|[X]||QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.|
For the quarterly period ended JUNE 30, 2001
|[ ]||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.|
For the transition period from _______, 19___ to ______, 19___.
Commission File Number: 33-35580-D
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer Identi-
613 FOURTH STREET,
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] YES [ ] NO
There were 21,648,125 shares of the Issuers $.00001 par value common stock outstanding as of December 15, 2001
JUNE 30, 2001
TABLE OF CONTENTS
|PART I - FINANCIAL INFORMATION||3|
|ITEM 1. FINANCIAL STATEMENTS||3|
| ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK||13|
|PART II - OTHER INFORMATION||14|
|ITEM 1. LEGAL PROCEEDINGS||14|
|ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS||14|
|ITEM 3. DEFAULTS UPON SENIOR SECURITIES||14|
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS||15|
|ITEM 5. OTHER INFORMATION||15|
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K||15|
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
BURST.COM, INC. AND
|Cash and cash equivalents||$ 57,794||$ 296,584|
|Accounts receivable, net||40,000||295,795|
|Loans to officers, net||||139,633|
|Marketable securities - trading||12,538|||
|Prepaid expenses and other current assets||25,704||42,084|
|Total current assets||136,036||774,096|
|Property and equipment, net||164,146||570,700|
|Total assets||$ 302,882||$ 1,662,133|
LIABILITIES AND STOCKHOLDERS DEFICIT
|Convertible notes payable||$ 950,000||$ 500,000|
|Total current liabilities||5,938,669||2,854,863|
|Commitments and contingencies|
|Common stock, $.00001 par value, 100,000,000|
|shares authorized; 21,648,125 and 20,148,125 shares|
|issued and outstanding, respectively||216||201|
|Additional paid-in capital||57,162,682||55,852,947|
|Total stockholders deficit||(5,635,787||)||(1,192,730||)|
|Total liabilities and stockholders deficit||$ 302,882||$ 1,662,133|
See accompanying notes to condensed consolidated financial statements.
BURST.COM, INC. AND
|Three Months Ended
||Six Months Ended |
|Revenue||$ 26,437||$ 311,136||$ 57,760||$ 386,149|
|Cost of revenues||||||||30,272|
|Cost and expenses:|
|Research and development||11,360||1,284,763||158,902||2,218,738|
|Sales and marketing||28,547||3,356,785||289,208||5,084,068|
|General and administrative||967,458||1,836,034||1,791,210||3,089,697|
|Total costs and expenses||1,266,261||6,477,582||(5,204,082||)||10,392,503|
|Loss from operations||(1,239,824||)||(6,166,446||)||(5,146,322||)||(10,036,626||)|
|Other income (expense):|
| Other, net - including income (loss) on marketable |
|Total other expense, net||(23,718||)||(93,818||)||(606,485||)||(22,687||)|
|Basic and diluted net loss per common share||$ (0.06||)||$ (0.33||)||$ (0.27||)||$ (0.59||)|
|Shares used in per share computation||21,648,125||19,047,098||21,398,125||17,114,457|
See accompanying notes to condensed consolidated financial statements
BURST.COM, INC. AND
|Balance at December 31, 2000||20,148,125||$201||$55,852,947||$(57,045,878||)||$(1,192,730||)|
|Common stock exchange||1,500,000||15||843,735||||843,750|
|Warrants issued with debt||||||100,000||||100,000|
|Balance at June 30, 2001||21,648,125||$216||$57,162,682||$(62,798,685||)||$(5,635,787||)|
See accompanying notes to condensed consolidated financial statements
BURST.COM, INC. AND
|Cash flows from operating activities:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Depreciation and amortization||59,716||258,374|
|Amortization of loan discount||100,000|||
|Non-cash stock-based compensation expense||366,000||100,289|
|Stock Option Compensation||||235,906|
|Writedowns and losses on disposal of fixed assets||332,996|||
|Reserve against loan to officer||157,190|||
|Realized and unrealized losses on marketable trading securities||452,260|||
|Changes in operating assets and liabilities:|
|Loans to officers||(17,557||)|||
|Prepaid expenses and other current assets||16,380||(203,288||)|
|Net cash used in operating activities||(1,431,396||)||(13,979,173||)|
|Cash flows from investing activities:|
|Proceeds from sale of marketable securities||701,353|||
|Proceeds from sale of property and equipment||41,253|||
|Purchases of property and equipment||||(1,211,561||)|
|Net cash provided by (used in) investing activities||742,606||(1,211,561||)|
|Cash flows from financing activities:|
|Proceeds from sale of common stock||||18,059,992|
|Proceeds from notes payable||550,000|||
|Payments on notes payable||(100,000||)|||
|Proceeds from exercise of warrants and stock options||||305,058|
|Net cash provided by financing activities||450,000||18,365,050|
|Increase (decrease) in cash and cash equivalents||(238,790||)||3,174,316|
|Cash and cash equivalents, beginning of period||296,584||302,979|
|Cash and cash equivalents, end of period||$ 57,794||$ 3,477,295|
See accompanying notes to condensed consolidated financial statements
BURST.COM, INC. AND
|Supplemental disclosure of cash flow information:|
|Cash paid for state franchise tax||$ 504||$ 850|
|Cash paid for interest||$ ||$ |
|Supplemental schedule of non-cash financing activities:|
|Debt converted into 1,333,750 shares of common stock||$ ||$5,335,000|
|Offset of deferred revenue against accounts receivable||$287,225||$ |
|Exchange of common stock for marketable securities||$843,750||$ |
| Exchange of common stock for licensing agreement |
credited to deferred revenue
See accompanying notes to condensed consolidated financial statements.
BURST.COM, INC. AND
|(1)||BASIS OF PRESENTATION AND GOING CONCERN|
|On January 27, 2000 the Company changed its name from Instant Video Technologies, Inc. to Burst.com, Inc.|
|The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiaries, Explore Technology, Inc. and Timeshift-TV. All significant intercompany transactions and accounts have been eliminated in consolidation.|
|Through June 30, 2001, the Company had sustained recurring losses from operations and, at June 30, 2001, had a stockholders deficit of $5,635,787 and a net working capital deficiency of $5,802,633. As discussed in Note 5, the Company has also closed most of its operating facilities and has laid off all but five of its employees. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The opinion of our independent certified public accountants on the audited financial statements for the year ended December 31, 2000 also contained an explanatory paragraph regarding doubt about our ability to continue as a going concern. During fiscal 2001, the Company expects to meet its working capital and other cash requirements with cash derived from operations and sale of marketable securities, and is in negotiations to obtain additional funding through sale of assets and/or new shares of common stock. However, there can be no assurance that the Companys efforts to achieve and maintain profitable operations will be successful. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.|
|(2)||INTERIM FINANCIAL INFORMATION|
|The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. In the Companys opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Companys financial position and the results of operations and cash flows. The balance sheet at December 31, 2000, has been derived from the Form 10-K and the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Companys Form 10-K filed April 17, 2001 and other documents filed with the Securities and Exchange Commission. The results of the Companys operations for any interim period are not necessarily indicative of the results of the Companys operations for any other interim period or for a full fiscal year.|
|(3)||PROPERTY AND EQUIPMENT|
|Property and equipment consists of the following:|
|Computer equipment||$ 100,000||$ 509,191|
|Trade show booth||5,000||5,000|
|$ 164,146||$ 570,700|
|During the six months ended June 30, 2001, 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, losses and writedowns totaling $329,366 have been included in Restructuring costs of the accompanying Consolidated Statements of Operations.|
|NOTES PAYABLE TO STOCKHOLDERS||June 30,
|9% Convertible notes payable to Gordon Rock,|
|interest and principal due November and December 2001||$ 650,000||$500,000|
|9% Note payable to Gordon Rock, interest and principal|
|due November 28, 2001||$ 200,000|||
|6% Convertible notes payable to Draysec Finance Limited,|
|interest and principal due in February and March 2002||100,000|||
|Notes Payable||$ 950,000||$500,000|
|The convertible notes payable are 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 holders.|
|In March 2001, the Company issued a $100,000 note payable to Robert Schacter 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 an additional 50,000 new warrants to purchase a total of 148,870 shares of common stock at $0.875. The warrants and repricings were valued at $100,000, resulting in a discount to Notes Payable amortized over the life of the loan. The loan was repaid in full in May 2001.|
|In connection with the issuance of a $200,000 note payable to Gordon Rock in April 2001, the Company issued five-year warrants to buy shares of the Companys common stock. The warrants, valued at $200,000, resulted in a discount to Notes Payable amortized over the life of the loans.|
|Accrued leasehold costs on abandoned leases||$1,229,726||$ |
|Accrued severance costs||807,850|||
|Accrued wages and vacation||488,804||350,723|
|During the first six months of 2001, the Company closed and abandoned its sales offices. It also moved out of its San Francisco headquarters, completing the move to new smaller Santa Rosa, California facilities in late April. Additionally, all but three of the remaining employees had been laid off by June 30, 2001. The related accrued leasehold costs and accrued severance costs are included in Restructuring costs in the accompanying Consolidated Statements of Operations. Certain of the terms in the severance agreements, included in Restructuring Costs and considered in accrued severance costs as of June 30, 2001, have been approved by management but not yet ratified by the Board.|
|(6)||EQUITY FINANCING AND INVESTMENT IN MARKETABLE SECURITIES|
|In January 2001, the Company exchanged 1,500,000 shares of its common stock valued at $843,735 for 400,000 shares of Eagle Wireless International, Inc. common stock. In addition, the Company entered into a licensing agreement with Eagle Wireless whereby Eagle Wireless issued 104,000 of its common shares valued at $322,400 in exchange for a two-year license for certain technology 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, at June 30, 2001, the entire $322,400 is included in Deferred Revenues.|
|During the six months ended June 30, 2001, the Company sold 93,200 of the Eagle Wireless shares, resulting in a realized loss of $96,817 included in other expense. The remaining shares were reduced to their market value as of March 31, 2001, resulting in additional losses of $466,114, also included in other expense. By July 25, 2001, all Eagle shares had been sold or exchanged for services realizing cumulative losses of $453,541.|
|The Company completed a sale of its common stock and warrants to purchase common stock in January 2000. In addition to the conversion of notes outstanding referred to above, the Company received $13,898,500 in cash from various investors, including some directors and employees of the company, in exchange for 4,808,375 shares of common stock and 4,808,375 warrants to purchase common stock, offset by approximately $1,103,000 in transactions costs. The price per share of common stock was $4.00, which included the issuance of one warrant for each share of stock sold. Each warrant is 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. 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. In connection with the offering, 98,870 five-year warrants to purchase common stock at $8.4375 per share were issued to the placement agent.|
|In January 2001 the Company granted options to purchase 150,000 shares of common stock exercisable at $0.3125 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 as of March 31, 2001.|
|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, which have been approved by management but not yet ratified by the Board, resulted in a stock-based compensation charge of $616,000. The severance-related portion of stock-based compensation is included in Restructuring costs in the accompanying Consolidated Statements of Operations.|
|The Company granted options to purchase 90,250 shares of common stock to employees on February 1, 2000. Of these options, options to purchase 45,125 shares were issued with an exercise price of $4.00 per share and expiring on April 30, 2000. The remaining options to purchase 45,125 shares were issued with an exercise price of $5.00 per share and expire 5 years from the issue date. To the extent that any of the options with an exercise price of $4.00 per share were not exercised by April 30, 2000, then options to purchase an equal number of shares at an exercise price of $5.00 terminated. As a result of these grants, the Company recorded compensation expense of $22,563 for the excess of the grant date fair value over the exercise price.|
|(8)||OTHER RELATED PARTY TRANSACTIONS|
|In connection with the severance agreements referred to in Notes 6 and 8 and the officers employment agreement, a $157,190 loan to the Companys former President has been fully reserved. The Company has not released the officer from this obligation.|
|In April 2001, the Company received $200,000 promissory note financing from Gordon Rock. Mr. Rock took a security interest in the assets of the Company. Mr. Rock was a member of the Board of Directors at that time, but refrained from any actions taken by the Board regarding the financing. Mr. Rock has since resigned his seat on the Board.|
|In August and September 2001 the Company received an aggregate of $305,000 in promissory note financing from Gordon Rock, secured by assets of the Company.|
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of the financial condition and results of operations of Burst.com, Inc. should be read in conjunction with the Managements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the Notes thereto for the year ended December 31, 2000 included in the Companys Form 10-K.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed in this Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this quarterly report on Form 10-Q include forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, including, among other things:
|||attracting immediate financing, merger or acquisition partners and/or a sale of assets;|
|||delivering quality product that meets customer expectations;|
|||obtaining and expanding market acceptance of the products and services we offer;|
|||responding quickly to technological challenges from third parties;|
|||forecasts of Internet usage and the size and growth of relevant markets;|
|||rapid technological changes in our industry and relevant markets; and|
|||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. These forward-looking statements involve risks and uncertainties that could cause our results to differ materially from those discussed. These risks and uncertainties include, but are not limited to, those described under the caption Factors That May Impact Future Results below. Additional information concerning factors that may impact future results can be found in the Risk Factors section of the above referenced S-1 Registration Statement filed on April 17, 2000. 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.
We believe that period-to-period comparisons of operating results, including revenues, cost of sales, gross margins, expenses, and capital expenditures may not necessarily provide meaningful results and should not be relied upon as indications of future performance. The Company does not believe that its historical growth rates are indicative of future growth or trends.
We have incurred significant losses since inception, and as of June 30, 2001, we have an accumulated deficit of $62,798,685. There can be no assurance that we will achieve or sustain profitability and we believe that we will continue to incur net losses in 2001.
We are an independent provider of client/server network software for the delivery of video and audio information over networks. Our principal executive offices recently relocated to Santa Rosa, California and we have closed all other offices. 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® suite of software products enables companies to transmit video and audio files at Faster-Than-Real-Time® speed, which is accomplished by utilizing available bandwidth capacity to send more video or audio data to users than the players are demanding. This data is stored on the users 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. Previously, our revenue was derived from fees for software licenses, content hosting and other consulting services. We have scaled back operations dramatically, and are in the process of reformulating our plans for future operations.
Results of Operations
Revenue recorded for the three and six month periods ended June 30, 2001 was $26,437 and $57,760, respectively, versus $311,136 and $386,149 during the same periods in 2000. The revenue decline was due to curtailment of sales, support and product marketing activity occurring in November 2000 and March 2001. The cost of revenue recorded for the quarter ended June 30, 2001 was zero. The 2000 cost of revenue of $30,272 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.
Research & development expenditures during the three and six month periods ended June 30, 2001 were $11,360 and $158,902, respectively, as compared to $1,284,763 and $2,218,738 during the same periods in 2000. The decrease resulted from personnel reductions and curtailment of new product development and testing. There was no significant amount of research and development that would qualify for capitalization under SFAS 86.
Sales & marketing expenses during the three and six month periods ended June 30, 2001 were $28,547 and $289,208, respectively, as compared to $3,356,785 and $5,084,068 during the same periods in 2000. The $1,466,622 decrease was primarily a result of staff reductions and curtailment of sales, support and product marketing activity in November 2000 and during the first quarter of 2001 as part of our restructuring.
During the three and six month periods ended June 30, 2001, general and administrative expenses were $967,458 and $1,791,210, respectively, as compared to $1,836,034 and $3,089,697 during the same periods in 2000. The decrease was primarily due to the slowdown in our operations and termination of employees both in November 2000 and March 2001 as part of our restructuring. Also contributing to the decrease was a $250,000 net reduction in stock-based compensation resulting from a revaluation of options for employees under variable accounting and certain unvested options being earned by contractors.
During the six months ended June 30, 2001, due to shortage of funds, we entered into a plan to severely curtail and exit substantially all of our development and marketing operations. We closed and abandoned all of our sales offices, began a move out of our San Francisco headquarters, and laid off all but three of our remaining employees. The resulting restructuring charge of $2,964,762 represents accrued severance and leasehold costs on abandoned premises, losses and writedowns on abandoned equipment, and stock-based compensation charges related to extension of options for certain executive management personnel in connection with their severance agreements.
We had a net loss from operations of $1,239,824 and $5,146,322, respectively, during the three and six month periods ended June 30, 2001, as compared to $6,166,446 and $10,392,503 during the same periods in 2000. The decreased losses resulted from reduction in workforce and operations discussed above.
Other expense, net was $23,718 and $606,485, respectively, for the three and six month periods ended June 30, 2001, as compared to $93,818 and $22,687 during the same periods in 2000. This decline was primarily due to reduced interest income, as the January 2000 stock offering and debt conversion resulted in a significant influx of cash during that period. Cash balances during 2001 were significantly smaller. In addition, 2001 includes recognized losses of $440,254 on sales of Eagle Wireless common stock and unrecognized losses of $12,006 representing the reduction to market value of the Eagle Wireless stock remaining at June 30, 2001.
Liquidity and Capital Resources
The opinion of our independent certified public accountants on the audited financial statements for the year ended December 31, 2000 contained an explanatory paragraph regarding doubt about our ability to continue as a going concern.
Although we were successful in the past in our fundraising efforts to meet previous operating requirements, there can be no guarantee that we will be successful in future fundraising efforts. During the six months ended June 30, 2001, we raised $450,000 in cash by issuing notes payable and $843,735 in marketable securities by issuing common stock and a licensing agreement. In January 2000, we raised approximately $12,796,000 in cash, net of $1,103,000 in costs, and converted $5,335,000 of debt (including $430,000 in new debt raised in January 2000), by issuing 4,808,375 shares of our common stock. As of June 30, 2001, we had cash reserves of approximately $57,794, which will, when supplemented by proceeds of the sale of our remaining marketable securities and a subsequent issuance of $150,000 in notes payable to a stockholder, meet current operating requirements for approximately one month at our current spending rate, assuming no revenue. We are currently in negotiations to obtain additional outside funding through the sale of shares of our common stock in a private placement directed at both strategic and financial investors, and have explored the potential sale of substantially all of our assets. Any new funding raised may have a dilutive effect on our existing shareholders. In the event we are unsuccessful in our additional fundraising efforts and projected revenues were significantly lower than expected, we would be required to further reduce significantly cash outflows, and would be unable to restore marketing and sales activities, development, capital, and administrative expenditures resulting in decreased potential revenue and potential profitability.
Changes in Financial Position
As of June 30, 2001, we had a working capital deficit of $5,802,633 as compared to a deficit of $2,080,767 at December 31, 2000. This $3,721,866 decrease reflects a $638,060 decrease in current assets and an increase in current liabilities of $3,083,806. The reason for the decrease was the continued high level of administrative cost as well as lease termination costs and severance accompanying staff reductions and office closings.
Net cash used in operating activities totaled $1,431,396 during the six months ended June 30, 2001, as compared to net cash used in operating activities of $13,979,173 during the six months ended June 30, 2000. In our efforts to conserve cash, we financed many expenditures through the expansion of accounts payable and accrued expense rather than paying currently. In addition, increases in non-cash stock-based compensation and accruals for leasehold abandonment costs and severance costs in 2001 incresased the reported loss while not actually using cash during the period.
Net cash provided by investing activities during the six month period ended June 30, 2001 totaled $742,606 as compared to using $1,211,561 during the six month period ended June 30, 2000. Investing activities in the current period consisted of disposition of property and equipment and marketable securities, while the prior period consisted of purchases.
Cash flow provided by financing activities during the six month period ended June 30, 2001 totaled $450,000 as compared to $18,365,050 during the same period in 2000. This decrease was due to the Companys fundraising efforts resulting in only minimal debt and equity financing proceeds in 2001.
Factors That May Impact Future Results
We develop complex software for media delivery, content management and storage. We have recently commenced sales of our first commercial product released late last year and have yet to achieve very large commercial deployments. Despite testing, software errors have been found in our product and, in some cases, our products performance when initially deployed has not met customer expectations. To date, we believe that all of the errors in question have been resolved. However, there can be no assurance 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. As a company that recently commenced a new product line, we face risks and uncertainties relating to our ability to implement our business plan successfully.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2001 we had approximately $12,538 invested in Eagle Wireless International, Inc. common stock. The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time achieving a market rate of return without significant risk. However, we were limited by agreement to sell the stock in stages until June 1, 2001. The remaining shares of Eagle Wireless stock were sold subsequent to June 30, 2001.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
|We have no material legal proceedings against us or in process nor are we aware of any other legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect.|
Item 2. Changes in Securities.
|Since December 31, 2000, the Company has sold the following unregistered securities. Such sales were exempt in reliance on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.|
|(a)||In February 2001, we sold 1,500,000 shares of our common stock valued at $843,735 to Eagle Wireless International, Inc. in exchange for 400,000 shares of Eagles common stock.|
|(b)||In February 2001, we entered into two Convertible Notes payable to Draysec Finance Limited, aggregating $100,000, which 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.|
|(c)||In March 2001, in connection with a $100,000 promissory note issued to an existing stockholder, we repriced 98,870 existing warrants and issued 50,000 new warrants to purchase an aggregrate of 148,870 shares of our common stock at $0.875 per share. This note has been repaid in full.|
|(d)||In April 2001, in connection with a $200,000 promissory note to Gordon Rock, we issued five-year warrants to acquire shares of our common stock at a per share exercise price of $0.20.|
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
|In May 2001, the Company received $200,000 promissory note financing from Gordon Rock. Mr. Rock took a security interest in the assets of the Company. In August 2001, Mr. Rock provided an additional $150,000 promissory note financing under the same terms.|
Item 6. Exhibits and Reports on Form 8-K.
|10.1||Security Agreement between the Company and Gordon Rock dated as of April 18, 2001.|
|10.2||Form of Promissory Note between the Company and Gordon Rock.|
|10.3||Form of Warrant.|
|(b)||Reports on Form 8-K.|
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 20, 2001
By: /s/ Richard Lang
Richard Lang, Chairman and
Chief Executive Officer
By: /s/ Jeffrey D. Wilson
Jeffrey D. Wilson
Chief Financial Officer