The accompanying financial statements include the accounts of bright-technologies.com,inc., a Delaware corporation, incorporated on April 23, 1999 and Bright Technologies, Inc., a Georgia corporation, incorporated on December 29, 1994 (collectively, "the Company").

On April 22, 1999, the shareholders of Bright Technologies, Inc. exchanged all of their common shares of Bright Technologies, Inc. for 6,000,000 shares of bright-technologies.com,inc.'s common stock. As a result of this reorganization, Bright Technologies, Inc. became a wholly-owned subsidiary of bright-technologies.com,inc. All common shares, stock options, warrants and related per-share data reflected in the accompanying financial statement and notes thereto have been adjusted to give effect to this reorganization. The Company is a development stage telecommunications company formed to develop and commercialize fixed wireless telephones and wireline payphones and payphone components, including related management software. Since inception, the Company has devoted substantially all of its efforts towards research and development activities, acquisition of certain in-process research and development, recruiting its research and management personnel, securing agreements for various wireless transmission standards and raising capital.

The Company has not yet generated any significant revenue from any of its products and has not yet achieved profitable operations or positive cash flow from operations. There is no assurance that profitable operations, if ever achieved, could be sustained on a continuing basis. In addition, development activities and the commercialization of the telephone products will require significant additional financing. The Company's deficit accumulated during the development stage aggregated $7,344,000 through December 31, 1998 and $7,850,000 through September 30, 1999, and the Company expects to incur substantial losses in future periods. Further, the Company's future operations are dependent on the success of the Company's development and commercialization efforts and market acceptance of the Company's products.

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, as shown in the accompanying financial statements, the Company has incurred losses from operations from inception. As of December 31, 1998, the Company has a stockholders' deficiency of $2,450,000, a working capital deficiency of $2,786,000 and an accumulated deficit since inception of $7,344,000. The Company is also in default on a significant loan agreement, which totals approximately $1,346,000 in principal and interest as of December 31, 1998, and is in arrears with substantially all of its other payables and accrued liabilities. No assurances can be given that any of the Company's telephone products can complete development of any technology, or that if any technology is fully developed, it can be manufactured on a large scale basis or at a feasible cost. Further, no assurance can be given that any technology of the Company's telephone products will receive market acceptance. These factors raise substantial doubt about the Company's ability to continue as a going concern.

Since inception, the Company has financed its operations from proceeds of capital contributions totalling approximately $4,894,000 from its principal shareholder and from loans from its principal shareholder totalling approximately $811,000 through September 30, 1999. The Company is exploring additional sources of working capital, including private borrowings, an Initial Public Offering ("IPO") of its securities, joint ventures and licensing of technologies. The Company's ability to continue as a going-concern is dependent upon the financing efforts being successful. There can be no assurance, however, that the Company will be successful in obtaining financing at the level needed for the long-term development and commercialization of its planned products or on terms acceptable to the Company.

These financial statements do not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary as a result of the above uncertainty.

The information presented as of September 30, 1999 and for the nine-month and three-month periods ended September 30, 1998 and 1999 and for the period from inception (December 29, 1994) through September 30, 1999 has not been audited. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the information set forth therein. The results of operations for the nine months and three months ended September 30, 1999 are not necessarily indicative of the results for the year ending December 31, 1999. For further information, refer to the Company's audited financial statements and footnotes thereto at December 31, 1998, included in the Company's Form SB-2, filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents, accounts and other receivables, bank overdraft, accounts payable, accrued expenses and long-term debt, including the current portion, are reflected in the accompanying balance sheet at amounts considered by management to reasonably approximate fair value.

Financial instruments, which potentially subject the Company to concentrations of credit risks, are principally trade accounts receivable. The Company maintains an allowance for uncollectible accounts receivable and, generally does not require collateral. At December 31, 1998 and at September 30, 1999, no allowance for uncollectible accounts was deemed necessary by management.

The Company considers all short-term highly liquid investments with a maturity of three months or less when purchased to be cash or cash equivalents.

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market.

Property and equipment are stated at cost. Depreciation is calculated using an accelerated method over the estimated useful lives (5-7 years) of the related assets. Maintenance and repair expenses are charged to operations as incurred.

Certain software development costs incurred subsequent to the establishment of the software's technological feasibility and completion of the research and development on the product hardware, in which it is to be used, are required to be capitalized. Capitalization ceases when the product is available for general release to customers, at which time amortization of capitalized costs begins. Amortization is calculated on the straight-line basis over 3 years.

The carrying value of a software and development asset is regularly reviewed by the Company, and a loss is recognized when the net realizable value falls below the unamortized cost.

The covenant not-to-compete consists of an agreed upon amount stated in the purchase contract in connection with the purchase of certain technology from Telenet (Note 3). The covenant not-to-compete is stated at cost, less accumulated amortization of $40,091 at December 31, 1998 and $44,686 at September 30, 1999, and is being amortized using a double declining method over 6 1/2 years, the lesser of the contractual term or the economic life of the acquired technology.

Amortization expense for the years ended December 31, 1997 and 1998 amounted to $12,781 and $8,848, respectively, and for the nine months ended September 30, 1998 and 1999 amounted to $6,636 and $4,595, respectively.

Patent costs are stated at cost, less accumulated amortization of $3,053 at December 31, 1998 and $7,733 at September 30, 1999. Patent costs are being amortized on a straight-line basis over 14 years.

Amortization expense for the nine months ended September 30, 1998 and 1999 amounted to $2,290 and $4,866, respectively.

Deferred offering costs relate to costs incurred with respect to a proposed IPO discussed in Note 14 to the accompanying financial statements. In the event the proposed IPO is not consummated, the deferred offering costs will be expensed.

The Company, with the consent of its principal shareholder, elected under the Internal Revenue Code to be taxed as an "S" corporation. In lieu of corporation income taxes, the shareholders of an "S" corporation are taxed on their proportionate share of the Company's taxable income or loss. Accordingly, no provision or liability for federal and state taxes is included in the financial statements for the nine months ended September 30, 1998 and 1999.

There are no proforma income taxes presented for any of periods presented in the accompanying financial statements, as the Company incurred losses for both book and tax purposes.

Commencing with the effective date of an IPO of its securities, the Company's "S" election would then be terminated. Accordingly, the Company would then provide for federal and state income taxes and provide for deferred tax assets and liabilities measured by using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates would be recognized in income in the period that includes the enactment date. A valuation allowance would be provided if it is more likely than not that some or all of the deferred tax asset will not be realized.

In accordance with SAB 4:B, undistributed losses must be reclassified to paid-in capital effective with the termination of the S corporation tax status. The pro forma effect of such termination on the balance sheet at December 31, 1998, assuming the termination of the S corporation tax status occurred on December 31, 1998, would be as follows:

Revenue from product sales are recognized upon the shipment of the product. Revenue from any company owned and operated telephones will be recognized upon the completion of the service.

Research and development expenditures are charged to expense as incurred, unless they are reimbursed under specific contracts.

As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", the Company accounts for its stock-based compensation arrangements pursuant to APB Opinion No. 25, "Accounting for Stock Issued to Employees". In accordance with the provisions of SFAS No. 123, the Company discloses the proforma effects of accounting for these arrangements using the minimum value method to determine fair value.

Basic earnings per share ("Basic EPS") is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. In computing Diluted EPS, the treasury stock method is used in determining the number of shares assumed to be purchased from the conversion of common stock equivalents. Securities that could potentially dilute Basic EPS in the future, that were not included in the computation of Diluted EPS because to do so would have been anti-dilutive for the periods presented, consist of warrants to purchase 100,000 shares of common stock discussed in Note 14, which are issuable upon the completion of an IPO and options to purchase 5% of the outstanding common stock discussed in Note 8, which were granted in January of 1999.

During 1995, the Company adopted the Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Under the provisions of this statement, the Company has evaluated its long-lived assets for financial impairment, and will continue to evaluate them as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.

The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Based on these evaluations, there were no adjustments to the carrying value of long-lived assets in 1997, 1998 and for the nine months ended September 30, 1999. In December 1995, the Company recorded a charge of $862,368 related to assets acquired from Tee-Comm (Note 3).

Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income, defined as all changes in equity from non-owner sources. Adoption of SFAS No. 130 did not have a material effect on the Company's financial position or results of operations.

Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way public enterprises report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to stockholders. Adoption of SFAS No. 131 did not have a material effect on the Company's financial position or results of operations.

Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pensions and Postretirement Benefits", which standardizes the disclosure requirements for pensions and other postretirement benefits. The Statement addresses disclosure only. It does not address liability measurement or expense recognition. There was no effect on financial position or net income as a result of adopting SFAS No. 132.

Effective January 1, 1998, the Company adopted American Institute of Certified Public Accountants Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements, such as software products, upgrades, enhancements, post-contract customer support, installation and training to be allocated to each element based on the relative fair values of the elements. The adoption of SOP 97-2 did not have an effect on the Company's financial position or results of operations.

In March 1998, the American Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which revises the accounting for software development costs and will require the capitalization of certain costs. The adoption of SOP 98-1 did not have an effect on the Company's financial position or results of operations.

On February 13, 1995, the Company executed an agreement to purchase for $1,266,400 certain assets of Tee-Comm, which was paid by the issuance of a secured promissory note discussed in Note 8. The assets that were acquired included general production equipment, inventory and technology for wireline telephone computer boards. The acquisition agreement allocated the purchase price of $1,266,400 to the assets as follows: (i) $466,400 to inventory; (ii) $150,000 to equipment; (iii) $650,000 to technology or goodwill. Due to circumstances regarding a potential infringement of a third party patent, which had, as of December 1995, approximately six years remaining, the Company ceased production of the Tee-Comm telephone computer boards and recorded an $862,368 charge to operations during 1995 reflecting the writedown of such assets.

On February 20, 1996, the Company purchased the technology product known as the Suntel line powered smartboard from Telenet. The purchased technology included in-process research and development of a wireline computer board for payphones. The February 20, 1996 agreement provided for a $250,000 payment at closing, which was allocated as follows: (i) $60,000 to a 6-1/2-year covenant-not-to-compete; (ii) $130,000 to an eighteen-month consulting arrangement between the Company and an individual, who controlled Telenet, to further develop the technology and product line; (iii) $60,000 to the acquired in-process research and development, which was charged to research and development expense during 1996.

Inventories, net of writedowns, consist of the following components:

Inventories at December 31, 1998 and September 30, 1999 are net of a valuation allowance of $583,000.

Property and equipment, net, consists of the following:

Depreciation expense for the nine months ended September 30, 1998 and 1999 amounted to $43,227 and $23,149, respectively.

Activity for the nine months ended September 30, 1999 consists of the following:

Accrued expenses consist of the following:

Notes payable consist of the following:

As discussed in Note 2, on February 13, 1995, the Company issued a secured promissory note for $1,266,400 to purchase certain assets of Tee-Comm. Under the secured promissory note agreement, the Company is required to make monthly payments of interest only from March 1, 1995 through December 1, 1995, thereafter, the Company is required to make monthly payments of principal and interest. Interest is calculated at prime and is adjusted every 18 months. The agreement provided for payments of principal to commence on December 1, 1995 through February 1, 1997 at $10,000 per month, thereafter, principal monthly payments are to be adjusted every 18 months with the first two adjustments amounting to $13,500 and $22,950, respectively, and the remaining five payments through June 30, 2002 at $92,060 per month. The note is collateralized by the Company's assets and is personally guaranteed by the Company's principal shareholder.

Commencing in April of 1997, the Company failed to make the required payments under this note agreement and remained in default as of December 31, 1998. Accordingly, the Company has classified the note as current liability at December 31, 1998 and June 30, 1999.

On January 14, 1999, the Company and the principal shareholder entered into an agreement with the Tee-Comm Bankruptcy Receiver, the representative of the secured party (the "Receiver"), which restructured the debt under the following terms:

For the nine months ending September 30, 1998 and 1999, the Company has recorded interest expense related to this secured promissory note of $107,714 and $112,300, respectively. As of December 31, 1998 and September 30, 1999, accrued interest payable amounted to $242,923 and $355,223, respectively. Interest expense for the nine months ended September 30, 1999 was calculated using the default rate of interest of prime, plus 3%.

During September 1998, the Company agreed to convert a vendor's outstanding balance of $63,937 into an unsecured promissory note, which bears an interest rate of prime, plus 2%. Interest accruals on said note are retroactive to January 1, 1998. The Company is required to make level installment payments of principal and interest of $500 on the first and fifteenth of each month, commencing October 1, 1998. The note and accrued interest are payable at the earlier of: (i) a successful IPO, or (ii) change of control of the Company, or change of control, or sale of the principal shareholder's affiliated companies.

Interest expense for the nine months ended September 30, 1998 and 1999 amounted to $5,035 and $3,158, respectively.

During January and May 1997, the Company entered into two agreements to lease equipment. The transactions have been accounted for as a capitalized lease in accordance with the provisions of the Financial Accounting Standards Board, Statement No. 13. The lease obligations have an effective per annum interest rate ranging between 13.3% and 14.9% and require 46 and 48 monthly payments, respectively, of interest and principal amounting to $1,882. Each lease contains an option to purchase the equipment at the end of the lease term for $1.

Principal payments required to be made on the above obligations are summarized as follows:

Interest expense related to the capitalized lease obligations for the nine months ended September 30, 1998 and 1999 amounted to $5,616 and $3,790, respectively.

During 1998 and for the nine months ended September 30, 1999, the Company's principal shareholder loaned the Company approximately $665,000 and $146,000, respectively. The shareholder loans are payable on demand and bear interest at 10% per annum. Interest expense accrued on such debt for the nine months ended September 30, 1998 and 1999 amounted to $432 and $53,045, respectively.

For the period from inception (December 29, 1994) through December 31, 1998, the Company's principal shareholder has contributed capital to the Company of approximately $4,894,000.

During April of 1999, the Board of Directors and stockholders of the Company approved the 1999 Stock Option Plan (the "Plan"), which provides for the granting of up to 450,000 shares of common stock, pursuant to which officers, employees, directors and consultants are eligible to receive incentive and/or nonqualified stock options. Options granted under the Plan are exercisable for a period of up to 10 years from the date of grant at an exercise price, which is not less than the fair value on date of grant, except that the exercise period of incentive stock options granted to a stockholder owning more than 10% of the outstanding capital stock may not exceed five years and their exercise price may not be less than 110% of the fair value of the common stock at the date of grant. The Plan provides for the options to include vesting provisions. The Company also adopted the 1999 Non-employee Director Stock Option Plan for the non-employee directors pursuant to which 50,000 shares of common stock may be granted. Through September 30, 1999, no options under either of these plans have been granted.

At December 31, 1998, the Company has obligations under various long-term operating leases for office space and equipment. The leases provide for minimum monthly payments aggregating $2,176 and expire at various dates through 1999 .

Rent expenses for all operating leases for the nine months ended September 30, 1998 and 1999 amounted to $66,455 and $20,260, respectively.

The Company has accrued salary payable to the Company's principal shareholder in the amount of $150,000 per year for 1996, 1997 and 1998 and $112,500 for the nine months ended September 30, 1999. As of December 31, 1998 and September 30, 1999, the accrued salary payable to the principal shareholder totalled $450,000 and $562,500, respectively. In April of 1999, the Company entered into an employment agreement with its principal shareholder, which commences upon the closing of an IPO and continues for 5 years thereafter. The employment agreement provides for, among other things, a base salary of $250,000 per year, of which $100,000 is deferred until the Company completes a secondary financing of at least $5,000,000.

In April of 1999, the Company entered into an employment agreement with an individual who will serve as the Company's Vice President, which commences upon the closing of an IPO and continues for 5 years thereafter. The employment agreement provides for, among other things, a base salary of $150,000 per year, of which $50,000 is deferred until the Company completes a secondary financing of at least $5,000,000.

In March of 1999, the Company entered into a license agreement with Motorola, Inc. ("Motorola"). The license agreement grants the Company a non-exclusive, non-assignable, non-transferable, royalty-free license to incorporate a Motorola Patent and Proprietary Information on the Company's wireless telephones, which include cellular transceivers sourced from Motorola. The licensed territories consist of the United States, Canada and Latin America. The term of the agreement is for one year and automatically renews for one-year terms, unless terminated by either party.

During December 1998, the Company consolidated its manufacturing and warehousing operations, which resulted in the Company closing a facility in Atlanta, Georgia. Facility closing costs recorded during 1998 amounted to $81,928, inclusive of a provision of $26,000 for estimated future costs.

The Company was named as a defendant in an action filed by Tidel Engineering, Inc. in February 1998 in the 191st Judicial District Court of Dallas County, Texas. Tidel Engineering, Inc. has claimed that the Company and the other named defendants are liable for debt of First Express Financial Group, Inc. ("First Express") incurred by First Express in its purchase of automated teller machines and related products and services from Tidel Engineering, Inc. The other named defendants include the Company's principal stockholder and companies controlled by him. Tidel Engineering, Inc. alleges that it relied upon the financial stability of the defendants as a whole in its decision to supply the automated teller machines and related products and services to First Express and, therefore, the defendants, including the Company, should be held liable for First Express' debt, as if each of them personally had incurred the debt. Tidel Engineering, Inc. alleged damages in the amount of $1.29 million. The Company denied liability and vigorously contested this matter. In June 1999, an agreement was reached to settle this litigation on terms that will not have any effect on the Company's financial condition or results of operations.

The Company's strategic business plan includes marketing its wireless telephone products initially to developing countries, in Latin America, Eastern Europe and the Pacific Rim, which lack the wireline infrastructure to provide sufficient telephone service to their populations. These countries have experienced volatile and frequent unfavorable economic, political and social conditions.

In view of the foregoing, the Company's intended business, earnings, asset values and prospects may be materially and adversely affected by developments with respect to inflation, interest rates, currency fluctuations, government policies, price and wage controls, exchange control regulations, taxation, expropriation, social instability, and other political, economic or diplomatic developments in or affecting such developing countries. The Company has no control over such conditions and developments, and can provide no assurance that such conditions and developments will not adversely affect the Company's operations.

For the nine months ended September 30, 1998 and 1999, approximately 31% and 100%, respectively, of net sales were derived from one company controlled by the principal shareholder. At September 30, 1999, no receivables were due from the above customer.

For the nine months ended September 30, 1998 and 1999, the Company sold approximately $24,500 and $30,625, respectively, of pay telephone products to a company controlled by the Company's principal shareholder.

On May 1, 1999, the Company entered into a three-year lease for the office space for its executive headquarters in Liverpool, New York. The property is owned by the wife of the principal shareholder of the Company. The lease provides for monthly payments of $900 commencing May 1, 1999.

In April of 1999, the Company entered into an agreement with an underwriter ("the Underwriter"), whereby the Underwriter has agreed on, a best-effort basis, to sell shares of bright-technologies.com,inc.'s common stock in an IPO. Through September 30, 1999, costs related to this proposed offering aggregate $250,000, which have been deferred.

The Company agreed to issue to the Underwriter on the closing date of the IPO warrants to purchase 100,000 shares of bright-technologies.com,inc.'s common stock at a price per share of $7.25. The warrants shall be exercisable for a four-year period commencing one year after the effective date of the IPO.

In May 1999, the Company entered into a two-year agreement with a financial advisory firm owned and operated by an individual who, in April of 1999, became the Company's Chief Financial Officer and Treasurer and a member of the Board of Directors (the "Advisor"). Under this agreement, the Advisor is to provide financial advisory services in connection with the proposed IPO and a proposed future debt offering following the completion of an IPO. The Advisor has agreed to advance the Company up to $675,000 in connection with the proposed IPO and the proposed debt offering. Any advances under this agreement, together with interest at the rate of 10% per annum, are repayable out of the proceeds of the debt offering.