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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The condensed consolidated balance sheet as of September 30, 2002, the condensed consolidated statements of operations for the three months and nine months ended September 30, 2002 and 2001, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001 are unaudited. However, in the opinion of management, all adjustments (which include reclassifications and normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 2002 and for all periods presented, have been made. The results of operation for the three-month and nine-month periods ended September 30, 2002 are not necessarily indicative of the operating results for the full year.

These condensed consolidated financial statements and notes are presented in accordance with rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company's December 31, 2001 Form 10-K.

The accompanying condensed consolidated financial statements have been presented assuming the continuity of the Company as a going concern. However, the Company has incurred substantial losses resulting in an accumulated deficit of approximately $61.2 million as of September 30, 2002. The Company's current liabilities exceed current assets by approximately $1.25 million at September 30, 2002. These conditions raise substantial doubt as to the ability of the Company to continue as a going concern.

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

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

• 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.

• 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.

• 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. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the eventual outcome of the risks and uncertainty described above.

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During the nine months ended September 30, 2001, the Company sold 400,000 shares of marketable securities resulting in a realized loss of $388,966, included in other expenses.

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. During the nine months ended September 30, 2002, the Company recognized revenue of $120,900 in conjunction with this agreement, reducing deferred revenue to $201,500 as of September 30, 2002.

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.

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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 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 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. 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.

On September 30, 2002, the maturities of all of the above notes payable to Mr. Rock, aggregating $1,270,000, were extended to January 15, 2005. In connection with the extensions, Mr. Rock received 1,000,000 additional warrants to buy shares of the Company's common stock at $.75 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 $198,100 will be amortized over the term of the notes.

During February 2002, the Company issued two additional notes to Mr. Rock for loans totaling $60,000, with interest at prime plus 2%. The notes are collateralized by a security interest in all assets of the Company. In connection with these notes, Mr. Rock was issued 200,000 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 $6,700 is being amortized over the respective terms of the notes.

During April 2002, the Company issued two additional notes to Mr. Rock for loans totaling $160,000, with interest at prime plus 2%. The notes are collateralized by a security interest in all assets of the Company. In connection with these notes, Mr. Rock was issued 300,000 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 $16,620 is being amortized over the respective terms of the notes.

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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 November 2001, Draysec agreed to extend the due date of the loan to November 2002.

On September 30, 2002, the maturities of the Draysec notes were extended to January 15, 2005. In connection with the extensions, Draysec received 82,645 warrants to buy shares of the Company's common stock at $.75 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 $16,372 will be amortized over the term of the notes.

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 December 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 February 2002, the Company issued promissory notes to two investors, in the aggregate principal amount of $70,000. The notes are due in December 2004 and January 2005, respectively, and bear interest at prime plus 2%. In connection with the notes, the Company issued 233,333 warrants to the investors 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 totaling $8,437 is being amortized over the respective terms of the notes.

During June 2002, the Company issued a promissory note to an investor, in the principal amount of $60,000. The note is due in June 2005, and bears interest at prime plus 2%. In connection with the note, the Company issued 200,000 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 $30,629 is being amortized over the term of the note.

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 $2,388,900 to $208,735. Some settlements resulted in the recognition of extraordinary income. 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 was obligated to issue an aggregate amount of 794,946 shares of its common stock.

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Accordingly, the Company recorded a liability for stock to be issued in the amount of $31,796. During the nine months ended September 30, 2002, all of those shares were issued.

During the nine months ended September 30, 2002, the Company entered into settlement agreements with two other employees. In connection therewith, the Company renegotiated its liabilities and reduced its obligations from $152,816 to $64,487. As part of these settlements, the Company issued an aggregate amount of 103,361 shares of its common stock valued at $3,547. In addition, some of the settlement agreements entered into by the Company with some of its former employees during the fourth quarter of 2001 were amended to include additional payments of $115,083. As a result of these settlements and revised settlement agreements, the Company recognized additional compensation expense of $32,841 during the nine months ended September 30, 2002.

Maturities of long-term debt at September 30, 2002 are as follows:

During the three months ended September 30, 2002, the Company borrowed $100,000 from Gordon Rock. The loan was repaid subsequent to September 30, 2002.

During the nine months ended September 30, 2002, the Company issued 138,750 shares of its common stock at fair market value to independent consultants for services performed during the period. In connection with these agreements, the Company recognized $4,114 in consulting fees.

During the nine months ended September 30, 2002, warrants to purchase 138,888 shares of the Company's common stock were exercised, for $25,000.

During the fourth quarter of 2001, the Company had agreed to issue 794,946 shares of is common stock valued at $31,796 in connection with various settlement agreements. In addition, during the six months ended June 30, 2002, the Company agreed to issue an additional 103,361 shares of its common stock valued at $3,547 in connection with new settlement agreements. All of these shares were issued during the nine months ended September 30, 2002.

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During the nine months ended September 30, 2002, the Company issued 233,333 shares of its common stock to two investors, for net proceeds of $70,000.

During the quarter ended September 30, 2002, the Company issued 30,000 warrants to acquire common stock at $0.75 to a vendor in connection with a debt settlement. See Note 10. The warrants expire in October 2005.

During February 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.

In January 2001, the Company granted options to purchase 150,000 shares of common stock exercisable at $0.2812 to an independent contractor. In addition, existing options for employees under variable plan accounting and unvested options being earned by contractors were revalued, resulting in a net reduction in stock-based compensation of $250,000.

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 $616,000. During the fourth quarter of 2001, as a result of further negotiations with those senior officials, the stock-based compensation was reduced to $127,947.

During the quarter ended September 30, 2002, the Company entered into settlements with various vendors, which resulted in a gain on debt extinguishment of $112,932. In accordance with FASB Statement 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which the Company adopted during the quarter ended September 30, 2002, this amount was included in other income and not as an extraordinary item because it did not meet the criteria in Opinion No. 30 for classification as an extraordinary item.

In connection with those settlements, the Company issued 30,000 warrants to acquired common stock at $0.75 to a vendor. The warrants expire in October 2005.

During the quarter ended September 30, 2001, the Company entered into a settlement with its landlord. The settlement resulted in a reduction to previously recorded restructuring charges of approximately $900,000. In addition, the Company entered into settlements with various vendors, which resulted in reductions to previously recorded general and administrative and sales and marketing expenses of $209,016, fixed assets of $37,264, and prior offering costs of $629,665.

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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 during the nine months ended September 30, 2002 and 2001.

The Company currently has two customers who are acting as resellers and use the Company's software in their business. One customer accounted for 100% of the Company's total revenue during the three months ended September 30, 2002. The two customers accounted for approximately 80%, and 20% respectively, of the Company's total revenue during the nine months ended September 30, 2002.

In October 2002, the Company sold 2,252,250 shares of its common stock at $0.333 per share for total proceeds of $750,000 in private placements with accredited investors. Each two shares came with a warrant to purchase one share of the Company's common stock at a purchase price of $0.75 per share.

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Item 7. Subsequent Events.

1. On October 14, 2002, the company the company completed a round of equity financing in which it sold 2,252,252 shares of its common stock to a group of private investors at a price of $.333/share. In conjunction with this transaction, the company also issued a total of 1,126,126 warrants to purchase its common stock at a price of $.75/share. The company raised a total of $750,000 in this transaction.

2. On November 5, 2002, the Company's Board of Directors granted new options to the following individuals, in conjunction with their previous and continuing relationships and contributions to the company:

1. 500,000 options to the Company's CEO, at an exercise price of $.75 per share, expiring on April 28, 2008. 166,666 of these vest upon issuance and the balance of 333,334 will vest in equal monthly amounts of 18,519 over the subsequent 18 months.
2. 150,000 options to the Company's Vice President of Operations, at an exercise price of $.75 per share, expiring on April 28, 2008. 50,000 of these vest upon issuance and the balance of 100,000 will vest in equal monthly amounts of 5,556 over the subsequent 18 months.
3. 100,000 to each of the Company's outside Board Members, at an exercise price of $.75 per share, expiring on April 28, 2008. 33,333 of these vests for each individual upon issuance and the balance of 66,667 each will vest in equal monthly amounts of 3,704 over the subsequent 18 months.

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CERTIFICATION

I, Richard Lang, the Principal Executive Officer and Principal Financial Officer of Burst.com, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Burst.com;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors:

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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