Burst.Com Annual Report
(Formerly known as Instant Video Technologies, Inc.)
For the Fiscal
Year ended: December 31, 2003
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
(415) 391-4455
Securities Registered Under Section 12(b) of the Exchange Act: None.
Securities Registered Under Section 12(g) of the Exchange Act: None
Common Stock $.00001 Par Value
The aggregate market value of the Common Stock held by non-affiliates on December 31, 2003 was approximately $28,739,330 based on the closing price of the Common Stock as reported on The NASDAQ Over the Counter Bulletin Board for that date.
As of December 31, 2003, there were 25,433,036 shares of the Company’s Common Stock outstanding.
BURST.COM, INC.
TABLE OF CONTENTS
Page
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Business .................................................…..…………………………….………... 5
Property ...................................…...….........……….………...……...…………...... 7
Legal Proceedings ........................................…………….……………....…........... 7
Submission of Matters to a Vote of Security Holders..……....………..………...... 8
Market for Registrant's Common Equity and Related
Stockholder Matters ………………….....................................…..…......... 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations..……………...................….…….... 11
Financial Statements and Supplementary Data ...………....……...........……….... 12
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..………………….......................…….............. 12
Directors and Executive Officers of the Registrant.....……..……………....…..... 12
Executive Compensation ...................................………………….…....…………14
Security Ownership of Certain Beneficial Owners and Management.…………... 15
Certain Relationships and Related Transactions ..............…………....………..... 17
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.
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:
* Implementing our business strategy;
* Maintaining sufficient cash balances to continue in operation;
* Attracting and retaining customers; obtaining and expanding market
acceptance of the products and services we offer;
* 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," ""potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes" 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. A more comprehensive description of these risk factors can also be found in the last report we filed with the S.E.C., the 2001 10K report, which is available on our web site: www.burst.com. These forward-looking statements are made as of the date of this report and we assume no obligation to update them or to explain the reasons why actual results may differ.
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. Although we have had minimal licensing revenue from our software to date, our software is manages the delivery of video and audio content over a variety of networks; 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 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® utilizes various components of our international patent portfolio, including the Faster-Than-Real-Time delivery method.
In January 2000, we changed our name from "Instant Video Technologies, Inc." to "Burst.com, Inc." Since February 2003, our stock trades on the over-the-counter “Pink Sheets” under the symbol "BRST".
Since October 2001, we have had two full-time employees: Chief Executive Officer Richard Lang, and Vice President of 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 exclusively on efforts to license existing versions of Burstware®, with product enhancements provided as needed by outside engineering contractors. In 2001, we began discussions with both existing customers and new customers regarding the licensing of both Burstware® and our underlying patent portfolio.
At the end of 2001, software giant Microsoft, Inc. announced that its new media delivery platform, code named “Corona” (since renamed “WMP-9”), would include a number of new features which we determined had been misappropriated from Burst, and were in violation of Burst’s patents. While we initiated legal action against Microsoft in June of 2002 (details are available on our website: www.burst.com), the introduction of Corona has resulted in a significant negative effect on our efforts to license our technology. Since that time, prospective Burst customers have observed that the Burst technology is now available in Microsoft’s Windows Media Platform (WMP-9). Until Burst’s rightful ownership of Burst technology is established in court, it appears that it is unlikely that those companies to choose the Burstware product over the Microsoft product. Thus, while we are still pursuing possible licensing opportunities with certain companies that may be willing to consider licensing Burstware instead of Microsoft’s WMP-9, the number of such prospects is very small, and the uncertainty of Burst’s ownership rights remains an obstacle, until such time as the courts rule on the various issues in our litigation. If Burst were to eventually lose most or all aspects of our litigation, our patents could become essentially valueless and our ability to capitalize on our patent portfolio could be lost forever. If this were to happen, the Company’s future plans would be wholly determined by the amount of available capital and strategic options available at that time. A lack of financial resources and absence of valuable intellectually property assets would most likely result in the company ceasing operations.
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.
MARKET OPPORTUNITY
We believe that our intellectual property and primary software product, Burstware, should 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® technology, we provide a server-based intelligent network management system delivering "Faster-Than-Real-Time®" 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® solution ensures a consistent, high-quality experience over multiple platforms through optimization of network resources and superior isolation of clients from network disturbances.
The intelligent Burstware 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 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 also gives producers, content aggregators and developers the ability to reach new markets with virtually unlimited access to vast libraries of content. With these various applications, Burstware’s 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 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 that may be requested by customers and as funds permit.
Strategy
Burst.com's goal is to see its "faster-than-real-time" or "Burst” digital media delivery technology integrated in the broadband-centered media-on-demand industry. We view our designs and methods employing "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 intend to pursue this goal by upgrading and licensing our proprietary software, Burstware, to companies that require our technology solution in order to achieve commercially viable market solutions, as resources permit.
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 our efforts to license our Burstware media delivery solution to value added resellers, set-top box manufacturers and developers of media-on-demand systems, among others, given our financial limitations. However, due to the issues inherent in our litigation against Microsoft, we have been effectively unable to achieve meaningful results since the end of 2001.
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.
Sales and Marketing
While we pursue Burstware software and patent licensing efforts, we will continue to support any existing value added resellers and software customers on an as-needed basis, using outside engineering consultants, while pursuing new customers, as finances permit. 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 prospective customers through 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, 2003, 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 issued 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 derivative inventions.
We have two European patents (extending to a number of European countries) that incorporate the subject matter of the first six U.S. patents, three Australian patents, two South Korean patents, one Japanese patent, two Indian patents, and one Canadian patent. We currently have a number of additional domestic and international patents pending.
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 database 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.
We have registered the trademarks "INSTANT VIDEO®, BURSTWARE®, BURSTAID®, FASTER-THAN-REAL-TIME®, BURSTWARE CONDUCTOR®, BURSTWARE PLAYER® and BURSTWARE SERVER®," in the United States, as well as in certain countries in Europe and Asia.
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 2004, with the option to extend to an additional one-year term. The lease provides for rent of $975 per month. We believe that our current facility is suitable and sufficient to accommodate our operating needs for the foreseeable future.
LEGAL PROCEEDINGS.
On June 18, 2002, the company filed a lawsuit accusing software giant Microsoft Corporation of violations of the Patent Act, Sherman Act Sections 1 & 2, California Cartwright Act (anti-trust), California Business & Professions Code Section 17200 (unfair acts or practices), the California Trade Secrets Act and for breach of contract. Burst.com is being represented in the action by San Francisco law firm Hosie, Frost, Large & McArthur; and Palo Alto intellectual property law firm Carr-Ferrell, LLP.
In the complaint, filed in the U.S. District Court for the Northern District of California Tuesday, June 18th, Burst alleges that:
1. Microsoft's newly announced "Corona" product (now known as WMP9) uses technologies and trade secrets misappropriated from Burst.com and is in violation of several U.S. patents issued to Burst.
2. Microsoft anticompetitively damaged Burst in violation of federal and state antitrust laws in many of the same ways that prompted the federal courts to find that it monopolized the market for Intel-compatible operating systems.
A complete copy of the complaint can be found on the company's web site: www.burst.com.
The company is seeking damages to be determined by the court. There is no guarantee that the company will be successful in its pursuit of this lawsuit against Microsoft.
Subsequent to the filing of the lawsuit, the litigation has been assigned to District Judge J. Frederick Motz, United States District Court for the District of Maryland, the same judge presiding over pre-trial proceedings in the Sun Microsystems, and Netscape Communications Company cases against Microsoft. At a hearing in September 2002, and in a subsequent ruling Judge Motz ruled that both sides must have completed discovery and expert witness testimony and be ready for trial by mid-February 2004. Since that time, the dates for the completion of discovery and expert testimony have been extended and it is currently anticipated that the case will be ready for trial by Fall 2004.
We are not aware of any material legal proceedings pending or threatened against us.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A vote for the election of members of the Board of Directors – See Proxy Statement
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
On December 31, 2001 our common stock was traded on the Nasdaq OTCBB (Over The Counter Bulletin Board under the symbol “BRST” (prior to January, 2001, our common stock had been traded on the Nasdaq Small Cap Market).
In January 2002, the company elected to “De-Register” its stock under S.E.C. Rule 12g. The company’s common stock continues to trade on the “Pink Sheets” under the trading symbol “BRST” in accordance with the provisions of Rule 15c2-11.
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.
2003 High Low
---------------
---------------------
1st Quarter $ .25 $ .18
2nd Quarter
$ .30
$ .18
3rd Quarter $ 1.40 $ .21
4th Quarter $ 1.44 $1.06
2002 High Low
--------------- ---------------------
1st Quarter $ .065 $.021
2nd Quarter $ .190 $.025
3rd Quarter
$ .250
$.140
4th Quarter $ .290 $.180
The number of holders of record of the Company's $.00001 par value Common Stock at December 31, 2003, was approximately 297. The closing bid price of our stock was $1.13 at December 31, 2003.
DIVIDENDS
No dividends have been paid with respect to our stock, or are anticipated. 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. The Board may consider the distribution of any extraordinary revenues from licensing or litigation-related activities that may occur, beyond amounts necessary to fund operations and any necessary capital improvements. Any such distribution may be in the form of a dividend paid to the Burst.com shareholders. However, there is no current anticipation of this taking place at any time in the foreseeable future. Until our litigation is resolved and we are able to assess the results of that litigation, we will be unable to make a determination as to how the Company should proceed.
RECENT SALES OF UNREGISTERED SECURITIES
1. During the quarter ending December 31, 2003, the Company issued 100,000 shares of its common stock to a former consultant under the terms of a settlement agreement. The settlement also called for the cancellation of 100,000 options previously issued to the consultant.
2. During the quarter ending December 31, 2003, the company issued 30,000 shares of its common stock to a former creditor, as a result of the exercise of options previously issued in connection with a settlement agreement. The shares were purchased at a price of $.30 each, resulting in a payment of $12,000 cash to the company.
3. During the quarter ending December 31, 2003, the company issued 261,112 shares of its common stock to a former Board member and investor in the company, as a result of the exercise of options previously issued to that individual and his investment entity. 150,000 shares were purchased at a price of $.2812 each, and 111,112 shares were purchased at a price of $.18 each, resulting in payments totaling approximately $62,180 cash to the company.
4. On October 20, 2003, the Company’s Co-Founder and Chief Executive Officer, Richard Lang, exercised various option agreements granted over the term of his total employment with the company. Options were exercised resulting in the issuance of a total of 2,151,761 shares of the Company’s common stock. Of these, 1,651,761options were exercised at a price of $.2812 per share and 500,000 options were exercised at a price of $.75 per share. In recognition of the substantial previous and continuing accomplishments and contributions by Mr. Lang, the Board of Directors, by Board resolution, approved payment by Mr. Lang for the exercise of these options in the form of a Secured Non-recourse Promissory Note, collateralized by the shares received via the exercise. The note is for a total amount of $839,975.19. These shares are currently being held in escrow pending repayment of the non-recourse note.
6. On October 20, 2003, the Company’s Vice President of Operations, Eric Walters, exercised various option agreements granted over the total term of his employment with the company. Options were exercised resulting in the issuance of a total of 198,392 shares of the Company’s common stock. Of these, 48,392 options were exercised at a price of $.2812 per share and 150,000 options were exercised at a price of $.75 per share. In recognition of the important previous and continuing accomplishments and contributions by Mr. Walters, the Board of Directors, by Board resolution, approved payment by Mr. Walters for the exercise of these options in the form of a Secured Non-recourse Promissory Note, collateralized by the shares received via the exercise. The note is for a total amount of $126,107.83. The shares are being held in escrow pending repayment of the non-recourse note.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition and results of operations of Burst.com, Inc. should be read in conjunction with both the Management's 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, 2001 included in the Company's Form 10-KSB, and with the Company’s Year-End Financial Statements for 2002, currently posted on its web site, www.burst.com
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.
During 2003, we maintained operations utilizing funds in the amount of $845,000 that were raised during 2002. We did not raise any additional funds in 2003.
Our
2003 revenue, in the amount of $163,182.00
is derived from fees for software licenses and from the licensing of our
intellectual property. Our monthly operating expenses are currently less than
$40,000 per month.
As of February 29, 2004, we had approximately $254,606.00 cash on hand, which we believe will enable us to sustain our current operations into fall of 2004, without the benefit of revenues or additional fund-raising. We are pursuing licensing revenues; however, there can be no assurance our efforts will be successful. We will likely need to raise additional capital during 2004 in order to sustain our operations through year-end and beyond, although there can be no assurance that we will be successful in our efforts. The Board of Directors has authorized management to raise additional funds sufficient to maintain operations throughout the duration of our litigation against Microsoft.
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 plan to enforce our intellectual property rights as resources permit. We have already filed an anti-trust and patent infringement lawsuit against software giant Microsoft. The case is currently scheduled to be ready for trial by Fall 2004, although a trial date has not yet been set. Our attorneys are being retained under a 100% contingency agreement, including all costs. While we pursue this litigation, we will continue to engage in discussions with potential licensees of our Burstware® media delivery software and intellectual property, and attempt to license our technology, as opportunity permits. There can be no assurance that we will be successful in our litigation against Microsoft, or in our attempts to license our technology or to protect our intellectual property rights.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Our independent auditors for fiscal year 2003 were Sterck, Kulik & Enfield, of San Francisco, CA. There were no disagreements with our auditors over any items.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officer, key employee and directors and their ages as of December 31, 2003, are as follows:
Name Age Position
--------------------------------------------------------------------------------
Richard A. Lang 50 Chairman, President, Chief Executive Officer and Chief Financial Officer
Eric H. Walters 47 Vice President, Operations
Brian Murphy (2) 48 Director
Barry L. Ritholtz 42 Director
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, 2003:
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 in Communications and Foreign Language from Scottsdale Community College in 1973. Starting April 1, 2001, Mr. Lang again became Chief Executive Officer as a result of the resignation of Douglas Glen.
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.
Barry L. Ritholtz has been one of our directors since March 8, 2002. Since August 2002, he has been Chief Market Strategist for Maxim Group of New York. Mr. Ritholtz is responsible for writing the firm's twice-weekly Market Commentary for the firm's brokers, portfolio managers and clients. Prior that he was 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. 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 Mac Today, 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 ,the San Jose Mercury News and the Wall Street Journal. He has also appeared as a guest on CNBC’s Kudlow & Kramer television program, as well as Fox TV’s “Your World” with Neil Cabuto, “Forbes on Fox,” and “Studio B with Shepard Smith.” 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 January1996 to February 1998, Mr. Ritholtz was a securities trader for A.J. Michaels, a West Islip and 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 of 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.
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, 2003. No other executive officer earned more than $100,000 in salary and bonus for the fiscal year ended December 31, 2002.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
-----------------------------------------------------------------------
Name and Year Salary Bonus Securities
Principal Underlying All Other
Position Options (#) Compensation($)
Richard A. Lang, 2003 130,000 $ 5,948 (1)
Chairman 2002 120,000 8,700
of the Board 2001 120,000 $ 7,500 17,400
President and Chief
Executive Officer
(1) Represents monthly auto allowance payments made to Mr. Lang in the amount of $5,948.
Option Grants. On November 22, 2003, 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:
a. 150,000 to one of the Company's outside Board Members, at an exercise price of $.75 per share, expiring on November 22, 2008. All options were fully vested upon issuance.
b. 50,000 to one of the Company's outside Board Members, at an exercise price of $.75 per share, expiring on November 22, 2008. All options were fully vested upon issuance.
Payment of accrued compensation. In April of 2001, the Company’s CEO, Richard Lang, entered into an agreement with the Company whereby his compensation was reduced by 50% in order to help the Company reduce its operating expenses until such time as it raised additional capital or received additional licensing or other revenues. According to that agreement, going forward, in addition to his reduced base compensation, Mr. Lang was to receive 10% of any licensing revenues received and 5% of any new equity monies raised by the Company, as additional compensation. Subsequently, Mr. Lang offered to accrue but not actually receive compensation amounts due in conjunction with a company financing in October of 2002, until such time as additional funds were received from other sources. In February 2004, the Company’s Board of Directors, in recognition of important past and ongoing contributions to the company, and consistent with the Company’s original agreement with Mr. Lang, and in recognition of additional funds being received by the company from the recent exercise of options and warrants, approved payments of previously accrued compensation to Mr. Lang in the amount of $4,000 per month, these ongoing additional monthly amounts to reduce the total accrued salary and bonuses currently owed to Mr. Lang by the Company, until those amounts have been paid in full to Mr. Lang.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Updated
April 7, 2004)
The following table sets forth information with respect to beneficial ownership of our common stock by each person who beneficially owns more than 5% of our common stock; each of our executive officers; each of our Directors; and all executive officers and directors as a group.
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 25,433,036 shares of common stock outstanding on December 31, 2003 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.
Number of Shares Percentage of
Name of Beneficial Owner Beneficially Owned Outstanding
------------------------------------------------------------------------------------------------------------
5% Stockholders
---------------
Not Us LTD 1,725,769 (1) 6.73%
Gordon Rock 11,913,233 (2) 35.23%
SBC Venture Capital Corporation 2,044,116 (3) 7.68%
Special Situations Funds 1,389,239 (4) 5.18%
Executive Officers and Directors
--------------------------------
Richard A. Lang 3,171,107 (6) 12.41%
Brian Murphy 460,000 (7) 1.78%
Barry L. Ritholtz 250,000 (8) *
All executive officers and directors as a group (3 persons) 3,881,107 14.78%
* Represents less than a one (1) percent interest
(1) Includes 1,525,769 shares held, and options to purchase 200,000 shares of our common stock.
(2) Includes 1,617,650 shares of our common stock held by the Rock family; 1,916,413 shares held by Mercer Management Inc., options to purchase 500,000 shares held by Mr. Rock, and warrants to purchase 7,879,170 shares of our common stock held by Mercer Management, Inc.
(3) Includes 857,633 shares of our common stock and a warrant to purchase 1,186,483 shares of our common stock.
(4) Represents warrants to purchase 1,389,239 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.
(5) Includes 450,150 shares and 75,075 warrants held be the Dorothy Stauffer Lyddon Irrevocable Living Trust; 307,949 shares held by the Dorothy S Lyddon Trust; and 524,871 shares and 294,687 warrants held be John Lyddon.
(6) Includes 727,346 shares of our common stock in the name of the Lisa Walters and Richard Lang Revocable Trust, 2,221,761 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. Also includes 100,000 shares transferred to the family’s irrevocable trust fund in 2002.
(7) Represents options to purchase 460,000 shares of our common stock held by Mr. Murphy.
(8) Represents options to purchase 250,000 shares of our common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since January 1, 2003, 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 compensation arrangements that are described in Executive Compensation and Other Matters, above, and the transactions described below.
SUBSEQUENT EVENTS
In January of 2004, a former member of the Company’s Board of Directors exercised his option to purchase 50,000 shares of the Company’s common stock at a purchase price of $.2812 per share, resulting in net proceeds of $14,060 to the Company.
BURST.COM, INC.
Dated: March 12, 2004 By /s/ Richard A. Lang
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Richard A. Lang
Chairman, Chief Executive Officer and Chief Financial Officer