Item 1. Financial Statements

• 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.

Item 2. Management's Discussion and Analysis or Plan of Operation.

The following discussion of the financial condition and results of operations of Burst.com, Inc. should be read in conjunction with 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-K.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

Some of the matters discussed in this "Management's 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:

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 and in our annual report on Form 10-K for the fiscal year ended December 31, 2001. 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 our operating results, including our 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.

The Company has incurred significant losses since its inception, and as of June 30, 2002, it had an accumulated deficit of $61,133,395. There can be no assurance that the Company will achieve or sustain profitability and the Company believes that it will continue to incur net losses in 2002.

We are an independent provider of client/server network software for the delivery of video and audio information over networks. Our principal executive offices are located in Santa Rosa, California. Our software manages the delivery of video and audio content over various networks, including the Internet and corporate intranets, optimizing network efficiency and quality of service. Our Burstware® 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. Our revenue is derived from fees for software licenses, patent licenses, and some consulting services.

Revenue recorded for the three and six month period ended June 30, 2002 was $40,505 and $110,350, respectively, versus $26,437 and $57,760 during the same periods in 2001. The revenue was due primarily to a licensing agreement with Eagle Wireless. The cost of revenue recorded for the quarter ended June 30, 2002 was zero.

Research and development expenditures during the three and six month periods ended June 30, 2002 were $940 and $13,540, respectively, as compared to $11,360 and $158,902 during the same period in 2001. 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 and marketing expenses during the three and six month periods ended June 30, 2002 were zero and zero respectively, as compared to $28,547 and $289,208 during the same periods in 2001. The decrease was the result of staff reductions and curtailment of sales, support and product marketing activity.

During the three and six month periods ended June 30, 2002, general and administrative expenses were $209,790 and $374,967, respectively, as compared to $967,458 and $1,791,210 during the same periods in 2001. The decrease was primarily due to a continued size reduction and efficiencies in our operations, as well as termination of employees during 2001 as part of our restructuring.

Restructuring costs were $0 during the six-months ended June 30, 2002 as compared to $2,964,762 during the same period in 2001 The 2001 restructuring costs resulted primarily from steep staff reductions and moving from the company's San Francisco office to the current office space in Santa Rosa, California.

We had a net loss from operations of $170,680 and $278,157, respectively, during the three and six month periods ended June 30, 2002, as compared to $1,239,824 and $5,146,322 during the same periods in 2001. The decreased losses resulted from reduction in workforce and operations discussed above.

Other income (expense), net, was $17,428 and $12,141 for the three and six month period ended June 30, 2002, as compared to $80,906 and $(486,933) during the same periods in 2001. The decrease in other expenses during the six month period ended June 30, 2002 is due to realized and unrealized losses on marketable securities during 2001. There were no sales of securities during 2002.

The increase in interest expense during the three and six months periods ended June 30, 2002 is due to an increase in non-cash interest expense of $75,324 and $152,325, respectively, resulting from amortization of a discount on notes payable.

The opinion of our independent certified public accountants on the audited financial statements for the year ended December 31, 2001 contained an explanatory paragraph regarding doubt about our ability to continue as a going concern.

Although we have been successful 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 ending June 30, 2002, we raised $350,000 in cash by issuing notes payable, and we raised an additional $70,000 through the sale of 233,333 shares of our common stock. As of June 30, 2002, we had cash reserves of approximately $74,423. We are currently in negotiations to obtain additional outside funding through loan financing and possibly the sale of our common stock to qualified investors. Any new funding raised may have a dilutive effect on our existing shareholders. In addition, the company also received $25,000 through exercise of warrants

As of June 30, 2002, we had a working capital deficit of $2,450,529 as compared to a deficit of $2,629,844 at December 31, 2001. This $179,315 decrease reflects a $44,206 increase in current assets and a decrease in current liabilities of $135,109. The decrease in current liabilities is mostly due to a decrease in accrued settlements, but this decrease is offset by increases in accrued interest and notes payable.

Net cash used in operating activities totaled $376,689 during the six months ended June 30, 2002, as compared to net cash used in operating activities of $1,431,396 during the six months ended June 30, 2001. The decrease reflects reduced operating activities.

At the time of this report, we had insufficient cash reserves and receivables necessary to meet forecast operating requirements. In the event we are unsuccessful in our efforts to raise additional funds, we will be required to significantly reduce cash outflows and, possibly, discontinue our operations. We need to raise immediate capital to continue our operations and implement our plans to respond to competitive pressures, or otherwise to respond to unanticipated requirements. Our failure to obtain immediate financing, or inability to obtain financing on acceptable terms, could require us to limit our plans, incur indebtedness that has high rates of interest or substantial restrictive covenants, issue equity securities that will dilute your holdings, or discontinue all or a portion of our remaining operations.

We develop complex software for media delivery, content management and storage. We depend on a limited number of key personnel who would be difficult to replace, and we may not be able to attract and retain management and technical personnel. We have yet to achieve very large commercial deployments. We began our current product line of software only recently and, as a result, your ability to evaluate our prospects may be limited. Our products could contain defects, which would reduce sales of those products or result in claims against us. Our future success in the licensing of our software may depend on our ability to keep pace with technological changes, which could result in a loss of revenues. If we do not develop new products or new product features in response to customer requirements or in a timely way, customers may not buy our products, which would seriously harm our business. We will not be able to sell sufficient quantities of our software products to sustain a viable software licensing business if the market for software media delivery products does not develop or if a competing technology displaces our products. We rely upon our sales of a small number of products, and the failure of any one of our products to be successful in the market could substantially reduce our revenue. Our software products generally have long sales cycles and implementation periods, which increase our costs in obtaining orders and reduce the predictability of our earnings.

Our success will depend, in large part, on our ability to protect the intellectual property that we have developed. If our proprietary technology infringes upon the intellectual property rights of others, our costs could increase and our ability to license our products or patents could be limited.

If software media technology or our method of implementing this technology is not accepted, we will not be able to sustain or expand our business. The markets in which we operate are highly competitive, and many of our competitors have much greater resources than we do, which may make it difficult for us to become profitable. Internal development efforts by our customers and new entrants to the market may increase competition. We depend on the continued growth and commercial acceptance of the Internet and we may face government regulation and legal uncertainties relating to the Internet.

A more detailed description of these risk factors can be found under the caption "Risks and Uncertainties" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

Item 1. Legal Proceedings

Item 2. Changes in Securities.

Item 3. Defaults upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K.

On July 1, 2002, the law firm of Brobeck, Phleger & Harrison, LLP joined the patent infringement and anti-trust legal action filed against Microsoft on behalf of the company on June 20^th. Brobeck, Phleger & Harrison is a global law firm with offices in Washington D.C., New York, Los Angeles, San Francisco, London, Paris and other cities. The firm focuses entirely on intellectual property with an emphasis in technology. The firm has over 700 attorneys worldwide, including 60 full-time litigators in intellectual property. The addition of the firm to Burst's legal team in its litigation against Microsoft will not increase the company's costs.

SIGNATURES

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.