served as the manager of our  Intellectual  Property
Department.  From March 1999 to March 2000,  he was our Manager of Inside Sales.
Mr. Walters has been associated with us since our formation in 1990. He held the
position of Director of Corporate  Communications during 1991 and 1992. Prior to
joining us in 1990 and again in 1999, Mr. Walters worked at Intel Corporation in
Press Relations for the Digital  Imaging and Video Division.  Mr. Walters is the
co-inventor of record for several of our patents.

     Section 16(a) Beneficial Ownership Reporting Compliance.

     Gordon Rock, one of our principal shareholders, was required to file a Form
3 reflecting his  acquisition in August 2001 of a warrant to purchase  1,000,000
shares of our  common  stock that  resulted  in his total  beneficial  ownership
interest  exceeding 10% of our outstanding  shares.  In addition,  during fiscal
year  2001,  Mr.  Rock  was  required  to  file a Form 4 with  respect  to  nine
acquisitions  of  our  common  stock  aggregating   145,700  shares  and  eleven
acquisitions  of warrants to purchase an aggregate  of  4,833,332  shares of our
common stock. Mr. Rock filed a Form 5 reflecting these  acquisitions on March 6,
2002. The Form 5 was required to be filed on or before February 15, 2002.


                                       31
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION AND OTHER MATTERS.

     Summary of  Compensation.  The following table sets forth all  compensation
earned  or paid for  services  rendered  to us in all  capacities  by our  Chief
Executive  Officer  for the  fiscal  year  ended  December  31,  2001.  No other
executive  officer  earned more than $100,000 in salary and bonus for the fiscal
year ended December 31, 2001.

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                 Long-Term
                                        Annual Compensation                    Compensation
                         -----------------------------------------------------------------------
       Name and                   Year         Salary            Bonus          Securities
       Principal                                                                Underlying             All Other
       Position                                                                 Options (#)         Compensation($)
-----------------------------------------------------------------------------------------------------------------------
<S>                               <C>        <C>                <C>               <C>                 <C>
Richard A. Lang,                  2001       $  120,000         $ 7,500                --             $   17,400(1)
Chairman                          2000          330,616              --           269,594                 12,000(2)
of the Board,                     1999          240,000              --                --                     --
President and Chief
Executive Officer
-----------------------------------------------------------------------------------------------------------------------
Douglas Glen, Chief               2001       $   30,000(3)      $    --               --              $       --
Executive Officer                 2000          188,294              --          941,470                  69,000(4)
                                  1999               --                          100,000                      --
</TABLE>

(1) Represents monthly auto allowance payments made to Mr. Lang in the amount of
$2,400 and 15,000 shares of common stock of Eagle Wireless  International,  Inc.
transferred  by us to Mr. Lang in lieu of salary with an  aggregate  fair market
value of $15,000.

(2) Represents monthly auto allowance payments made to Mr. Lang.

(3)  Represents  shares of common stock of Eagle  Wireless  International,  Inc.
transferred  by us to Mr. Glen,  our former Chief  Executive  Officer in lieu of
salary with an aggregate fair market value of $30,000.  Mr. Glen resigned as our
Chief Executive Officer on March 31, 2001.

(4) Represents monthly housing allowance payments made to Mr. Glen.

Option  Grants.  During  2001,  no options  were  granted to our  current  Chief
Executive  Officer,  Richard A. Lang, or to our former Chief Executive  Officer,
Douglas Glen.

                         Aggregated Option Exercises in
               Last Fiscal Year and Fiscal Year End Option Values

The following table sets forth  information  concerning option exercises and the
aggregate  value of  unexercised  options for the year ended  December 31, 2001,
held by our current and former Chief  Executive  Officers.  Our Chief  Executive
Officers did not exercise any stock options in 2001.

<TABLE>
<CAPTION>
                                                      Number of Securities Underlying        Value of Unexercised In-the Money
                                                          Unexercised Options at                        Options at
                           Shares        Value               December 31, 2001                     December 31, 2001(1)
                         Acquired on   realized     -----------------------------------------------------------------------------
         Name            Exercise(#)      ($)       Exercisable(#)     Unexercisable(#)      Exercisable($)   Unexercisable($)
---------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>          <C>                  <C>               <C>               <C>
Richard A. Lang              --            --           1,619,796            31,965            $      0          $      0
Douglas Glen                 --            --           1,131,470               --                    0                 0
</TABLE>

(1)  The value  realized  on  exercised  options  and the  value of  unexercised
     in-the-money  options at December 31, 2001 is based on a value of $0.04 per
     share,  the closing bid price of our common stock at December 31, 2001. All
     such options had exercise prices in excess of this value.


                                       32
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The  following  table sets forth  information  with  respect to  beneficial
ownership of our common stock by: o each person who beneficially  owns more than
5% of  our  common  stock;  o each  of our  executive  officers;  o each  of our
directors; and o all executive officers and directors as a group.

     Except as otherwise noted, the address of each 5% stockholder listed in the
table is c/o  Burst.com,  Inc.,  613  Fourth  Street,  Suite  201,  Santa  Rosa,
California  95494.  Beneficial  ownership is determined  in accordance  with the
rules  of the  Securities  and  Exchange  Commission  and  includes  voting  and
investment  power  with  respect  to  shares.  To our  knowledge,  except  under
applicable community property laws or as otherwise indicated,  the persons named
in the table have sole voting and sole  investment  control  with respect to all
shares  beneficially  owned.  The  applicable  percentage  of ownership for each
stockholder is based on 19,173,846  shares of common stock  outstanding on March
31, 2002 together  with  applicable  options and warrants for that  stockholder.
Shares of common  stock  issuable  upon  exercise  of options  and other  rights
beneficially  owned are deemed  outstanding  for the  purpose of  computing  the
percentage  ownership of the person holding those options and other rights,  but
are not deemed  outstanding for computing the percentage  ownership of any other
person.

<TABLE>
<CAPTION>
                                                                  Number of Shares          Percentage of
  Name and Address of Beneficial Owner                           Beneficially Owned       Outstanding Shares
------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                          <C>
5% Stockholders
---------------

Draysec Finance Limited                                              2,041,678 (1)               10.37%
Gordon Rock                                                         10,496,801 (2)               40.12%
SBC Venture Capital Corporation                                      1,863,606 (3)                9.23%
Chelsey Capital                                                      1,648,472 (4)                8.22%
Robert London                                                        1,155,369 (5)                5.95%
Eagle Wireless International, Inc.                                   1,500,000 (6)                7.48%
Special Situations Funds                                             1,171,629 (7)                5.76%

Executive Officers and Directors
--------------------------------

Richard A. Lang                                                      2,632,528 (8)               12.61%
Trevor Bowen                                                         1,826,578 (9)                9.50%
John J. Micek III                                                      566,988 (10)               2.91%
Brian Murphy                                                         1,945,033 (11)              10.05%
Barry L. Ritholtz                                                       25,000 (12)                 *

All executive officers and directors as a group (5 persons)          6,993,982                   24.35%
</TABLE>

     *    Represents less than a one (1) percent interest

(1)  Includes  1,525,769 shares held,  options to purchase  200,000 shares,  and
     warrants to  purchase  46,109  shares of our common  stock.  Also  includes
     options to purchase 100,000 shares of our common stock held by Trevor Bowen
     and options to purchase  169,800  shares of our common  stock held by Brian
     Murphy, each of whom represents Draysec Finance on our Board of Directors.

(2)  Includes  1,593,050 shares of our common stock held by Mr. Rock,  1,916,413
     shares held by Mercer  Management Inc.,  options to purchase 500,000 shares
     held by Mr. Rock, and warrants to purchase  6,487,338  shares of our common
     stock held by Mercer Management, Inc.


                                       33
<PAGE>

(3)  Includes  857,633  shares of our  common  stock and a warrant  to  purchase
     1,005,973 shares of our common stock.

(4)  Includes  769,750  shares of our  common  stock and  warrants  to  purchase
     878,722 shares of our common stock.

(5)  Includes  913,279  shares of our  common  stock and  warrants  to  purchase
     242,090 shares of our common stock.

(6)  Represents 1,500,000 shares of our common stock.

(7)  Represents  warrants to purchase 1,171,629 shares of our common stock owned
     by Special  Situations Fund III. L.P.,  Special  Situations  Private Equity
     Fund, L.P.,  Special  Situations  Cayman Fund, L.P. and Special  Situations
     Technology Fund, L.P. Such shares are deemed  beneficially  owned by Austin
     W. Marxe and David M.  Greenhouse,  who serve as executive  officers of the
     investments advisors of such funds.

(8)  Includes 897,346 shares of our common stock in the name of the Lisa Walters
     and Richard Lang Revocable Trust,  options to purchase  1,613,182 shares of
     our common  stock held by Richard  Lang,  and options to  purchase  122,000
     shares of our common stock held by Lisa Walters, Mr. Lang's spouse.

(9)  Includes  1,771,878 shares of our common stock held beneficially by Draysec
     Finance and options to purchase 54,700 shares of our common stock.

(10) Includes  43,773  shares of our  common  stock held by Mr.  Micek,  138,888
     shares of our common stock held by Silicon Prairie  Partners,  L.P., 50,000
     shares of our common stock held by  Universal  Warranty  Corp.,  and 12,829
     shares held by Universal  Assurors  Agency,  Inc. Also includes  options to
     purchase 290,978 shares of our common stock held by Mr. Micek,  warrants to
     purchase  6,250 shares of our common stock held by Mr.  Micek,  warrants to
     purchase 6,500 shares of our common stock held by Universal  Warranty Corp.
     and warrants to purchase 15,625 shares held by Universal  Assurors  Agency,
     Inc.

(11) Includes  1,771,878 shares of our common stock held beneficially by Draysec
     Finance and options to purchase  173,155 shares of our common stock held by
     Mr. Murphy.

(12) Represents options to purchase 25,000 shares of our common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Since January 1, 2001, there has not been, nor is there currently proposed,
any transaction or series of similar  transactions to which we were or are to be
a party in which the amount involved  exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, or an immediate
family  member of any of the  foregoing,  had or will have a direct or  indirect
interest other than:

     o    compensation  arrangements,  which are described  where required under
          Item 11. Executive Compensation and Other Matters. above; and
     o    the transactions described below.

Transactions with Gordon Rock

     In November and  December  2000 and during  2001,  Gordon Rock,  one of our
principal stockholders and a director from April 2001 to July 2001, loaned us an
aggregate amount of $1,270,000  evidenced by our secured  promissory notes at an
interest  rate of 9% per annum with respect to $1,210,000 of such debt and at an
interest  rate of prime  plus 2% with  respect  to  $60,000  of such  debt.  The
aggregate  principal  amount of  $1,210,000  plus  accrued


                                       34
<PAGE>

interest is due and payable on November  21, 2002 (the due date was  extended to
this date pursuant to the lender creditor agreement discussed below), $30,000 of
principal plus accrued  interest is due and payable on November 17, 2004 and the
remaining  $30,000 of  principal  plus  accrued  interest  is due and payable on
December 12, 2004. Mr. Rock loaned to us an additional  $60,000 in February 2002
evidenced by our secured  promissory  note at an interest  rate of prime plus 2%
and due and payable along with accrued interest on February 14, 2005. Such loan,
as well as the prior  loans to the  Company by Mr.  Rock  discussed  above,  are
secured by a security interest in all of our assets. As additional consideration
for such loans,  we issued to Mr. Rock  warrants  to  purchase an  aggregate  of
5,833.332  shares of our common  stock at exercise  prices  ranging from $.15 to
$.30 per share (previously  issued warrants at exercise prices in excess of $.30
per share were  amended  to reduce the  exercise  price to $.30 per  share).  In
connection  with such debt  financing,  we also entered  into a lender  creditor
agreement  with Mr. Rock in November 2001 that provided for the extension of the
due date of  $1,270,000  of secured  notes to November  21,  2002,  as indicated
above.  In  consideration  for such  extension,  we  agreed  that so long as any
portion of such debt  remained  outstanding,  we would not,  without the written
consent  of Mr.  Rock,  (i) incur any new  indebtedness  or expense in excess of
$2,500,  subject to certain  exceptions,  (ii) issue any additional  securities,
(iii) sell or license any assets except in the ordinary course of business, (iv)
commence  any  litigation  except as required by  applicable  law; (v) merger or
otherwise   effect  a   reorganization,   or  (vi)  amend  our   certificate  of
incorporation or bylaws. During 2000, we issued a 6% convertible note payable to
Mercer Management, an affiliate of Mr. Rock. The note was convertible into a new
series of our preferred  stock at a per share  conversion  price of Five Dollars
($5.00) at the option of the note holder.  In  conjunction  with the issuance of
the  warrants  discussed  above,  the  convertibility  feature  of this note was
removed and the interest rate was changed from 6% to 9%.

Transactions with Storie Partners LLP

In  December  2001,  Storie  Partners  LLP,  which  at that  time was one of our
principal  stockholders,  assigned  back to the  Company  without  consideration
2,913,167  shares of our common  stock.  Such shares were  cancelled  and are no
longer issued and outstanding.

Transactions with John J. Micek III

     In July  2001,  we granted to  Silicon  Prairie  Partners,  LP an option to
purchase  250,000  shares of our common  stock at an exercise  price of $.18 per
share.  Silicon Prairie Partners,  LLP is an affiliate of John J. Micek III, one
of our directors.  In February  2002,  this option was exercised with respect to
138,888 shares at an aggregate option exercise price of $25,000.

Transactions with Barry L. Ritholtz

     In May 2001, we entered into a letter agreement with W3 Ventures,  Ltd., an
affiliate of Barry L.  Ritholtz.  Mr.  Ritholtz  became one of our  directors in
March 2002.  Under the agreement,  W3 Ventures has agreed to act as our agent to
identify  individuals  and  entities  who may be  interested  in acquiring us or
investing  in our  securities.  The  agreement  has a one-year  term that may be
extended by mutual  agreement.  The agreement  provides that if an individual or
entity  introduced to us by W3 Ventures makes a cash, equity or other investment
during the term of the agreement or within one year after the  expiration of the
agreement,  we will pay W3  Ventures  an amount in cash equal to 8% of the total
amount of the net investment. In addition, if an individual or entity introduced
to us by W3 Ventures acquires all or any portion of our business, we will pay to
W3 Ventures an amount in cash equal to 5% of the total purchase  price,  whether
the purchase is in cash, equity or the assumption of debt. As of March 31, 2002,
we have not entered into any  agreement or  transaction  to which the  agreement
with W3 Ventures would apply.

Transactions with Draysec Finance Limited

     During 2001,  we issued 9%  convertible  notes  payable to Draysec  Finance
Limited, one of our principal shareholders, in the aggregate principal amount of
$100,000,  with interest and principal due in February and March 2002. The notes
are convertible  into a new series of preferred stock at a per share  conversion
price of $5.00 at the option of the noteholder. In November 2001, Draysec agreed
to extend the due date of the loan to November 21, 2002.  In  consideration  for
this extension,  we reduced the exercise price of warrants to purchase shares of
common stock held by Draysec from $5.00 to $0.30 per share.


                                       35
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

                                  EXHIBIT INDEX

Exhibit                    Description
--------------------------------------------------------------------------------
2.1 **      State of  Arizona,  Articles  of Merger of Video  Press,  Inc.  into
            Explore Technology,  dated December 28, 1990;  Agreement and Plan of
            Merger dated August 29, 1993.

2.2 **      Action  by  Unanimous  Consent  of Board  of  Directors  of  Explore
            Technology, Inc., July 15, 1992.

2.3 **      Certificate of Merger of Time Shift TV, Inc. into IVT Delaware, Inc.
            dated July 26, 1999.

2.4 **      Agreement  and  Plan  of   Reorganization   between   Instant  Video
            Technologies, Inc., IVT, Delaware, and Time Shift TV dated August 3,
            1999.

3.1.1**     Certificate of  Incorporation  of Catalina Capital Corp. dated April
            27, 1990.

3.1.2**     Certificate  of Amendment to the  Certificate  of  Incorporation  of
            Catalina   Capital   Corp.   changing  its  name  to  Instant  Video
            Technologies, Inc. dated August 17, 1992.

3.1.3**     Amended and Restated  Certificate of Incorporation dated January 27,
            2000.

3.2.1**     Bylaws of Catalina Capital Corp. dated April 27, 1990; Amendment No.
            1 dated April 5, 1993.

3.3.2**     Amended and Restated Bylaws dated January 27, 2000.

3.3.3**     Certificate of Status Foreign Corporation dated March 12, 1993.

3.3.4**     Certificate of Status Foreign Corporation dated August 29, 2000.

4.1**       Specimen common stock certificate.

4.2 **      Securities  Purchase  Agreement  by and  among  the  registrant  and
            certain investors dated as of January 27, 2000.

4.3 **      Registration  Rights  Agreement  by and  among  the  registrant  and
            certain investors dated as of January 27, 2000.

4.4 **      Form of Warrant to purchase shares of common stock issued to certain
            investors on January 27, 2000

4.5 **      Form of Lock-up  Agreement  entered into between the  registrant and
            each of certain  officers,  directors and principal  shareholders in
            January 2000.

4.6         Form of Warrant to purchase  shares of common stock issued to Gordon
            Rock during 2001.

4.7         Form of Warrant to purchase shares of common stock issued to certain
            investors in December 2001.


                                       36
<PAGE>

10.1**      Employment Agreement with Richard A. Lang.

10.2**      Eagle Wireless International, Inc. Securities Purchase Agreement.

10.3**      License Agreement with InterZest.

10.4**      Eagle Wireless International, Inc. License Agreement

10.5        Letter Agreement with W3 Ventures, Ltd dated May 14, 2001.

10.6        Lender Creditor Agreement with Gordon Rock dated November 16, 2001.

21.1 **     Subsidiaries of the registrant.

--------
**   Previously filed.

b) Reports on Form 8-K during quarter ended December 31, 2001:

    None


                                       37
<PAGE>

                                   SIGNATURES

In accordance  with the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                             BURST.COM, INC.

Dated: April 12, 2002                        By /s/ Richard A. Lang
                                                --------------------------------
                                                Richard A. Lang, Chairman, Chief
                                                Executive Officer and
                                                Chief Financial Officer

In accordance with the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following  persons on behalf of the Registrant and
in the capacities and on the dates indicated:

       Signature                   Title                       Date
       ---------                   -----                       ----

/s/ Trevor Bowen                  Director                 April 12, 2002
-----------------------
Trevor Bowen

/s/ John J. Micek                 Director                 April 12, 2002
-----------------------
John J. Micek III

/s/ Brian Murphy                  Director                 April 12, 2002
-----------------------
Brian Murphy


                                       38
<PAGE>

                                  EXHIBIT INDEX

Exhibit                        Description
--------------------------------------------------------------------------------
2.1 **      State of  Arizona,  Articles  of Merger of Video  Press,  Inc.  into
            Explore Technology,  dated December 28, 1990;  Agreement and Plan of
            Merger dated August 29, 1993.

2.2 **      Action  by  Unanimous  Consent  of Board  of  Directors  of  Explore
            Technology, Inc., July 15, 1992.

2.3 **      Certificate of Merger of Time Shift TV, Inc. into IVT Delaware, Inc.
            dated July 26, 1999.

2.4 **      Agreement  and  Plan  of   Reorganization   between   Instant  Video
            Technologies, Inc., IVT, Delaware, and Time Shift TV dated August 3,
            1999.

3.1.1**     Certificate of  Incorporation  of Catalina Capital Corp. dated April
            27, 1990.

3.1.2**     Certificate  of Amendment to the  Certificate  of  Incorporation  of
            Catalina   Capital   Corp.   changing  its  name  to  Instant  Video
            Technologies, Inc. dated August 17, 1992.

3.1.3**     Amended and Restated  Certificate of Incorporation dated January 27,
            2000.

3.2.1**     Bylaws of Catalina Capital Corp. dated April 27, 1990; Amendment No.
            1 dated April 5, 1993.

3.3.2**     Amended and Restated Bylaws dated January 27, 2000.

3.3.3**     Certificate of Status Foreign Corporation dated March 12, 1993.

3.3.4**     Certificate of Status Foreign Corporation dated August 29, 2000.

4.1**       Specimen common stock certificate.

4.2 **      Securities  Purchase  Agreement  by and  among  the  registrant  and
            certain investors dated as of January 27, 2000.

4.3 **      Registration  Rights  Agreement  by and  among  the  registrant  and
            certain investors dated as of January 27, 2000.

4.4 **      Form of Warrant to purchase shares of common stock issued to certain
            investors on January 27, 2000

4.5 **      Form of Lock-up  Agreement  entered into between the  registrant and
            each of certain  officers,  directors and principal  shareholders in
            January 2000.

4.6         Form of Warrant to purchase  shares of common stock issued to Gordon
            Rock during 2001.

4.7         Form of Warrant to purchase shares of common stock issued to certain
            investors in December 2001.

10.1 **     Employment Agreement with Richard A. Lang.

10.2**      Eagle Wireless International, Inc. Securities Purchase Agreement

10.3**      License Agreement with InterZest.


                                       39
<PAGE>

10.4**      Eagle Wireless International, Inc. License Agreement

10.5        Letter Agreement with W3 Ventures, Ltd dated May 14, 2001.

10.6        Lender Creditor Agreement with Gordon Rock dated November 16, 2001.

21.1 **     Subsidiaries of the registrant.

--------
** Previously filed.


                                       40
<PAGE>

                                 BURST.COM, INC.
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                           December 31, 2001 and 2000

                  (With Independent Auditors' Reports Thereon)


                                       41
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Burst.com, Inc. and Subsidiaries
Santa Rosa, California

We have audited the accompanying  consolidated balance sheet of Burst.com,  Inc.
and  Subsidiaries  (the  "Company")  as of  December  31,  2001 and the  related
consolidated Statement of Operations, Changes in Shareholders' Deficit, and Cash
Flows for the year then ended. These consolidated  financial  statements are the
responsibility  of management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audit.

We have  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 the  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, 2001 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  regards  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 consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Burst.com,  Inc.  and  its  Subsidiaries  as  of  December  31,  2001,  and  the
consolidated  results of its Statements of Operations,  Changes in Stockholders'
Deficit,  and Cash Flows for the year then ended in conformity  with  accounting
principles generally accepted in the United States of America.



Berenfeld, Spritzer, Shechter & Sheer
Miami, FL
April 5, 2002

                     \BERENFELD, SPRITZER, SHECHTER & SHEER\


                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Burst.com, Inc. (formerly Instant Video Technologies, Inc.)

We have audited the accompanying  consolidated balance sheet of Burst.com,  Inc.
(formerly Instant Video Technologies,  Inc.) and subsidiaries as of December 31,
2000 and the related consolidated statements of operations, stockholders' equity
(deficit),  and cash  flows  for  each of the two  years  in the  period  ending
December  31,   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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material 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  audits  provide  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 Burst.com,  Inc. and
subsidiaries  as of December 31, 2000,  and the results of their  operations and
their  cash flows for each of the two years in the period  ending  December  31,
2000 in conformity with accounting  principles  generally accepted in the United
States of America.

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
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations and has a net capital deficit that raise substantial doubt about
its  ability to  continue as a going  concern.  Management's  plans in regard to
these  matters  are  also  described  in  Note  1.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


                                                   BDO SEIDMAN, LLP

San Francisco, California
April 9, 2001


                                      F-2
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000


<TABLE>
<CAPTION>
                                             ASSETS
                                                                                                     2001             2000
                                                                                                 ------------      ------------
CURRENT ASSETS:

<S>                                                                                              <C>               <C>
       Cash and cash equivalents                                                                 $      6,112      $    296,584
       Accounts receivable, net of allowance of $ 0 and $20,419                                        17,500           295,795
       Loans to officers                                                                                   --           139,633
       Prepaid expenses and other current assets                                                       12,258            42,084
                                                                                                 ------------      ------------

            Total Current Assets                                                                       35,870           774,096
                                                                                                 ------------      ------------

Property and Equipment,
       net of accumulated depreciation of $38,895 and $97,917 respectivley                            102,984           570,700

Other assets                                                                                            2,700           317,337
                                                                                                 ------------      ------------

TOTAL ASSETS                                                                                     $    141,554      $  1,662,133
                                                                                                 ============      ============

                           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:

       Accounts payable                                                                          $    692,423      $  1,550,573
       Accrued expenses                                                                               504,573           515,873
       Accrued interest                                                                                93,079             1,192
       Deferred revenue                                                                               322,400           287,225
       Notes and obligations payable, current portion                                               1,053,239           500,000
                                                                                                 ------------      ------------

            Total Current Liabilities                                                               2,665,714         2,854,863
                                                                                                 ------------      ------------

LONG TERM LIABILITIES                                                                                 274,970                --
                                                                                                 ------------      ------------


STOCKHOLDERS' DEFICIT:

       Convertible preferred stock, $.00001 par value, 20,000,000 shares
         authorized; none issued and outstanding                                                           --                --
       Common stock, $.00001 par value; 100,000,000 shares authorized;
            18,734,958 and 20,148,125 shares issued and outstanding
              during 2001 and 2000 respectively                                                           187               201
       Additional paid-in-capital                                                                  57,823,883        55,852,947
       Accumulated Deficit                                                                        (60,623,200)      (57,045,878)
                                                                                                 ------------      ------------

            Total Stockholders' Deficiency                                                         (2,799,130)       (1,192,730)
                                                                                                 ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY                                                   $    141,554      $  1,662,133
                                                                                                 ============      ============
</TABLE>

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


                                      F-3
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                2001                 2000                  1999
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>
REVENUE                                                                      $    138,019         $    499,376         $         --

COST OF REVENUE                                                                        --               30,764                   --
                                                                             ------------         ------------         ------------

GROSS PROFIT                                                                      138,019              468,612                   --
                                                                             ------------         ------------         ------------

COSTS AND EXPENSES:

      Research and development                                                    188,223            4,300,328            4,076,732
      Sales and marketing                                                         120,710            8,175,525            4,185,517
      Losses on abandonment, disposition and write-downs
        of property and equipment                                                 384,959            1,312,931                   --
      General and administrative                                                3,150,766            6,236,528            3,247,370
                                                                             ------------         ------------         ------------

           Total Costs and Expenses                                             3,844,658           20,025,312           11,509,619
                                                                             ------------         ------------         ------------

LOSS FROM OPERATIONS                                                           (3,706,639)         (19,556,700)         (11,509,619)
                                                                             ------------         ------------         ------------

OTHER INCOME (EXPENSES)

      Loss on sale of marketable securities                                      (324,430)                  --                   --
      Gains on sale of assets                                                     269,733                   --                   --
      Interest income                                                               7,951               40,899                   --
      Interest expense                                                           (467,935)             (94,183)          (1,468,110)
                                                                             ------------         ------------         ------------

           Total Other Income (Expenses)                                         (514,681)             (53,284)          (1,468,110)

INCOME TAX BENEFIT                                                                244,719                   --                   --

NET LOSS BEFORE EXTRAORDINARY ITEM                                             (3,976,601)         (19,609,984)         (12,977,729)

EXTRAORDINARY GAIN,
      NET OF INCOME TAX EXPENSE OF $244,719                                       399,279                   --                   --
                                                                             ------------         ------------         ------------

NET LOSS                                                                     $ (3,577,322)        $(19,609,984)        $(12,977,729)
                                                                             ============         ============         ============
NET LOSS PER SHARE, BASIC AND DILUTED,
      BEFORE EXTRAORDINARY ITEM                                              $      (0.19)        $      (0.98)        $      (1.42)
                                                                             ============         ============         ============
NET LOSS PER SHARE, BASIC AND DILUTED                                        $      (0.17)        $      (0.98)        $      (1.42)
                                                                             ============         ============         ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                           21,460,318           20,058,693            9,121,947
                                                                             ============         ============         ============
</TABLE>

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


                                      F-4
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                               COMMON STOCK
                                                      ------------------------------            PREFERRED STOCK
                                                         SHARES            AMOUNT            SHARES            AMOUNT
                                                      ------------      ------------      ------------      ------------
<S>                                                     <C>             <C>                  <C>            <C>
Balance, December 31, 1998                               7,940,966      $         79         4,501,609      $         45

  Year ended December 31, 1999:
    Exercise of stock options                              111,800                 1                --                --
    Exercise of warrants                                 1,277,262                13                --                --
    Value assigned to warrants and beneficial
       conversion feautre upon issuance of debt                 --                --                --                --
    Stock issued for services performed                        499                --                --                --
    Options issued for services performed                       --                --                --           268,475
    Conversion of Series A preferred stock
       to common                                             5,000                --            (5,000)               --
    Purchased research and development costs               200,000                 2                --                --
    Net loss                                                    --                --                --                --
                                                      ------------      ------------      ------------      ------------

Balance, December 31, 1999                               9,535,527                95         4,496,609                45

  Year ended December 31, 2000:
    Common stock offering, net of costs                  3,474,625                35                --                --
    Compensation related to options                             --                --                --                --
    Compensation related to sale of common
       stock to employees                                       --                --                --                --
    Conversion of debt to common stock,
      net of costs                                       1,333,750                13                --                --
    Conversion of preferred stock to common
      stock, net of costs                                4,496,609                45        (4,496,609)              (45)
    Exercise of warrants                                    50,000                 1                --                --
    Stock options issued for services performed                 --                --                --                --
    Common stock offering, net of costs                    857,633                 9                --                --
    Exercise of stock options                              273,355                 2                --                --
    Penalty shares issued                                  126,626                 1                --                --
    Net loss                                                    --                --                --                --
                                                      ------------      ------------      ------------      ------------

Balance, December 31, 2000                              20,148,125               201                --                --

  Year ended December 31, 2001:
    Stock issued in exchange for marketable securities   1,500,000                15                --                --
    Negotiated settlement to prior offering costs               --                --                --                --
    Warrants and options issued with debt
    Revaluation of stock options
    Shares returned                                     (2,913,167)              (29)
    Net loss                                                    --                --                --                --
                                                      ------------      ------------      ------------      ------------

Balance, December 31, 2001                              18,734,958               187                --                --
                                                      ============      ============      ============      ============

<CAPTION>
                                                       ADDITIONAL
                                                        PAID-IN
                                                        CAPITAL           DEFICIT            TOTAL
                                                      ------------      ------------      ------------
<S>                                                   <C>               <C>               <C>
Balance, December 31, 1998                            $ 27,251,399      $(24,458,165)     $  2,793,358

  Year ended December 31, 1999:
    Exercise of stock options                              112,549                --           112,550
    Exercise of warrants                                 1,537,487                --         1,537,500
    Value assigned to warrants and beneficial
       conversion feautre upon issuance of debt          1,467,146                --         1,467,146
    Stock issued for services performed                      4,054                --             4,054
    Options issued for services performed                       --           268,475
    Conversion of Series A preferred stock
       to common                                                --                --                --
    Purchased research and development costs             1,329,998         1,330,000
    Net loss                                                    --       (12,977,729)      (12,977,729)
                                                      ------------      ------------      ------------

Balance, December 31, 1999                              31,971,108       (37,435,894)       (5,464,646)

  Year ended December 31, 2000:
    Common stock offering, net of costs                 13,486,460                          13,486,495
    Compensation related to options                        332,563                             332,563
    Compensation related to sale of common
       stock to employees                                   77,726                              77,726
    Conversion of debt to common stock,
      net of costs                                       5,106,684                           5,106,697
    Conversion of preferred stock to common
      stock, net of costs                                 (533,200)                           (533,200)
    Exercise of warrants                                    49,999                              50,000
    Stock options issued for services performed            235,905                             235,905
    Common stock offering, net of costs                  4,539,777                           4,539,786
    Exercise of stock options                              393,591                             393,593
    Penalty shares issued                                  192,334                             192,335
    Net loss                                                    --       (19,609,984)      (19,609,984)
                                                      ------------      ------------      ------------

Balance, December 31, 2000                              55,852,947       (57,045,878)       (1,192,730)

  Year ended December 31, 2001:
    Stock issued in exchange for marketable securities     843,735                             843,750
    Negotiated settlement to prior offering costs          629,665                             629,665
    Warrants and options issued with debt                  649,960                             649,960
    Revaluation of stock options                          (152,453)                           (152,453)
    Shares returned                                             29                                  --
    Net loss                                                    --        (3,577,322)       (3,577,322)
                                                      ------------      ------------      ------------

Balance, December 31, 2001                              57,823,883       (60,623,200)       (2,799,130)
                                                      ============      ============      ============
</TABLE>

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


                                      F-5
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                      2001              2000              1999
                                                                                   ------------      ------------      ------------
<S>                                                                                <C>               <C>               <C>
Cash flows from operating activities:

      Net loss                                                                     $ (3,577,322)     $(19,609,984)     $(12,977,729)

       Adjustments to reconcile net loss
             to net cash used by operation activities:
             Depreciation and amortization                                               82,757           592,494           209,198
             Loss on asset impairments                                                  384,959         1,312,931                --
             Non-cash interest expense                                                  369,434                --         1,396,993
             Settlement of receivable                                                   139,633                --                --
             Loss on sale of marketable securities                                      324,430                --                --
             Gain on sale of assets                                                    (269,733)               --                --
             Revaluation of stock options                                              (152,453)               --                --
             Stock options issued for services                                               --           235,905           272,529
             Compensation from stock and option awards to employees                          --           410,289                --
             Purchased research and development                                              --                --         1,330,000
             Conversion of legal fees to note payable                                        --                --            25,000
             Issuance of penalty shares                                                      --           192,335                --
       Change in operating assets and liabilities:
             Accounts receivable                                                         (8,930)         (295,795)               --
             Prepaid and other current assets                                            29,826          (117,824)          (57,485)
             Other assets                                                               314,637          (280,880)               --
             Accounts payable                                                          (649,415)          166,284         1,132,245
             Accrued expenses                                                           618,365           307,499            26,890
             Accrued interest                                                            91,887          (113,085)          114,277
             Deferred revenue                                                                --           235,625            51,600
                                                                                   ------------      ------------      ------------

             Net Cash Used by Operating Activities                                   (2,301,925)      (16,964,206)       (8,476,482)
                                                                                   ------------      ------------      ------------
Cash flows from investing activities:

             Purchase of property and equipment                                              --        (1,772,133)         (749,994)
             Sales of property and equipment                                            269,733            21,420                --
             Proceeds from sale of marketable securities                                841,720                --                --
                                                                                   ------------      ------------      ------------

             Net Cash Used by Investing Activities                                    1,111,453        (1,750,713)         (749,994)
                                                                                   ------------      ------------      ------------
Cash flows from financing activities:

             Payment of receivables from Series B convertible stock offering                 --                --           810,000
             Proceeds from sale of stock , net of costs                                      --        17,868,131                --
             Exercise of warrants and stock options                                          --           443,593         1,650,050
             Payment of costs in connection with conversion of preferred
             stock to common                                                                 --          (533,200)               --
             Proceeds from debt financing                                             1,000,000           930,000         4,880,000
             Repayment of debt                                                         (100,000)               --           (22,736)
                                                                                   ------------      ------------      ------------
                                                                                   ------------      ------------      ------------
             Net Cash Provided by Financing Activities                                  900,000        18,708,524         7,317,314
                                                                                   ------------      ------------      ------------
Decrease in cash and cash equivalents                                                  (290,472)           (6,395)       (1,909,162)
Cash and cash equivalents, beginning of year                                            296,584           302,979         2,212,141
                                                                                   ------------      ------------      ------------
Cash and cash equivalents, end of year                                             $      6,112      $    296,584      $    302,979
                                                                                   ============      ============      ============
</TABLE>

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


                                      F-6
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                         2001              2000              1999
                                                                                      ----------        ----------        ----------
<S>                                                                                   <C>               <C>               <C>
Supplemental disclosure of cash flow information:

      Cash paid for state franchise tax                                               $      800        $      800        $      800

      Cash paid for interest                                                          $    6,613        $       --        $    7,374

Supplemental schedule of non-cash investing and financing activities:

      Offset of deferred revenue against accounts receivable                          $  287,225        $       --        $       --

      Exchange of common stock for licensing agreement - credited to
           deferred revenue                                                           $  322,400        $       --        $       --

      Exchange of common stock for marketable securities                              $  843,750        $       --        $       --

      Notes issued in debt settlements - offset by accounts payable
           and accrued expenses                                                       $  208,735        $       --        $       --

      Settlement of prior offering costs included in accrued expenses -
           credited to additional paid-in-capital                                     $  629,665

      Debt converted into 1,333,750 shares of common stock                            $       --        $5,335,000        $       --

      In 1999, six notes payable issued in exchange for $335,000
           were issued with front end warrants resulting in a discount to notes
           payable of $70,153

      In 1999, 5,000 shares of Series A Preferred Stock were
           converted to 5,000 shares of common stock.
</TABLE>


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


                                      F-7
<PAGE>

                        BURST.COM, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION AND CAPITALIZATION

         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, 2001.

         BUSINESS

         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.

         PRINCIPLES OF CONSOLIDATION

         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.

         USE OF ESTIMATES

         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

         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.


                                      F-8
<PAGE>

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,  2001,  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,  2000, and 1999, the Company
         recognized approximately $385,000, $1,312,932, and $0, respectively, of
         impairment in leasehold  improvements,  computers and equipment assets.
         See Note 4.

         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

         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.


                                      F-9
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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.

         NET LOSS PER COMMON SHARE AND DILUTIVE SECURITIES

         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.

                                                 Year Ended December 31,
                                        ----------------------------------------
                                           2001           2000          1999
                                        ----------------------------------------

         Convertible Preferred Stock     4,496,609             --             --
         Options                         7,697,880      8,716,659      6,925,863

         Warrants                       12,827,291      6,435,396        905,384
                                        ----------     ----------     ----------

            Total                       20,525,171     15,152,055     12,327,856
                                        ==========     ==========     ==========

         INCOME TAXES

         The Company  accounts for income taxes using SFAS No. 109,  "Accounting
         for  Income  Taxes,"  which   requires   recognition  of  deferred  tax
         liabilities and assets for expected  future tax  consequences of events
         that have been  included in the  financial  statements  or tax returns.
         Under this method,  deferred tax  liabilities and assets are determined
         based on the difference  between the financial  statement and tax bases
         of assets and  liabilities  using  enacted  tax rates in effect for the
         year in which the  differences  are  expected to  reverse.  A valuation
         allowance is recorded for deferred tax assets if it is more likely than
         not that some  portion or all of the  deferred  tax assets  will not be
         realized.

         ADVERTISING COSTS

         Advertising  costs are  expensed  as  incurred.  The  Company  incurred
         $86,619 of  advertising  in 2001,  $1,489,842 in 2000,  and $587,000 in
         1999.


                                      F-10
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         RESEARCH AND DEVELOPMENT

         Research and  development  costs are charged to  operations as incurred
         until such time as both  technological  feasibility is established  and
         future economic  benefit is assured.  To date, such conditions have not
         been  satisfied,   and,  accordingly,   all  software  engineering  and
         development  costs  have  been  expensed  as  incurred.  See Note 8 for
         certain in-process research and development purchased in 1999.

         STOCK-BASED COMPENSATION

         The Company has elected to follow  Accounting  Principles Board Opinion
         No.  25,  "Accounting  for  Stock  Issued  to  Employees"  and  related
         interpretations,  in accounting  for its employee  stock options rather
         than the  alternative  fair value  accounting  followed by SFAS No. 123
         "Accounting for Stock-Based Compensation." APB No. 25 provides that the
         compensation  expense relative to the Company's  employee stock options
         is measured based on the intrinsic value of the stock option.  SFAS No.
         123 requires  companies that continue to follow APB No. 25 to provide a
         pro-forma disclosure of the impact of applying the fair value method of
         SFAS No. 123.

         Equity  instruments  issued to non-employees  are accounted for at fair
         value.  The fair value of the equity  instrument  is  determined  using
         either  the fair  value of the  underlying  stock or the  Black-Scholes
         option pricing model.

         RECLASSIFICATIONS

         Certain  items  have been  reclassified  to  conform  to  current  year
         presentation.

         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
         SFAS No.  133,  "Accounting  for  Derivative  Instruments  and  Hedging
         Activities."   SFAS  No.  133  requires   companies  to  recognize  all
         derivative  contracts as either  assets or  liabilities  in the balance
         sheet and to measure them at fair value. If certain conditions are met,
         a derivative may be specifically  designated as a hedge,  the objective
         of which is to match the timing of the gain or loss  recognition on the
         hedging  derivative with the recognition of (i) the changes in the fair
         value of the hedge  asset or  liability  that are  attributable  to the
         hedge  risk  or  (ii)  the  earnings  effect  of the  hedge  forecasted
         transaction.  For a derivative not designated as a hedging  instrument,
         the gain or loss is  recognized  in income in the period of change.  On
         June 30, 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
         Instruments and Hedging  Activities - Deferral of the Effective Date of
         FASB  Statement  No.  133".  SFAS No. 133 as amended by SFAS No. 137 is
         effective for all fiscal years  beginning  after June 15, 2000. In June
         2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivatives
         Instruments and Certain Hedging Activities". SFAS No. 133 as amended by
         SFAS No. 137 and 138 is  effective  for all fiscal  quarters  of fiscal
         years beginning after June 15, 2000.

         The  Company  has not  entered  into  derivatives  contracts  to  hedge
         existing risks or for speculative purposes.  Accordingly, SFAS 133, 137
         and 138 do not affect the Company's financial statements.

         On December 3, 1999 the  Securities  and  Exchange  Commission  ("SEC")
         staff  issued  Staff  Accounting  Bulletin  No. 101 (SAB 101)  "Revenue
         Recognition   in  Financial   Statements"   which  reflects  the  basic
         principles  of  revenue  recognition  in  existing  generally  accepted
         accounting principles.  SAB 101 does not affect the Company's financial
         statements.

         In  March  2000,  the  FASB  issued  Interpretation  No.  44 (FIN  44),
         "Accounting for Certain Transactions Involving Stock Compensation",  an
         interpretation  of APB No. 25. FIN No. 44 clarifies the  application of
         APB No.  25 for (a) the  definition  of an  employee  for  purposes  of
         applying APB No. 25, (b) the criteria for


                                      F-11
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

         determining  whether a plan qualifies as a  non-compensatory  plan, (c)
         the accounting  consequences of various modifications to the terms of a
         previously  fixed stock option or award,  and (d) the accounting for an
         exchange of stock compensation  awards in a business  combination.  FIN
         No. 44 became  effective in July 2000,  but certain  conclusions  cover
         specific  events that occur after either  December 15, 1998, or January
         12,  2000.  FIN 44 did not  have a  material  impact  on the  Company's
         financial position, results of operations, or cash flows.

         In  June  2001,   the  FASB   issued   Statement   No.  141   "Business
         Combinations".  This  statement  replaces  Accounting  Principle  Board
         ("APB")  Opinion  No.  16,  "Business   Combinations",   and  SFAS  38,
         "Accounting for Preacquisition Contingencies of Purchased Enterprises".
         All  business  combinations  in the scope of this  statement  are to be
         accounted for using the purchase  method.  The single  method  approach
         used in this  statement  reflects the  conclusion  that  virtually  all
         business   combinations  are  acquisitions   and,  thus,  all  business
         combinations  should be accounted  for in the same way that other asset
         acquisitions  are  accounted  -- based on the  values  exchanged.  This
         statement  does not  change  many of the  provisions  of Opinion 16 and
         Statement 38 related to the  application  of the purchase  method.  The
         provisions  of  this  statement  apply  to  all  business  combinations
         initiated after June 30, 2001, and all business combinations  accounted
         for by the purchase method for which the date of acquisition is July 1,
         2001,  or later.  FASB  Statement  141 docs not  affect  the  Company's
         financial statements.

         In June 2001,  the FASB issued  Statement  No. 142  "Goodwill and Other
         Intangible Assets".  This Statement addresses financial  accounting and
         reporting  for  acquired  goodwill  and  other  intangible  assets  and
         supersedes APB Opinion No. 17, Intangible  Assets. It provides guidance
         on how intangible assets that are acquired individually or with a group
         of other  assets  (but not those  acquired  in a business  combination)
         should be accounted for in financial statements upon their acquisition.
         This Statement also addresses how goodwill and other intangible  assets
         should be accounted  for after they have been  initially  recognized in
         the financial  statements.  FASB  Statement No. 142 does not affect the
         Company's financial statements.

         In July 2001, the FASB issued Statement No. 143,  "Accounting for Asset
         Retirement Obligations".  This statement addresses financial accounting
         and  reporting  for  obligations  associated  with  the  retirement  of
         tangible  long-lived  assets and the associated asset retirement costs.
         This statement requires that the fair value of a liability for an asset
         retirement  obligation  be  recognized  in the  period  in  which it is
         incurred  if a  reasonable  estimate  of fair  value  can be made.  The
         associated  asset  retirement  costs  are  capitalized  as  part of the
         carrying amount of the long-lived asset and  subsequently  allocated to
         expense  using a  systematic  and  rational  method.  Adoption  of this
         statement is required for fiscal years  beginning  after June 12, 2002.
         The adoption of Statement No. 143 is not expected to materially  affect
         the Company's financial statements.

         In October 2001, the FASB issued Statement No. 144, "Accounting for the
         Impairment or Disposal of Long-Live Assets".  This statement supersedes
         Statement No. 121 but retains many of its fundamental  provisions.  The
         statement  also  establishes a single  accounting  model,  based on the
         framework  established in Statement  121, for  long-lived  assets to be
         disposed of by sale.  Additionally,  the statement resolves significant
         implementation  issues  related to Statement No. 121. The provisions of
         this statement are effective for financial statements issued for fiscal
         years beginning after December 15, 2001. The provision of Statement No.
         144 is not  expected  to  materially  affect  the  Company's  financial
         statements.

NOTE 2 - GOING CONCERN CONSIDERATIONS

         The accompanying  consolidated financial statements have been presented
         in accordance  with  accounting  principles  generally  accepted in the
         United States of America, which assume the continuity of the Company to
         continue  as  a  going  concern.  However,  the  Company  has  incurred
         substantial  losses resulting in an accumulated  deficit of $60,623,600
         as of December 31,  2001.  The  Company's  current  liabilities  exceed
         current  assets by  $2,629,844 at December 31, 2001.  These  conditions
         raise  substantial doubt as the ability of the Company to continue as a
         going concern.

         Management's plans with regards to these issues are as follows:

         o    Expanding  revenues  by  focusing  on a small  number of  existing
              customers that management believes are growing and whose needs for
              Burstware are increasing.

         o    Expanding  revenues by finding a limited  number of new  customers
              that can  benefit by  utilizing  either  Burstware  in its current
              form, or by licensing a combination of the Company's  intellectual
              property and/or Burstware source-code.

         o    Raising new  investment  capital,  either in the form of equity or
              loans,  sufficient to meet the Company's  greatly  reduced monthly
              operating  expenses,  until the  revenues are  sufficient  to meet
              operating expenses on an ongoing basis.

         o    Management  is  in  the  process  of   renegotiating   outstanding
              short-term debt.

         Presently,  the  Company  cannot  ascertain  the  eventual  success  of
         management's  plans with any degree of certainty.  No assurances can be
         given that the Company will be successful in raising  immediate capital
         or that the Company will achieve  profitability or positive cash flows.
         If the Company is unable to obtain  adequate  additional  financing and
         bring the Company to profitability or positive cash flows, there can be
         no  assurance  that the Company can  continue as a going  concern.  The
         accompanying  consolidated  financial  statements  do not  include  any
         adjustments  that might result from the  eventual  outcome of the risks
         and uncertainty described above.


                                      F-12
<PAGE>

NOTE 3 - INVESTMENTS

         During the year ended December 31, 2001, the Company  acquired and sold
         or  exchanged  504,000  shares  of  available-for-sale  securities  for
         $841,720.  These  shares were  originally  valued upon  acquisition  at
         $1,166,150, resulting in realized losses of approximately $324,430.

         The Company had no remaining securities as of December 31, 2001.

NOTE 4 - PROPERTY AND EQUIPMENT

                                                    December 31,
                                              ------------------------
                                                2001           2000
                                              ---------      ---------

         Computer equipment                   $  61,879      $ 509,191

         Furniture                               15,000         94,426

         Office equipment                         5,000          5,000

         Software                                55,000         55,000

         Trade show booth                         5,000          5,000
                                              ---------      ---------

                                                141,879        668,617

         Less accumulated depreciation          (38,895)       (97,917)
                                              ---------      ---------

                                              $ 102,984      $ 570,700
                                              =========      =========

         During 2001 and the fourth quarter of 2000,  management determined that
         certain  computers and other  equipment  were not  recoverable at their
         current book value, and certain leasehold improvements and other assets
         had been  abandoned  when sales offices were closed.  Accordingly,  the
         Company recognized losses and write-downs of approximately $385,000 and
         $1,312,932   during  the  years  ended  December  31,  2001  and  2000,
         respectively.

         Depreciation  expense was $82,757,  $592,494 and $209,198 for the years
         ended December 31, 2001, 2000, and 1999, respectively.


                                      F-13
<PAGE>

NOTE 5 - ACCRUED LIABILITIES

                                                      December 31,
                                                -----------------------
                                                  2001           2000
                                                -----------------------

         Accrued severance costs                $274,100       $     --
         Accrued wages and vacation              180,223        350,723
         Stock to be issued                       31,796             --
         Professional services                        --        117,247
         Other                                    18,454         47,903
                                                --------       --------
                                                $504,573       $515,873
                                                ========       ========

         During 2001,  the Company  closed and abandoned its sales  offices.  It
         also  moved  out of its San  Francisco  headquarters  and  moved to new
         smaller facilities in Santa Rosa,

         California.  During the third  quarter of 2001,  the Company  commenced
         settlement negotiations to terminate the lease with the landlord of the
         former  San  Francisco  headquarters.  Based  upon the  results  of the
         in-process  negotiations,  the Company  reduced  its prior  estimate of
         leasehold  costs on  abandoned  leases by  approximately  $900,000,  to
         approximately  $330,000.  In December 2001, the Company reached a final
         settlement  whereas the Company  issued a note payable in the amount of
         $50,000  due in  2005,  and  agreed  to  issue  300,000  shares  of the
         Company's common stock valued at $12,000.

         Additionally,  by December 31, 2001, the Company had terminated all but
         two of its  remaining  employees and had reached  severance  agreements
         with  several  former key  officers  and  employees.  The Company  also
         entered  into  various  settlement  agreements  with  certain  vendors,
         resulting in the issuance of notes payable (See note 7).

NOTE 6 - DEFERRED REVENUE

         During 2001, the Company entered into a licensing  agreement with Eagle
         Wireless  International,  Inc. whereby Eagle Wireless issued 104,000 of
         its common stock valued at $322,400 in exchange for a two-year  license
         for certain  technological  rights.  The license agreement is effective
         the  earlier  of  January  2002  or the  commercial  deployment  of any
         products incorporating the technology licensed from Burst. Accordingly,
         the entire $322,400 has been deferred as of December 31, 2001.


                                      F-14
<PAGE>

NOTE 7 - NOTES AND OBLIGATIONS PAYABLE

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                 -------------------------
                                                                                   2001            2000
                                                                                 -------------------------
<S>                                                                              <C>            <C>
         6% convertible note payable to Mercer Management, Inc., interest
         and principal due December 28, 2001                                     $       --     $  500,000

         Notes payable to Gordon Rock (net of unamortized discount
         of $276,246)                                                               993,754             --

         Notes payable to investors, (net of unamortized discount of $4,280)        125,720             --

         Notes and obligations payable issued in connection with debt
          settlements                                                               208,735             --
                                                                                 ----------     ----------
                                                                                 $1,328,209     $  500,000
                                                                                 ==========     ==========
</TABLE>

         NOTES PAYABLE TO GORDON ROCK

         In February  and April 2001,  the Company  issued two notes  payable to
         Gordon  Rock  in the  aggregate  principal  amount  of  $350,000  at 9%
         collateralized by a security interest in the assets of the Company. Mr.
         Rock was a member of the Board of Directors at that time, but has since
         resigned his seat on the Board.  Mr. Rock is also one of the  Company's
         major stockholders and is deemed a related party.

         In August and  September  2001,  the  Company  issued a series of notes
         payable to Mr. Rock  totaling  an  additional  $305,000.  Each of these
         notes bears interest at 9% and is collateralized by a security interest
         in all assets of the Company.

         In  connection  with the April,  August and September  notes,  Mr. Rock
         received  five-year  warrants  to acquire  up to 183,333  shares of the
         Company's  common  stock  at an  exercise  price  of  $.30  per  share,
         1,000,000  shares at $.20 per share,  and 1,666,666  shares at $.15 per
         share.  Accordingly,  the Company  recorded a discount on the notes for
         the fair value of the warrants  issued using the  Black-Scholes  model.
         The resulting  discount of $368,333 is being amortized over the term of
         the notes.

         In October and December 2001, the Company issued three additional notes
         to Mr. Rock for loans  totaling  $115,000,  with interest  ranging from
         prime  (4.75%  at  December  31,  2001)  plus 2% to 9%.  The  notes are
         collateralized by a security interest in all assets of the Company.  In
         connection  with these  notes  payable,  Mr.  Rock was  issued  383,333
         warrants to acquire common stock at $.30 per share.

         Accordingly,  the Company recorded a discount on the notes for the fair
         value  of the  warrants  issued  using  the  Black-Scholes  model.  The
         discount of $23,900 is being amortized over the term of the notes.

         In December  2001,  all of Mr.  Rock's  notes,  originally  expiring in
         various amounts from November 2001 through February 2002, were extended
         as follows:  aggregate  principal  amount of  $1,210,000  plus  accrued
         interest due and payable in November 2002;  aggregate  principal amount
         of $30,000 plus accrued interest


                                      F-15
<PAGE>

NOTE 7 - NOTES AND OBLIGATIONS PAYABLE (Continued)

         NOTES ISSUED TO GORDON ROCK (Continued)

         due in  November  2004;  and the  remaining  $30,000 of  principal  and
         accrued   interest  due  in  December  2004.  In  connection  with  the
         extensions,  Mr. Rock  received  2,600,000  additional  warrants to buy
         shares of the  Company's  common stock at $.25 per share.  In addition,
         the convertibility  feature of the note payable to Mercer Management at
         December  31, 2000 was removed (see  below).  Accordingly,  the Company
         recorded  a discount  on the notes for the fair  value of the  warrants
         issued using the Black-Scholes model. The discount of $151,060 is being
         amortized over the term of the notes.

         During 2000, the Company issued a 6% convertible note payable to Mercer
         Management,  an affiliate of Mr. Rock. The note was convertible  into a
         new series of Preferred  Stock to be  identified  as Series A-2001 at a
         per share conversion price of Five Dollars ($5.00) at the option of the
         note holder. In conjunction with the issuance of the 2,600,000 warrants
         discussed  above, the  convertibility  feature of this note was removed
         and the interest rate was changed from 6% to 9%.

         NOTES ISSUED TO INVESTORS

         In March 2001,  the Company  issued a $100,000  note  payable to Robert
         Schacter, one of the Company's stockholders,  at 10%, collateralized by
         100,000 shares of Eagle Wireless  International,  Inc. common stock. In
         connection with the Schacter note issuance,  in March 2001, the Company
         repriced  98,870  existing $5.00 warrants and issued 50,000  additional
         warrants  to  purchase  a total of  148,870  shares of common  stock at
         $0.875.  The warrants were valued at $100,000,  resulting in a discount
         on the note for the fair  value of the  warrants  issued.  The loan was
         repaid in full in May 2001 and the remaining  unamortized  discount was
         expensed.

         During 2001, the Company issued 9% convertible notes payable to Draysec
         Finance  Limited,  one  of the  Company's  major  stockholders,  in the
         aggregate principal amount of $100,000, with interest and principal due
         in February and March 2002. The notes are convertible into a new series
         of preferred  stock to be  identified  as Series  A-2001 at a per share
         conversion price of $5.00 at the option of the noteholder.

         In addition  during 2001,  the Company  issued a promissory  note to an
         investor,   in  the   principal   amount  of   $30,000.   The  note  is
         collateralized by a security interest in all assets of the Company. The
         note is due in March  2004 and  bears  interest  at prime  plus 2%.  In
         connection  with the note, the Company  issued 100,000  warrants to the
         investor to acquire  common stock at $.30 per share.  Accordingly,  the
         Company  recorded  a  discount  on the note  for the fair  value of the
         warrants issued using the  Black-Scholes  model. The discount  totaling
         $4,280 is being amortized over the term of the note.

         During January 2000, the Company received  $430,000  evidenced by notes
         payable  convertible into common stock, due in one year. The conversion
         rate was the lower of: (1) $6.50,  (2) 80% of the average closing price
         of  the  Company's  publicly  traded  shares  in the  20  trading  days
         immediately  preceding the closing of a then ongoing private placement,
         or (3) the price agreed in that private  placement.  Upon completion of
         the private  placement  discussed in Note 8 below,  these and all other
         notes outstanding  totaling  $5,335,000,  were converted into 1,333,750
         shares of common stock as of January 31, 2000. The conversion price was
         $4.00 per share of common  stock plus one  warrant  per share of common
         stock  acquired by  conversion.  Each warrant has an exercise  price of
         $5.00 and expires five years from the date of issue.


                                      F-16
<PAGE>

         NOTES AND OBLIGATIONS ISSUED IN CONNECTION WITH DEBT SETTLEMENTS

         During 2001,  the Company  entered into various  settlement  agreements
         with  some  of its  vendors,  employees  and  landlord.  In  connection
         therewith,  the Company  renegotiated  its  liabilities and reduced its
         overall  obligations from  approximately  $2,718,600 to $208,735.  Some
         settlements  resulted in the recognition of extraordinary  income.  See
         Note 13. In addition,  the Company  issued  80,000  warrants to acquire
         common  stock at $0.30 per share and 50,000  options to acquire  common
         stock at $0.30 per share.  The  warrants  were valued at $2,520 and the
         options were valued at $2,140,  using the Black-Scholes  model. As part
         of these  settlements,  the Company is  obligated to issue an aggregate
         amount of 794,946 shares of its common stock. Accordingly,  the Company
         recorded a liability for stock to be issued in the amount of $31,796.

         Maturities of long-term debt at December 31, 2001 are as follows:

                          2002                               $ 1,053,239
                          2003                                        --
                          2004                                   132,645
                          2005                                   142,325
                                                             -----------
                          Total                                1,328,209
                          Less: current Portion               (1,053,239)
                                                             -----------
                                                             $   274,970
                                                             ===========

NOTE 8 - EQUITY

         SHARE EXCHANGE AGREEMENT

         During 2001, the Company exchanged 1,500,000 shares of its common stock
         for 400,000 shares of Eagle Wireless International,  Inc. common stock.
         This  transaction  was valued at $843,735,  the estimated fair value of
         the Company's common stock at the date of the transaction.

         SALES OF COMMON STOCK

         During January 2000, the Company issued a total of 3,474,625  shares of
         its common  stock and  warrants  to  purchase  3,474,625  shares of its
         common stock for total  proceeds of $13,898,500  in  transactions  with
         various  investors,  including  some  directors  and  employees  of the
         Company.  The price per share of common stock was $4.00, which included
         the  issuance of one  warrant  for each share of stock sold.  The gross
         proceeds were reduced by approximately $1,303,000 in transaction costs.
         Each  warrant  was  exercisable  for one  share of  common  stock at an
         exercise  price of $5.00 per share and expires 5 years from the date of
         issue.  Those warrants contained  anti-dilution  provisions that adjust
         the exercise price and the number of shares exercisable  there-under if
         shares of the  Company's  common stock were issued or deemed  issued at
         prices below these  warrant  exercise  price.  The issuance of warrants
         during  the year ended  December  31,  2001,  as  described  in Note 7,
         resulted in a decrease in the exercise price of these warrants to $4.30
         per share and an increase of 831,262 warrant shares.

         In  connection  with this  offering,  the Company  also  issued  98,870
         five-year  warrants to purchase  common stock at $8.4375 per share were
         issued to the  placement  agent.  Compensation  expense of $77,726  was
         recorded as a result of sales of stock to  employees  for the excess of
         fair value over the price paid.

         During August 2000, the Company issued a total of 857,633 shares of its
         common  stock and  warrants  to purchase  857,633  shares of its common
         stock for total proceeds of $5,000,000 to SBC Venture Capital Corp. The
         price per share of common stock was $5.83 per share, which included the
         issuance  of one  warrant  for  each  share of stock  sold.  The  gross
         proceeds were reduced by approximately $460,214 in


                                      F-17
<PAGE>

NOTE 8 - EQUITY (Continued)

         SALES OF COMMON STOCK (Continued)

         transaction  costs. Each warrant is exercisable for one share of common
         stock at an exercise  price of $5.83 per share and expires 3 years from
         the date of issue.  Those warrants contained  anti-dilution  provisions
         that  adjust the  exercise  price and the number of shares  exercisable
         there-under  if shares of the  Company's  common  stock were  issued or
         deemed  issued  at prices  below  these  warrant  exercise  price.  The
         issuance of warrants in the year ended  December 31, 2001, as described
         in Note 7,  resulted  in a  decrease  in the  exercise  price  of these
         warrants to $5.01 per share and an increase of 148,340 warrant shares.

         SHARES ISSUED IN DEBT SETTLEMENTS

         In connection  with the January 2000 sale of common stock,  the Company
         converted approximately $5,335,000 of notes payable to 1,333,750 shares
         of its common  stock and issued  warrants to purchase  1,333,750 of its
         common stock to the former debt holders.

         LIABILITY FOR STOCK TO BE ISSUED

         In connection with several settlement agreements,  to Company agreed to
         issue 794,946 shares of its common stock valued at $31,796. See Note 7.

         STOCK ISSUED FOR SERVICES

         During  1999,  the  Company  issued  499  shares of  common  stock to a
         contractor in lieu of cash for services performed. An expense of $4,054
         was recorded as sales and marketing expense, based on the fair value of
         the shares issued.

         PURCHASE OF INTELLECTUAL PROPERTY THROUGH ISSUANCE OF COMMON STOCK

         During 1999, the Company acquired certain  intellectual  property owned
         by  Timeshift-TV,  Inc. for 200,000 shares of common stock. The Company
         recorded   $1,330,000  of  expense  for  the  in-process  research  and
         development  costs  purchased  in  connection  with  this  acquisition.
         Timeshift-TV,  Inc., an inactive corporation that owned patented rights
         sought  by the  Company,  was  owned  at the  time of  purchase  by the
         Company's president and two of the Company's management employees.

         EXERCISE OF STOCK OPTIONS AND WARRANTS

         During 2000,  options  were  exercised  to purchase  283,289  shares of
         common  stock at a  weighted  average  price of  $1.91.  Warrants  were
         exercised to purchase 50,000 shares of common stock at $1.00 per share.

         SHARES RETURNED

         In December 2001, a significant  shareholder  returned 2,913,167 shares
         of common stock to the Company for personal tax purposes.

         SETTLEMENT OF PRIOR OFFERING COSTS

         During the year ended  December  31,  2000,  the  Company  had  accrued
         approximately  $630,000  of  costs in  connection  with  various  stock
         offerings.  During  2000,  disputes  arose  between the Company and the
         investment  banking firm over the meaning and the interpretation of the
         respective parties' obligations.


                                      F-18
<PAGE>

NOTE 8 - EQUITY (Continued)

         During the year ended  December  31, 2001,  the Company  entered into a
         settlement  agreement  with the  investment  banking  firm whereby both
         parties dismissed each other of any further  obligations.  As a result,
         the  Company  adjusted  additional   paid-in-capital  and  the  related
         liability, to reverse previously recorded stock issuance costs.

NOTE 9 - STOCK OPTIONS

         On November 6, 1992 and April 29, 1998, the Board of Directors  adopted
         the  1992  Stock   Incentive  Plan  and  1998  Stock   Inventive  Plan,
         respectively. Under the plans, the Board may grant options to officers,
         key employees,  directors and consultants.  Incentive stock options may
         be granted at not less than 100% of the fair market  value of the stock
         on the date the  option  is  granted.  The  option  price of stock  not
         intended to qualify as incentive stock options may not be less than 85%
         of the fair market value on the date of grant.  The maximum term of the
         options  cannot  exceed ten years.  A total of 3,500,000  and 4,000,000
         shares have been reserved for issuance  under the plans,  respectively.
         Certain options are still  outstanding  from prior to the 1992 and 1998
         plans that carried similar terms.

         On August  23,  1999,  the Board of  Directors  adopted  the 1999 Stock
         Incentive  Plan.  Under the  plan,  the  Board  may  grant  options  to
         officers,  key employees,  directors and  consultants.  Incentive stock
         options may be granted at not less than 100% of the fair  market  value
         of the stock on the date the option is  granted.  The  option  price of
         stock not  intended to qualify as  incentive  stock  options may not be
         less  than 85% of the fair  market  value  on the  date of  grant.  The
         maximum  term of the  options  cannot  exceed  ten  years.  A total  of
         3,000,000 shares have been reserved for issuance under the plan.

         During  1999,  the  Company  issued  stock  options in lieu of cash for
         services  performed,  covering  120,621 shares of the Company's  common
         stock at  exercise  prices  ranging  from  $2.19 to  $9.72  per  share,
         expiring between February 2000 and December 2004. $105,805 was recorded
         as a general and  administrative  expense,  $160,588  was recorded as a
         sales and marketing expense,  and $2,082 was recorded as a research and
         development  expense  based on the  fair  value  of the  stock  options
         issued.

         During 2000, the Company  repriced all options held by the 20 remaining
         employees and Board members. The revised exercise price was $0.2812 per
         share.

         During  2000,  the  Company  issued  stock  options in lieu of cash for
         services  performed,  covering 8,621,242 shares of the Company's common
         stock at  exercise  prices  ranging  from  $.2812 to $4.50  per  share,
         expiring by December 2005. $332,563 was

         recorded as a general  and  administrative  expenses  based on the fair
         value of the stock options issued.

         During 2001, the Company granted options to purchase  150,000 shares of
         common  stock  exercisable  at  $0.2812  per  share  to an  independent
         contractor.  In addition,  during  2001,  existing  options  granted to
         employees  under variable plan  accounting  and unvested  options being
         earned by contractors  were  revalued,  resulting in a net reduction in
         stock-based  compensation  of  $280,400.  Furthermore,  as a result  of
         severance agreements with certain senior officials,  the lives of their
         options  were  extended  to one  year  after  termination  or the  full
         contractual  life  instead of  expiring  within a shorter  time.  These
         extensions   resulted   in  a   stock-based   compensation   charge  of
         approximately  $127,947.  These  two  adjustments  resulted  in  a  net
         reduction in stock-based compensation of approximately $152,453.


                                      F-19
<PAGE>

NOTE 9 - STOCK OPTIONS (Continued)

         During 2001, the Company granted options to purchase  250,000 shares of
         common stock at an exercise price of $0.18 to Silicon Prairie Partners,
         LP, an affiliate of John Micek III, a member of the Board of Directors.
         The Company also granted options to purchase  100,000 options of common
         stock to an employee at an exercise price of $0.1875 per share.

         The Company also granted a former  employee  options to purchase 50,000
         shares  of  common  stock at an  exercise  price of $0.30  per share in
         connection with a settlement agreement. See note 7.

         The Company applies APB opinion No. 25, "Accounting for Stock Issued to
         Employees" and related interpretations in accounting for options issued
         to  employees.  Compensation  cost for stock options is measured at the
         intrinsic  value,  which  is the  excess  of the  market  price  of the
         Company's  common  stock  at the  date of grant  over  the  amount  the
         recipient must pay to acquire the common stock.

         Statement  of  Financial  Accounting  Standards  No.  123  (SFAS  123),
         "Accounting  for  Stock-Based  Compensation",  requires  the Company to
         provide pro forma information  regarding net income (loss) and earnings
         (loss) per share as if compensation cost for employee stock options has
         been  determined  in  accordance  with  the  fair  value  based  method
         prescribed by SFAS 123.

         The per share  weighted  average  fair value of stock  options  granted
         during 2001, 2000 and 1999 was $0.21,  $1.43, and $5.23,  respectively,
         on the date of grant  using the  Black-Scholes  pricing  model with the
         following weighted average  assumptions:  volatility of 217%, 251%, and
         117%,  respectively;  expected dividend yield of 0% for all years; risk
         free interest rate of approximately 4%, 6%, and 6%,  respectively;  and
         an expected life of 2.5 years for 2001, 2000 and 1999.

         The option valuation model was developed for use in estimating the fair
         value of traded  options,  which have no vesting  restrictions  and are
         fully  transferable.  In addition,  valuation  models  require input of
         highly subjective assumptions, including the expected price volatility.
         Since the Company's  stock options have  characteristics  significantly
         different  from those of traded  options,  and since  variations in the
         subjective  input  assumptions  can  materially  affect  the fair value
         estimate,  the actual  results can vary  significantly  from  estimated
         results.

         Under the accounting  provision of SFAS 123, the Company's net loss and
         loss per share  would  have  been  increased  to the pro forma  amounts
         indicated below:

<TABLE>
<CAPTION>
                                              2001                     2000                    1999
                                              ----                     ----                    ----
<S>                                        <C>                     <C>                      <C>
      Net loss:
        As reported                        $(3,577,322)            $(19,609,984)            $(12,977,729)
                                           ===========             ============             ============
        Pro forma                          $(3,665,937)            $(23,422,527)            $(17,356,482)
                                           ===========             ============             ============

      Net loss per share:
        As reported                        $  (0.17)                  $ (0.98)                 $ (1.42)
                                           ========                   =======                  =======
        Pro forma                          $  (0.17)                  $ (1.17)                 $ (1.90)
                                           ========                   =======                  =======
</TABLE>


                                      F-20
<PAGE>

NOTE 9 - STOCK OPTIONS (Continued)

         Stock options activity for 1999, 2000 and 2001 is as follows:

<TABLE>
<CAPTION>
                                               Number of Shares      Weighted Average Exercise Price
                                               ----------------      -------------------------------
<S>                                              <C>                    <C>
      Balance on December 31, 1998                6,289,263             $ 2.52
                                                 ----------             ------

      Options granted                             1,302,000               6.65
      Options exercised                            (111,800)              1.01
      Options expired                              (200,000)              1.00
      Options forfeited                            (353,600)              2.78
                                                 ----------             ------

      Balance on December 31, 1999                6,925,863               3.36
                                                 ----------             ------

      Options granted                             8,664,742               1.33
      Options exercised                            (273,355)              1.91
      Options expired                               (94,225)              1.86
      Options forfeited                          (6,506,366)              4.09
                                                 ----------             ------

      Balance on December 31, 2000                8,716,659               1.04
                                                 ----------             ------

      Options granted                               550,000               0.22
      Options exercised                                   0                  0
      Options expired                               (30,500)              6.96
      Options forfeited                          (1,538,279)              2.43
                                                 ----------             ------

      Balance on December 31, 2001                7,697,880             $ 0.84
                                                 ==========             ======
</TABLE>

         Stock options  outstanding  and exercisable at December 31, 2001 are as
         follows:

<TABLE>
<CAPTION>
                                                  Options Outstanding                         Options Exercisable
                                                  -------------------                         -------------------

                                         Weighted Average     Weighted Average                            Weighted Average
                    Shares Outstanding   Exercise Price       Remaining Life       Shares Outstanding     Exercise Price
                    ------------------   --------------       --------------       ------------------     --------------
<S>                 <C>                    <C>                   <C>               <C>                      <C>
    $0.18-$0.28     5,442,543              $0.28                 2.25              5,351,837                $0.28
    $0.50-$1.00     1,300,000              $0.98                 3.43              1,290,000                $0.99
    $1.37-$3.00       495,087              $2.00                 2.93                495,087                $2.00
    $3.13-$5.00       279,250              $3.95                 3.89                276,125                $3.94
    $5.75-$9.72       181,000              $8.69                 3.10                156,000                $7.11
                    ---------              -----                 ----              ---------                -----
                    7,697,880              $0.84                 2.57              7,569,049                $0.79
                    =========              =====                 ====              =========                =====
</TABLE>


                                      F-21
<PAGE>

NOTE 10 - LEASE COMMITMENTS

         The Company  leases its office space under a one year  operating  lease
         which provides for one-year extensions. The lease was extended to April
         30, 2003.

         Rent expense for the years ended  December 31, 2001,  2000 and 1999 was
         $404,283, $299,077 and $104,969, respectively.

         Future minimum lease payments at December 31, 2001 are as follows:

               Year ended December 31,
                 2002                                     $ 11,340
                 2003                                        3,780
                                                          --------
               Total                                      $ 15,120
                                                          ========

NOTE 11 - INCOME TAXES

         At December 31, 2001, the Company had net operating loss carry-forwards
         for federal  income tax purposes of  approximately  $43,832,  which are
         subject  to annual  limitations,  and are  available  to offset  future
         taxable   income,   if  any,   through  2021  and  net  operating  loss
         carry-forwards   for  state  income  tax   purposes  of   approximately
         $20,300,000,  which are available to offset future state taxable income
         through 2011.

         The  temporary  differences  that give rise to deferred  tax assets and
         liabilities at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                     2001                      2000
                                                                     ----                      ----
<S>                                                               <C>                     <C>
               Deferred tax assets:
                Net operating losses                              $ 16,656,000            $ 15,599,800
                Depreciation, amortization and basis                         0                 107,400
                 differences
                Compensation accruals                                  178,600                 759,400
                Research and experimentation credit                    421,900                 421,900
                State income tax effect on federal                    (661,200)               (647,500)
                Other                                                        0                  61,100
                                                                  ------------            ------------

          Total deferred tax assets                                 16,595,300              16,302,100

      Less valuation allowance                                     (16,595,300)            (16,302,100)
                                                                  ------------            ------------

          Net deferred tax assets                                 $         --            $         --
                                                                  ============            ============
</TABLE>

       The net change in the valuation  allowance  for the years ended  December
       31,  2001  and  2000 was an  increase  of  $293,200  and an  increase  of
       $6,876,300,  respectively. In assessing the amount of deferred tax assets
       to be recognized, management considers whether it is more likely than not
       that some portion or all of the deferred tax assets will not be realized.
       It is not possible at this time to determine that the deferred tax assets
       are more likely to be realized than not.  Accordingly,  a full  valuation
       allowance has been established for all periods presented.


                                      F-22
<PAGE>

NOTE 11 -INCOME TAXES (Continued)

       The  Tax  Reform  Act of 1986  imposed  substantial  restrictions  on the
       utilization  of net  operating  losses and tax credits in the event of an
       "ownership  change", as defined by the Internal Revenue Code. All federal
       and state net operating loss  carryforwards are subject to limitations as
       a result of these restrictions. If there should be a subsequent ownership
       change,  as defined,  the Company's  ability to utilize its carryforwards
       could be reduced.

NOTE 12 - BUSINESS RISKS AND SEGMENT DISCLOSURES

         The  Company's  primary  source of  revenue is the  licensing  of Burst
         technology,  and its  success is  largely  dependent  on this  product.
         Changes  in   desirability  of  the  product  in  the  marketplace  may
         significantly affect the Company's future operating results.

         The Company  operates in one segment and  accordingly has provided only
         the required  enterprise  wide  disclosure.  The Company  recognized no
         foreign revenues in 2001, 2000, and 1999.

         The Company  currently  has five  customers who are acting as resellers
         and use the  Company's  software  in their  business.  Three  customers
         accounted  for  approximately  53%, 26% and 13%,  respectively,  of the
         Company's total revenue in fiscal year 2001.

NOTE 13 -SETTLEMENTS AND EXTRAORDINARY GAINS

         During  the  year  2001,  the  Company  entered  and  executed  various
         settlements  with  employees  and its landlord.  Accordingly,  rent and
         salaries  previously  recognized  during  the year as a result of prior
         oral agreements and estimates were offset against the related  expenses
         of rent and salaries for approximately $1,116,000.

         During the year ended  December  31,  2000,  the  Company  had  accrued
         approximately  $629,000  of  costs in  connection  with  various  stock
         offerings.  During  2000,  disputes  arose  between the Company and the
         investment  banking firm over the meaning and the interpretation of the
         respective  parties'  obligations.  During the year ended  December 31,
         2001,  the  Company  entered  into  a  settlement  agreement  with  the
         investment  banking firm whereby both parties  dismissed  each other of
         any further  obligations.  As a result, the Company adjusted additional
         paid-in-capital and the related liability.

         During  the  year  2001,  the  Company  entered  and  executed  various
         settlements  with  some  vendors  and  creditors.  As a result of these
         settlements,   the  Company   recognized   approximately   $643,000  of
         extraordinary gain.


                                      F-23
<PAGE>

NOTE 14 - QUARTERLY INFORMATION (UNAUDITED)

         The summarized  quarterly  financial  data presented  below reflect all
         adjustments  which,  in the opinion of management,  are of a normal and
         recurring  nature necessary to present fairly the results of operations
         for the periods presented.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31, 2001
                                                                     ----------------------------
                                          First Quarter    Second Quarter     Third Quarter    Fourth Quarter        Total
                                          -------------    --------------     -------------    --------------     --------------
<S>                                       <C>               <C>               <C>               <C>               <C>
         Net Revenue                      $     31,323      $     26,437      $     23,076      $     57,183      $      138,019

         Gross Profit                           31,323            26,437            23,076            57,183             138,019

         Operating Income/(Loss)            (3,854,208)       (1,239,824)          743,618           643,775          (3,706,639)

         Basic and diluted
         Income/loss per common share     $      (0.21)     $      (0.06)     $       0.03      $       0.07      $        (0.17)

<CAPTION>
                                                                     Year Ended December 31, 2000
                                                                     ----------------------------
                                          First Quarter    Second Quarter     Third Quarter    Fourth Quarter        Total
                                          -------------    --------------     -------------    --------------     --------------
<S>                                       <C>               <C>               <C>               <C>               <C>
         Net Revenue                      $     75,012      $    311,136      $     94,377      $     18,851      $      499,375

         Gross Profit
                                                44,741           311,136            93,891            18,844             468,612

         Operating Loss                     (3,768,166)       (6,166,446)       (4,613,669)       (5,008,419)        (19,556,700)

         Net Loss                           (3,799,140)       (6,260,264)       (4,680,188)       (4,870,392)        (19,609,984)

         Basic and diluted                $      (0.24)     $      (0.33)     $      (0.24)     $      (0.17)     $        (0.98)
          loss per common share
</TABLE>


                                      F-24
<PAGE>

         2001 FOURTH QUARTER ADJUSTMENTS

         During  the  fourth  quarter  of 2001,  the  Company  recorded  certain
         adjustments  that are  considered  material to the Company's  financial
         position  and  operating  results for the fourth  quarter of 2001.  The
         following is an analysis of these adjustments:

<TABLE>
<CAPTION>
                                                                  Increase (Decrease)
                                                 -----------------------------------------------------
                                                                                                                (Increase)
                                                    Assets            Liabilities     Stockholders' Equity    Decrease Net Loss
                                                 -----------          -----------          -----------          -----------
<S>                                              <C>                  <C>                  <C>                  <C>
         Vendors settlements                     $   (84,615          $  (733,273)         $     4,660          $   643,998

         Employees settlements                            --             (867,863)              19,796              848,067

         Pre-offering Costs
          settlement                                      --             (629,000)             629,000                   --

         Lease settlement                                 --             (279,726)              12,000              267,726

         Revaluation of Options                           --                   --             (488,053)             488,053
                                                 -----------          -----------          -----------          -----------
                                                 $   (84,615)         $(2,509,862)         $   177,403          $ 2,247,844
                                                 ===========          ===========          ===========          ===========
</TABLE>

         Significant  2000  fourth  quarter  adjustments   included  losses  and
         write-downs of fixed assets. See Note 4.

NOTE 15 - SUBSEQUENT EVENTS

         Subsequent to year-end,  the Company issued three  promissory  notes to
         investors in the aggregate principal amount of $130,000. The notes bear
         interest at prime plus 2% and are due in 2005. In connection with these
         notes,  the Company issued  warrants to purchase  433,333 shares of its
         common stock at $0.30 per share.


                                      F-25