10-K 1 d64521_10k.txt ANNUAL REPORT -------------------------------------------------------------------------------- FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 2003 Commission File Number 0-17977 BOUNDLESS CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3469637 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Engineers Lane Farmingdale, NY 11735 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (631) 962-1500 Securities registered pursuant to Section 12(b) of the Act None Securities registered pursuant to Section 12(g) of the Act Common Stock, $.01 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes |_| No |X| The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sale price of the registrant's Common Stock on June 30, 2004, is $0. As of August 31, 2005 the registrant had 6,705,613 shares of Common Stock, $.01 par value per share, outstanding. Boundless Corporation and Subsidiary Companies Report on Form 10-K For the Year Ended December 31, 2003

~~2001~~Page ~~2000 1999 1998 1997~~ ----~~----~~ ~~--------~~PART ~~--------~~I ~~--------~~Item -------- Total revenues $ 59,581 $ 64,544 $ 80,510 $ 90,202 $ 98,271 Gross margin 6,283 15,500 23,812 25,999 24,766 Operating expenses: Sales and marketing 5,459 7,442 10,292 8,308 7,417 General and administrative 7,690 8,279 6,979 5,845 6,213 Research and development 1~~,381~~. ~~1,691~~Business ~~5,908~~2 ~~3,666~~Item 2~~,912~~. ~~Other~~Properties ~~charges~~15 ~~(credits)~~Item ~~(2,437) 177 (~~3~~,711)~~. ~~(16)~~Legal ~~(255)~~Proceedings ~~--------~~15 ~~--------~~Item ~~--------~~4. ~~--------~~Submission ~~--------~~of ~~Total~~Matters ~~operating~~to ~~expenses~~a ~~12,093~~Vote ~~17,589~~of ~~19,468~~Security ~~17,803~~Holders 16~~,287~~ ~~--------~~PART ~~--------~~II ~~--------~~Item ~~-------- -------- Operating income (loss) (~~5~~,810)~~. ~~(2,089)~~Market ~~4,344~~for ~~8,196~~the ~~8,479~~Registrant's ~~Interest~~Common ~~expense~~Equity ~~1,599~~and ~~1,455~~Related ~~1,438~~Stockholder ~~2,539~~Matters ~~3,730~~16 ~~--------~~Item ~~--------~~6. ~~--------~~Selected ~~--------~~Financial ~~--------~~Data ~~Income~~17 ~~(loss)~~Item ~~before income tax (~~7~~,409)~~. ~~(3,544)~~Management's ~~2,906~~Discussion ~~5,657~~and ~~4,749~~Analysis ~~1,383~~of ~~(289)~~Financial ~~(333)~~Condition ~~749~~and ~~(134)~~Results ~~--------~~of ~~--------~~Operations ~~--------~~19 ~~--------~~Item ~~--------~~7A. ~~Income~~Quantitative ~~tax~~and ~~(credit)~~Qualitative ~~expense~~Disclosures ~~Income~~about ~~(loss)~~Market ~~from~~Risk ~~continuing~~36 ~~operations~~Item (8~~,792)~~. ~~(3,255)~~Financial ~~3,239~~Statements ~~4,908~~and ~~4,883~~Supplementary ~~Loss~~Data ~~from~~37 ~~discontinued~~Item ~~operations~~9. ~~(2,150)~~Changes ~~(14,004)~~in --and --Disagreements --with ~~Net~~Accountants ~~income~~on ~~(loss)~~Accounting ~~$(10,942)~~and ~~$(17,259)~~Financial $Disclosure ~~3,239~~37 $Item ~~4,908~~9A. $Controls ~~4,883~~and ~~========~~Procedures ~~========~~37 ~~========~~Item ~~========~~9B ~~========~~Other ~~Income~~Information ~~(loss)~~37 ~~per~~PART ~~common~~III ~~share~~Item ~~from continuing operations: Basic $ (1~~10.~~74)~~ $Directors ~~(0.72)~~and $Executive ~~.72~~Officers $of ~~.90~~the $Registrant ~~.89~~38 ~~========~~Item ~~======== ======== ======== ======== Diluted $ (1~~11.~~74)~~ $Executive ~~(0.72)~~Compensation $41 ~~.71~~Item $ 12.90 $Security ~~.86~~Ownership ~~========~~of ~~========~~Certain ~~========~~Beneficial ~~========~~Owners ~~========~~and ~~Net~~Management ~~income~~and ~~(loss)~~Related ~~per~~Stockholder ~~common~~Matters ~~share:~~46 ~~Basic~~Item ~~$ (2~~13.~~17)~~ $Certain ~~(3.81)~~Relationships $and ~~.72~~Related $Transactions ~~.90~~48 $Item 14.89 ~~========~~Principal ~~========~~Accountant ~~========~~Fees ~~========~~and ~~========~~Services ~~Diluted~~48 $PART ~~(2.17)~~IV $Item (315.~~81)~~ ~~$ .71 $ .90 $ .86 ======== ======== ======== ======== ======== Consolidated Balance Sheet Data At December 31: (in thousands) Working capital (deficit) $(16~~Exhibits,~~473)~~ $Financial 3Statements,~~435~~ $Schedules ~~17,942~~and $Reports ~~9,401~~on $Form 8~~,780~~-K ~~Total assets 33,215 39,604~~ 50~~,460~~ ~~49,348~~Signatures ~~54,548~~55 ~~Revolving~~Section ~~credit~~302 ~~loan~~Certification (~~short-term)~~Filed ~~8,507~~as --Exhibit --31) --Section ~~7,650~~906 ~~Current~~Certification maturities of long-term debt in default 6,855 -- -- -- -- Long-term obligations 833 13,442 14,206 7,129 10,288 Minority interest -- -- -- -- -- Mandatorily redeemable preferred stock -- -- -- 3,555 3,555 Stockholders' equity (~~deficit)~~Filed $as ~~(4,143)~~Exhibit ~~$ 5,751 $ 21,415 $ 16,657 $ 15,407~~32)

PART I Introductory Note This report on Form 10-K is a cumulative filing for the fiscal years ended December 31, 2002 and 2003 and the interim periods within those years. Due to our bankruptcy filing, this is our first periodic filing since the third quarter of 2001, although we have made certain filings on Form 8-K. Included in this filing are the audited financial statements that would have been included in annual reports on Form 10-K for 2002 and 2003 as well as summarized quarterly financial information for the interim periods. As previously disclosed in our current report on Form 8-K dated April 2, 2003, BDO Seidman, LLP resigned its engagement as our independent auditors concurrent with our filing for protection under Chapter 11 of the U.S. Bankruptcy Code. On December 1, 2003 we issued a current report on Form 8-K announcing the appointment of BP Audit Group, PLLC as our independent registered public accounting firm. ITEM 1. BUSINESS Boundless Corporation (the "Company") was incorporated in 1988 under the laws of the State of Delaware. The Company through its subsidiaries, Boundless Technologies, Inc. ("Boundless Technologies") and Boundless Manufacturing Services, Inc. ("Boundless Manufacturing"), is a manufacturer of text terminals and provider of manufacturing services. Our headquarters is located at 50 Engineers Lane, Farmingdale, New York 11735 (telephone number (631) 962-1500). This Form 10-K contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company's expectations and beliefs concerning future events, based on information available to us on the date of the filing of this Form 10-K, and are subject to various risks and uncertainties. We disclaim any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events or changed circumstances except as required to comply with the disclosure requirements of the federal securities laws. Forward looking statements necessarily involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievement expressed or implied by such forward-looking statements. Readers are cautioned to review carefully the discussion concerning these and other risks which can materially affect the Company's business, operations, financial condition and future prospects. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "intend," "expect," "anticipate," "assume", "hope", "plan," "believe," "seek," "estimate," "predict," "approximate," "potential," "continue", or the negative of such terms. Statements including these words and variations of such words, and other similar expressions, are forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable based upon its knowledge of its business, the Company cannot absolutely predict or guarantee its future results, levels of activity, performance, or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. 2 The Company notes that a variety of factors could cause its actual results and experience to differ materially from the anticipated results or other expectations expressed in its forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of its business include, but are not limited to, the following: changes in spending patterns; changes in overall economic conditions; the impact of competition and pricing; the financial condition of the suppliers and manufacturers from whom the Company sources its merchandise; changes in tax laws; the Company's ability to hire, train and retain a consistent supply of reliable and effective participants in its marketing operations; general economic, business and social conditions in the United States; the costs of complying with changes in applicable labor laws or requirements, including without limitation with respect to health care; changes in the costs of interest rates, insurance, shipping and postage, energy, fuel and other business utilities; the risk of non-payment by, and/or insolvency or bankruptcy of, customers and others owing indebtedness to the Company; actions that may be taken by creditors with respect to the Company's obligations that are subject to default proceedings; threats or acts of terrorism or war; and strikes, work stoppages or slow downs by unions affecting businesses which have an impact on the Company's ability to conduct its own business operations. Forward-looking statements that the Company makes, or that are made by others on its behalf with its knowledge and express permission, are based on a knowledge of the Company's business and the environment in which it operates, but because of the factors listed above, actual results may differ from those in the forward-looking statements. Consequently, these cautionary statements qualify all of the forward looking statements made herein. The Company cannot assure the reader that the results or developments anticipated by it will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for it or affect it, its business or operations in the way the Company expects. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, or on any subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf, which are expressly qualified in their entirety by these cautionary statements. The Company does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or thereof or to reflect the occurrence of unanticipated events, other than as required to comply with the disclosure requirements of the federal securities laws. Bankruptcy Considerations The following discussion provides general background information regarding our Chapter 11 cases, and is not intended to be an exhaustive summary. A. Pre-Petition History Boundless, a publicly-held Delaware corporation, was incorporated in 1988. Through its subsidiaries, Boundless Technologies, Boundless Manufacturing and Boundless Acquisition ("Acquisition"), Boundless provides text terminals and manufacturing services. Boundless Technologies principally designs, sells and supports desktop computer display terminals without graphics' capabilities. It offers custom and standard models of display terminals primarily to retail, financial, telecommunications and wholesale distribution businesses which utilize them for data entry and point-of-sale activities. Boundless Manufacturing operates in the electronic manufacturing services ("EMS") marketplace. It provides services in supply chain optimization, global supply base management, systems assembly and testing, distribution and logistics, repair centers and end-of-life management. It offers in-house engineering expertise, product design, test development and product development for original equipment manufacturers ("OEM"). Boundless Acquisition is a holding company formed for the sole purpose of acquiring the capital stock of Boundless Technologies. It remains a separate entity and guarantor of certain secured obligations of the Company. A fourth subsidiary, Merinta, Inc. ("Merinta"), commenced operations in 2000. Merinta created software and 3 infrastructure for Internet use. Merinta offered OEM customers a completely customized user experience which enabled their customers to differentiate themselves in the market and deliver tailored applications and services to the customer. Sales of the Company's products significantly declined since the introduction of enhanced graphic computer terminals, and the post-September 11, 2001 economic downturn in the telecommunications industry. The Company launched Boundless Manufacturing and Merinta in January 2000 to diversify their revenue and take advantage of the growth opportunities presented in the EMS and Internet markets. The Company had intended to finance the working capital needs of Merinta through the sale of equity security, which they had projected would be completed during the second quarter of 2000. However, the "Dot com" crash in April, 2000 significantly reduced the opportunities to raise equity for an Internet start-up. Operating losses generated by Merinta for 2001 were $2.15 million and for 2000, $14 million. Therefore, on or about May 11, 2001, the Company discontinued Merinta's operations. The Company was not able to raise equity to support Merinta's needs until November 2000, resulting in the necessity of supporting the start-up efforts of both Boundless Manufacturing, which by itself required significant working capital, and Merinta during the interim period. The working capital crunch, already severe as a result of the declining terminal revenues, contributed to yet additional difficulties in serving the Company's text terminal customers. These factors, in combination with the economic downturn following September 11, 2001, caused the Company and its subsidiaries, on March 12, 2003, (the "Petition Date"), to seek protection under Chapter 11 of the Bankruptcy Code. B. Pre-Petition Credit Facility with CIT Group/Business Credit, Inc. Pursuant to a Financing Agreement dated June 27, 2002, the Company entered into a credit facility (the "CIT Credit Facility") with the CIT Group/Business Credit, Inc. ("CIT"). Under the Credit Facility, CIT agreed to make loans and advances to the Company in amounts of up to 85% of their aggregate outstanding "eligible" accounts, plus the lesser of 10% of the aggregate value of the Company's eligible inventory, 85% of the appraised inventory liquidation value or $200,000, whichever is less. The CIT Credit Facility also provided for revolving loans with a maximum availability under the Credit Facility of $8.5 million. As security for the aforementioned CIT Credit Facility, the Company granted CIT a security interest in and to substantially all of its personal property. Prior to the Petition Date, CIT advised the Company that it would not make any further advances (the "Notification"). At that time, the Company owed CIT approximately $600,000. During the ten (10) day period subsequent to the Notification, payments of the Company's receivables to CIT satisfied all or substantially all of the amounts due and owing to CIT. By assignment dated February 21, 2003 (the "Assignment"), CIT assigned all of its right, title and interest in and to the CIT Credit Facility to Valtec Capital Corporation ("Valtec"). Prior to the Assignment, Valtec was a subordinated secured creditor of the Company. C. Pre-Petition Credit Facility with Valtec By a Loan and Security Agreement dated December 3, 2002 (the "Valtec Loan Agreement"), the Company consolidated prior borrowings and received additional borrowings from Valtec in the aggregate amount of approximately $1.2 million (plus accrued and unpaid interest and other charges). Valtec agreed to provide debtor-in-possession financing to the Company so that the Company could continue to operate their respective businesses as going concerns, provided that the Company filed a petition under Chapter 11 and scheduled a sale of all of their assets pursuant to ss.363 of the Bankruptcy Code shortly after the filing of the Company's Chapter 11 petitions. D. Procedural History The Company filed their respective petitions for relief pursuant to the Bankruptcy Code on March 12, 2003 (the "Petition Date"). On March 14, 2003, the Bankruptcy Court signed an Order directing that the bankruptcy cases be consolidated for procedural purposes and jointly administered. On March 25,2003, an Official Committee of Unsecured 4 Creditors (the "Committee") was appointed. The law firm of Platzer Swergold Karlin Levine Goldberg & Jaslow, LLP was retained to represent the Committee. E. The Company's Administrative Period During the period from the Petition Date through and including April 30, 2003, Valtec provided debtor-in-possession financing ("Valtec DIP Financing") to the Company. Pursuant to the Bankruptcy Court's Interim Order entered on April 17, 2003 (the "Interim Order"), the Bankruptcy Court approved: (i) the Company's use of Valtec's cash collateral ("Valtec's Cash Collateral"); (ii) direct borrowings from Valtec of an amount up to $1,500,000.00; and (iii) the Debtor-in-Possession Financing and Security Agreement by and among Valtec and the Company (the "DIP Financing Agreement"). As a condition to the Valtec DIP Financing, Valtec required the Company to enter into the Ansen Corporation Manufacturing Services Agreement ("Ansen Agreement"), pursuant to which, Ansen Corporation ("Ansen") would provide post-petition manufacturing, production and delivery services to the Company. By Order dated April 16, 2003, the Bankruptcy Court approved the Company's execution of the Ansen Agreement. Pursuant to the terms and conditions of the DIP Financing Agreement, on or before April 30, 2003, the Company was obligated to seek an order pursuant to ss. 363 of the Bankruptcy Code authorizing the sale of substantially all of their personal property free and clear of liens, claims and encumbrances (the "ss. 363 Motion"). On March 27, 2003, the Company filed the ss. 363 Motion. However, prior to the scheduled auction sale date, Vision Technologies, Inc. ("Vision") submitted a written offer to the Company to provide replacement debtor-in-possession financing in exchange for receiving seventy (70%) percent of the Company's equity when the Company confirmed the Plan. In an effort to reorganize the Company and provide a return to their creditors, which the Company believed would not be effected through the proposed ss.363 sale, on April 30, 2003, on the Company's motion (the "April 30th Motion"), the Bankruptcy Court signed an Order to Show Cause that scheduled a hearing on May 8, 2003, to consider, inter alia, the Company's request to: (i) withdraw the ss. 363 Motion; (ii) obtain replacement debtor-in-possession financing from Vision; (iii) utilize Valtec's Cash Collateral; and (iv) approve an agreement among the Company, the Committee and Vision (the "Vision Agreement"). Pursuant to Order of the Bankruptcy Court entered on May 1, 2003 (the "May Order"), and upon the May 8, 2003 hearing (the "May 8 Hearing"), the Bankruptcy Court authorized the Company to borrow a total of $375,000 from Vision on an emergency basis pending the Bankruptcy Court's final determination of the April 30th Motion, pursuant to and conditioned upon the terms and conditions contained in the May Order, and as supplemented by the record of the May 8 Hearing (respectively, the "Vision Advances" and the "Vision Priming Orders"). At a hearing held on May 14, 2003, the Court authorized the Company to utilize up to $581,000 of Valtec's Cash Collateral (proceeds of collection of receivables and sale of inventory) pursuant to and conditioned upon the terms and conditions recited into the record of the May 8 Hearing (the "May 14th Cash Collateral Order"). Pursuant to the May 14th Cash Collateral Order, the Company paid Valtec $300,000 to reduce the Company's obligations to Valtec under the Valtec DIP Financing Agreement (the "DIP Debt"), and additional amounts were paid to Valtec as adequate protection for the Company's use of inventory which was acquired by the Company post-petition and which collateralized in part the DIP Debt. After significant negotiations at a hearing held on May 28, 2003, the parties (the Company, the Committee, Vision and Valtec) informed the Bankruptcy Court that they had reached an agreement in principle for a settlement on the terms and conditions read into the record on May 28, subject to a formal stipulation subsequently prepared and executed by and between such parties. Based upon the settlement and the terms and conditions recited into the record, Valtec consented to, and the Bankruptcy Court authorized, the Company's use of additional amounts of Valtec's Cash Collateral on the terms and conditions contained in the May 14th Cash Collateral Order (together with the May 14th Cash Collateral Order, the "Valtec Cash Collateral Orders"). 5 F. Valtec Settlement and Agreement with Vision The settlement stipulation dated June 11, 2003 (the "Settlement Stipulation") by and among the Company, the Committee, Vision and Valtec resolved all then outstanding issues with Valtec and incorporated by reference an amended version of Vision Agreement dated May 11, 2003 (the "Amended Vision Agreement"). The Settlement Stipulation and the Amended Vision Agreement were "So Ordered" by the Bankruptcy Court on June 18, 2003. Pursuant to the Settlement Stipulation the parties agreed as follows: 1. As of the close of business May 27, 2003, the Company's total obligation to Valtec was $1,592,000 comprised of: (i) $1,434,000 of pre-petition debt ("Pre-Petition Obligations"); and (ii) the DIP Debt of $158,000 (collectively, the "Valtec Obligations"). 2. The pre-petition obligations to Valtec were valid, enforceable and not subject to any claim, counterclaim, set-off or defense of any kind or nature. 3. The Pre-Petition Obligations to Valtec were fully secured. 4. The DIP Debt was fully secured. 5. Payment of the DIP Debt, through a combination of amounts paid to Valtec to reimburse it for inventory acquired by the Company, in part utilizing financing provided by Vision, was to be made in weekly payments of $13,000, plus payment for inventory at Company's cost. The Company has made all of such required payments. 6. Upon payment of the DIP Debt, the Pre-Petition Obligations will be paid by a combination of equal weekly payments in the amount of $7,500 through the Confirmation Date and subsequent to confirmation, in equal monthly payments thereafter for a period of 30 months (or 34 months in the event that Valtec advanced the Professional Fees Payment of $200,000 as defined herein) with interest at a rate of 8%, collateralized by a first lien on all of the Company's assets. 7. If on the Confirmation Date the Company does not have sufficient cash to pay in full the allowed fees of the professionals retained by the Company and the Committee, Valtec will advance up to $200,000 to the Company to be applied toward the payment of such fees (the "Professional Fees Payment"), which amount shall be added to, and become part of the Pre-Petition Debt. 8. Vision would provide supplemental financing to the Company in an amount up to $650,000 plus interest (inclusive of the Vision advances theretofore provided) as contemplated by the Amended Vision Agreement. Payment of the Vision Debt will commence subsequent to payment in full of the Valtec Obligations, and shall be secured by a lien subordinate to the lien securing payment of the Valtec Obligations. As of December 31, 2003, the amounts due under the Valtec and Vision Claims were approximately $1,311,000 and $675,000 (with interest), respectively and the amount of the collateral (as defined in the Settlement Stipulation) collateralizing these claims amounted to approximately $2,774,000. 9. Valtec authorized the continued use of Valtec's Cash Collateral during the pendency of the Plan. 10. As required in the Settlement Stipulation, the Company is and shall be required to maintain collateral margins of $100,000 in excess of the Valtec Obligations, and provide Valtec with financial information on a weekly basis. Pursuant to the Amended Vision Agreement by and among the Company, the Committee and Vision, the parties agreed as follows: 1. Vision would advance to the Company an amount up to $650,000 to be secured by a security interest upon substantially all of the Company's assets, subordinate to the security interest securing payment of the Valtec Obligations. 2. The establishment of an executive committee acceptable to Vision. There is no overlap in functions or duties between the executive committee and the Board of Directors. The executive committee of the Board of Directors is responsible for the creation and execution of the Company's strategic business plan. As of November 5, 2004 the executive committee was comprised of Mr. Frank Stephens, a current member of the Company's Board of Directors; Mr. John Ryan, the Company's Chief Operating Officer; and, Mr. Joseph Gardner, the Company's Chief Financial Officer. No compensation is paid to any member of the executive committee as a result of being a member of the executive committee. 3. Cancellation of all existing capital stock of the Company, and issuance of a new class of capital stock pursuant to the terms and conditions of the Amended Vision Agreement or as otherwise agreed by the parties. 6 4. Payment of Valtec's Pre-Petition obligations over a term of up to 34 months subsequent to Confirmation, and continued use of Valtec's Cash Collateral. 5. Vision shall have the right to appoint all members of the board of directors of the reorganized Company post-confirmation. 6. The Company would propose a joint plan of reorganization with Vision (and the Committee if the Committee believes it to be in the best interest of creditors). 7. In the event that any entity other than Vision shall acquire or be entitled to acquire a majority of the Company's Capital Stock as a going concern or acquire all or substantially all of the Company's assets Vision shall receive a break-up fee in the amount of $100,000 pursuant to paragraph A(8) of the Amended Vision Agreement. 8. Upon the Bankruptcy Court's approval of the Settlement Stipulation, Amended Vision Agreement and related documents on June 18, 2003, Vision funded the remainder of the $650,000 ($100,000 of which was held in escrow and utilized for payment of the fees and expenses of the professionals for the Company and the Committee, which escrow amount with the Vision Advances was the "Vision Funding"). 9. If the Company files a plan other than as described hereinabove, which does not provide Vision with the benefits of the Amended Vision Agreement, then as a condition precedent to the confirmation of any other Plan, Vision must be paid in full (together with a break-up fee of $100,000) on the Effective Date, as set forth in paragraph 8 of the Amended Vision Agreement. G. Valtec Settlement and Agreement with Entrepreneur Growth Capital, LLC On November 30, 2004, the Company filed a motion with the Bankruptcy Court for an order authorizing the Company to (i) incur post-petition secured indebtedness, and (ii) grant a security interest and priority claims pursuant to Sections 364(c) and 364(d) of the Bankruptcy Code. On January 27, 2005, the Bankruptcy Court approved the order. As of January 31, 2005, the Company entered into an agreement with its secured lender Valtec Capital, LLC, as assignee of Valtec Capital Corporation, (the "Prior Lender") to terminate our debtor-in-possession ("DIP") financing and to release their liens on our personal property. At the same time, the Company entered into another secured DIP financing agreement (the "EGC Agreement") with Entrepreneur Growth Capital, LLC ("EGC") pursuant to which EGC was granted a lien on all of our personal property. In general, the EGC Agreement permits us to borrow up to 80% of our eligible accounts receivable. Under the EGC Agreement, the annual interest rate is 6% above the prime rate announced by Citibank, N.A. and we are required to pay a monthly service fee equal to three quarters of one percent (0.75%) of the face value of invoices assigned to EGC for the preceding month. The EGC Agreement requires us to pay minimum monthly interest of $7,500 even though our actual borrowings may result in a lesser interest charge. The Company is responsible for certain fees and fees for early termination of the facility. The maximum availability under the EGC Agreement is $1,000,000 and the term is one year. In return for termination of the prior DIP financing we also agreed to pay Valtec Capital a total of $100,000 for legal fees they incurred during our bankruptcy period. This amount is payable to Valtec Capital on the date that our Plan of Reorganization becomes effective. On February 2, 2005, the Company filed, as exhibits, the EGC Agreement on Form 8-K with the Securities and Exchange Commission. H. Sale of 100 Marcus Avenue, Hauppauge, New York On or about September 17, 2003, pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") by and among the Company, Independence Community Bank ("ICB"), JPMorgan Chase and 100 Marcus LLC, the Company agreed to transfer all of its right, title and interest in and to 100 Marcus Boulevard, Hauppauge, New York, which had served as the Company's main operating facility (the "Premises"). ICB and JPMorgan Chase held mortgages on the 7 Premises and participated in the sale transaction. The Company successfully negotiated a sale of the Premises which provided for: (i) satisfaction of all liens and encumbrances of ICB and JPMorgan Chase; (ii) payment of all outstanding real estate tax obligations from the proceeds of the sale; (iii) the Company's use of 15,000 square feet, rent free, for a period of one (1) year post-closing; (iv) the payment of $250,000 to the Company and (v) ICB and JP Morgan Chase retaining unsecured claims against the Company for the difference between the Company's Obligations to such banks and the amount of the proceeds of the sale of the Premises remitted to such bank. As a result, such banks will have pre-petition unsecured claims against the Company aggregating approximately $2,271,000. On or about September 17, 2003, the Company, ICB and JPMorgan Chase entered into that certain Proceeds Distribution Agreement (the "Proceeds Agreement), which provided for the distribution of the net proceeds of the sale of the Premises between those parties. Notwithstanding that the outstanding amounts of the mortgages far exceeded the sale proceeds of the Premises, pursuant to the Proceeds Distribution Agreement, the Company received $250,000 from such proceeds of the sale of the Premises. On or about December 9, 2003, the Court signed: (i) the Order approving the Purchase Agreement with 100 Marcus LLC; and (ii) the Order approving the Proceeds Agreement. The closing of the Premises took place on or about December 23, 2003, and on or about December 30, 2003, the Company received $190,000 pursuant to the Proceeds Agreement. On or about May, 2004 the remaining balance in the escrow was released to the Company. Pursuant to the Purchase Agreement and the Proceeds Agreement, the remaining claims of ICB and JPMorgan Chase shall be treated as general unsecured claims. I. Miscellaneous Immediately prior to the Petition Date, the Company reduced its staff from 125 to 70. Subsequent to the Petition Date, the Company further reduced the number of its employees to 35. The Company's business plan focuses primarily on the manufacturing, sale and support of its text terminal products, while releasing a series of more modern replacement products. The Company plans to exploit its history of success and well-established customer base in the Point-of-Sale (POS) market. The Company further plans to capitalize on its post-manufacturing services capability by expanding into the repair of third-party products produced by its existing OEM customers (such as NCR, IBM and Hewlett Packard). The Company presently has retained some, though greatly reduced, research and development capability, and has reduced marketing functions. We continue to operate our businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders. All vendors are being paid for all goods furnished and services provided after the Petition Date in the ordinary course of business. However, under Section 362 of the Bankruptcy Code, actions to collect most of our pre-petition liabilities are automatically stayed. Most of these pre-petition liabilities will be settled under a plan of reorganization which must be approved by the Bankruptcy Court. To successfully exit Chapter 11, we must obtain confirmation by the Bankruptcy Court of a plan of reorganization. A plan of reorganization would, among other things, resolve our pre-petition obligations, set forth our revised capital structure and establish our corporate governance subsequent to exit from bankruptcy. The decision as to when we will file a plan of reorganization depends on the timing and outcome of numerous ongoing matters in the Chapter 11 process. We expect to file a plan of reorganization that provides for the Company's emergence from bankruptcy, but there can be no assurance that the creditors eligible to vote on our plan will support our positions or our plan of reorganization (disagreements between us and those eligible to vote on our plan could adversely affect our reorganization process, including our emergence from Chapter 11). Nor can there be any assurance that the Bankruptcy Court will confirm a plan of reorganization or that any such plan will be implemented successfully. We are working towards emerging from Chapter 11 no later than July 2005, but that timing is dependent on, among other things, the timely and successful confirmation and implementation of a plan of reorganization. The rights and claims of various creditors and security holders will be determined by the plan as well. At this time, it is not possible to predict 8 accurately the effect of the Chapter 11 reorganization process on our business, nor can we make any predictions concerning how each of these claims will be valued in the bankruptcy proceedings. We believe that Boundless' presently outstanding equity securities will have no value and it is expected that those securities will be canceled under any plan of reorganization that we propose. For this reason, we urge that caution be exercised with respect to existing and future investments in any Boundless security. For more information on our bankruptcy proceedings, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1, "Voluntary Reorganization under Chapter 11" in the Notes to Consolidated Financial Statements. General Boundless Technologies, a wholly-owned subsidiary, is engaged in supplying computer terminals for commercial use. The Company's general strategy is to provide fast, easy-to-use, and cost-effective products that enable access to applications and data in commercial environments, as well as older "legacy" applications, running on mainframes, mid-range, and Unix systems. Boundless Technologies principally designs, sells and supports (i) desktop computer display terminals, which generally do not have graphics capabilities, ("General Display Terminals"), and (ii) other products that are used in multi-user computing environments. Boundless Technologies offers standard and custom models of its General Display Terminals primarily to retail, financial, telecommunications and wholesale distribution businesses requiring them for data entry and point of sale activities. The Company entered into the General Display Terminal businesses in December 1994 when the Company purchased Applied Digital Data Systems, Inc. ("ADDS") from NCR Corporation ("NCR"). ADDS changed its name to SunRiver Data Systems, Inc. and, in 1996, to Boundless Technologies, Inc. In October 1995, the Company acquired assets relating to the General Display Terminal products of Digital Equipment Corporation ("Digital"). For more than 25 years, ADDS had been a supplier of general-purpose desktop display terminals worldwide under either the customer's or ADDS(R) trademark. Boundless Manufacturing is pursuing opportunities in the electronic manufacturing services ("EMS") marketplace. As of December 31, 2003 and 2004, the Company owned 75% of the outstanding shares of common stock of this subsidiary. Services include supply chain optimization, global supply base management, systems assembly and test, distribution and logistics, repair centers and end-of-life management. Boundless Manufacturing also offers in-house engineering expertise- product design, test development and product development- to significantly reduce time-to-market for original equipment manufacturers ("OEM") customers. Boundless Manufacturing provides a complete supply chain that is designed and built to each customer's specifications. Boundless Manufacturing also has post-manufacturing support capability in New York and Atlanta. On March 6, 2000, Boundless Manufacturing acquired the manufacturing assets of Boca Research Inc. ("Boca") and assumed the lease of a 77,000 sq.ft. facility in Boca Raton, Florida. The transaction extended Boundless Manufacturing's capabilities by adding printed circuit board assemblies ("PCBAs") to its expertise. The transaction included the immediate employment by Boundless Manufacturing of approximately 70 Boca manufacturing employees. The inability of the Company to fund the start-up of Merinta, combined with the decline in text terminal sales, adversely impacted working capital. Lacking adequate working capital, the Company was not able to maintain the EMS growth they had achieved during 2001; and in June 2002 closed its manufacturing facility in Boca Raton, Florida, consolidating its operations into the Hauppauge, New York, facility. On July 19, 2002, the Company completed the sale of substantially all its machinery and equipment located at its leased manufacturing facility in Boca Raton. The Company received proceeds, net of expenses, of approximately $420,000 from the sale. During the second quarter of 2002, the Company recorded a loss of $778,000 relating to its decision to close the facility in Boca Raton and consolidate that facility's operations into its Hauppauge, NY, facility. The Company had previously negotiated a settlement of its remaining lease obligations with the landlord of the Boca Raton facility, and has 9 met its obligations under the settlement. The Company also acquired a majority of the common stock of Merinta, Inc. ("Merinta"). Merinta created software and infrastructure to enable third parties to deploy internet-based applications. As of December 31, 2003 and 2004, the Company owned approximately 84% of the outstanding common stock of Merinta, and had the right to vote approximately 70% of the outstanding voting securities of Merinta. On May 11, 2001, the Board of Directors of the Company formally approved a plan to discontinue the operations of Merinta. The loss from discontinued operations of Merinta for the years 2001 and 2000 was $2,150,000 and $14,004,000, respectively. Products and Services General Display Terminals. The Company's General Display Terminals are ANSI/ASCII desktop text terminals, which generally do not have graphics capabilities. The Company offers standard and custom models, primarily for data entry and point of sale activities. General Display Terminals are sold by the Company under the Company's ADDS(R), Dorio(R) and VT(R) trademarks, as well as under OEM customers' trademarks. The ADDS, Dorio and VT brands are complementary products, providing slightly different features to various user segments. Electronic Manufacturing Services. Boundless Manufacturing Services participates in the EMS market space and provides services that include printed circuit board assembly, build-to-order mass-customized manufacturing, supply chain optimization, global supply base management, systems assembly and test, distribution and logistics, repair centers and end-of-life management. Boundless Manufacturing also offers in-house engineering expertise- product design, test development, product development- to significantly reduce time-to-market for OEM customers. Boundless Manufacturing provides a complete supply chain that is designed and built to each customer's specifications. Boundless Manufacturing is focused on delivering a level of service and commitment, to both middle-market OEMs and start-up companies, that is currently only available to top tier customers from the larger EMS companies. In addition, it pursues smaller programs with larger OEM customers typically serviced by larger competitors. Boundless Manufacturing will develop relationships with those OEMs and ODMs whose supply chains can be completed or complemented by the company's unique capabilities, and diversify revenue risk by winning customers in several vertical markets including data storage, public and private telecommunications systems, office technology products, industrial controls and custom or embedded "PC" applications. Percentage of Total Revenues. The table below sets forth, for each of the last three years ended December 31 the percentage of total revenue contributed by those classes of similar products or services which accounted for a material portion of consolidated revenue in any of such years. Material inter-company revenue has been eliminated. General Display Electronic Manufacturing Period Terminals Services Other ------ --------- -------- ----- 2003 88.0% 12.0% 2002 64.2% 35.8% 2001 49.6% 45.0% 5.4% 10 Foreign Sales. Net foreign sales were approximately $3,473,000, $7,430,000 and $13,047,000 for 2003, 2002 and 2001, respectively. The tables below set forth, for each of the last three years ended December 31, the approximate percentage of total revenue attributable to foreign sales and the percentage attributable to the European region. % of Total Revenue ------------------ Period Total Europe ------ ----- ------ 2003 29.6% 25.3% 2002 27.7% 16.9% 2001 21.9% 19.5% Manufacturing Assembly Operations. The Company's manufacturing operations are located in Farmingdale, New York, and include procurement of components and the assembly and testing of its products. Investment in production equipment has not been material to the Company's manufacturing operations. Semi-skilled and skilled workers assemble products using a cell-based manufacturing process that allows the Company to assemble various products at mass production costs. The Company generally cross-trains its workers so that they are able to work at all work stations. Once assembled, all systems undergo a test cycle, using sophisticated diagnostic procedures and test equipment. The Farmingdale facility has a flexible manufacturing control system that is run by software developed by the Company. This system provides a flexible, customer-focused manufacturing approach that enables the Company to quickly customize products for orders of one to one thousand. Just-in-time systems allow the Company to achieve efficient asset utilization and fast response time to customers. The Company is generally able to fill orders within three to five days after receipt of an order. Accordingly, backlog has not traditionally been material to the Company. The Company is using approximately 23,000 of its 32,000 square feet of space in the Farmingdale, NY, facility for manufacturing and has the capacity to meet its current and anticipated production needs. Suppliers. The Company purchases subassemblies and components for its products from more than 40 domestic and Far East suppliers. Purchases from Radiance Electronics, Ansen Corporation and Video Display Corporation accounted for approximately 33.5%, 20.2% and 8.9%, respectively, of the dollar amount of the Company's total purchases in 2004 of subassemblies and components. Purchases from Radiance Electronics (formerly Goldtron Electric), Ansen Corporation and Hewlett Packard, accounted for approximately 24%, 20% and 18%, respectively, of the dollar amount of the Company's total purchases in 2003 of subassemblies and components. In 2002 Goldtron Electric, Arrow Electronics and Clinton Electric Corp. accounted for approximately 22%, 9% and 6%, respectively, of the dollar amount of the Company's total purchases of subassemblies and components. As a condition to the Valtec DIP Financing, Valtec required the Company to enter into the Ansen Corporation Manufacturing Services Agreement ("Ansen Agreement"), pursuant to which, Ansen Corporation ("Ansen") would provide post-petition manufacturing, production and delivery services to the Company. The Company was subject to supply disruption due to the production transition; however, as of July 1, 2003, Ansen had successfully transitioned production to its manufacturing facility and had achieved mass-production capability. The Company placed on Ansen initial purchase orders for certain components with committed delivery dates beginning March 2003. The failure of Ansen to timely deliver the components resulted in the cancellation or rescheduling of customer orders placed on the Company; and generally resulted in a reduction of the number of components required by 11 the Company with respect to the original delivery dates. On November 7, 2003, Ansen notified the Company of its intention to terminate the Ansen Agreement due to the alleged failure of the Company to accept and pay for the components as originally scheduled. As of June 1, 2005, Ansen continues to deliver the components to the Company. While there are at least two qualified suppliers for the subassemblies and components that are made to the Company's specifications, the Company generally sources such items from a single supplier so that it can take advantage of volume discounts and more easily ensure quality control. The Company estimates that the lead-time required before an alternate supplier can begin providing the necessary subassembly or component would generally be between six to ten weeks. The disruption of the Company's business during such period of lead-time could have a material adverse effect on its sales and results of operations. In the event of a prolonged interruption in the supply chain, the Company's cash flow and working capital position would be adversely affected. Warranties. The Company provides a one-year warranty covering defective materials and workmanship. The Company's products are serviced at depots that are geographically dispersed throughout the world. Users can purchase extended warranties of up to three years or can pay for repairs on a time and materials basis. For the years 2001, 2002 and 2003, the Company's cost of warranty repairs was less than 1%, respectively, of the Company's total revenues. The Company does not warrant software, but users are permitted to return software for a refund within 30 days after purchase. Accordingly, customers are afforded the opportunity to use software on a trial basis through the Company's evaluation program. A provision for potential warranty liability is recorded at the time revenue is recognized. Research and Development. During 2003, 2002 and 2001, the Company expended approximately $170,000, $959,000 and $1,381,000, respectively, on research and development activities. Boundless' research and development activities have historically related primarily to General Display Terminals and Windows-based terminals. As part of the Company's restructuring activities, significant reductions in the staffing were implemented in March 2003, resulting in lower research and development expenditures as compared to prior years. Additionally, because General Display Terminals are mature products, development activities in the recent past year have only included enhancements to the existing product family. With the sale of the Windows-based terminal product line to Neoware, in June 2001, the resources required for product development activities has been further reduced. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." 12 Sales and Marketing Boundless Technologies markets its terminal products through OEMs and other multi-tier distribution channels. OEMs that do not want to maintain engineering or manufacturing resources can obtain products with their brand name from Boundless Technologies. Customers can buy Boundless Technologies' products from an international network of value-added resellers (VARs) and regional distributors. In order to reduce its dependence on existing OEM customers, Boundless Technologies has been increasing its distribution channel marketing and sales efforts and seeking additional OEM customers. Through its sales force, Boundless Technologies sells directly to large VARs and regional distributors and also sells to major national and international distributors. Boundless Technologies' sales force operates out of two geographically dispersed locations in the United States and a European office in the United Kingdom. In selling its General Display Terminals, Boundless Technologies emphasizes customization, reliability and compatibility with a broad range of UNIX, Pick and other operating systems. Boundless Technologies uses direct mail, telemarketing and cooperative marketing to promote its products. The company believes the most effective way to reach this market is via cooperative marketing with its channel partners. Boundless Technologies' business is not seasonal. The third quarter of the calendar year contributes slightly less revenue, as a percent of the total year's revenue, due to extended vacation periods in Europe, where sales of the company's VT/Dorio products are strong. Other fluctuations in quarterly sales result from large orders that are unrelated to the time of year. Boundless Manufacturing services include systems assembly, test, distribution and logistics, repair centers and end-of-life management. Boundless Manufacturing also offers in-house engineering expertise- product design, test development, product development- to significantly reduce time-to-market for OEM customers. Boundless Manufacturing provides a complete supply chain that is designed and built to each customer's specifications. The Company has effectively implemented an outsourcing strategy and cut manufacturing costs for many prominent OEMs. Boundless Manufacturing is also focused on delivering a level of service and commitment to middle-market OEMs and start-up companies that is currently only available to top tier customers from the larger EMS companies. Boundless Manufacturing's strategy, the implementation of which is dependent on its ability to raise working capital, includes aggressively expanding our geographic footprint, service offering, technology base, and information technology infrastructure. For 35 years, Boundless Technologies has manufactured high quality products and offered a full suite of supporting services. In the last decade, Boundless Technologies has specialized in build-to-order mass-customized manufacturing, a capability that has evolved into a key core competency that we believe offers a significant competitive advantage in its key markets. The Company's Plan of Reorganization contemplates the consolidation of the Boundless subsidiaries into one legal entity. The new entity will combine and leverage the expertise and capabilities resident within the Boundless family to deliver information access and control solutions through its distribution networks. During the year ended December 31, 2004, Hewlett Packard, Ingram Micro, and Jetstar contributed 15.6%, 13.8% and 10.9%, respectively, of the Company's total revenue. Hewlett Packard and NCR were the Company's most significant customers in 2003, accounting for approximately 32% and 13%, respectively, of the Company's total revenue. In 2002, Hewlett Packard contributed approximately 14% of the Company's total revenues. The Company believes a decline in the level of sales to these customers, without growth in other areas of its business, could adversely affect the Company's results of operations and liquidity. 13 Competition The Company believes that alternative technologies, particularly graphics-capable computers, together with the abandoning of text terminals by both IBM and HP, have eroded the total available market to between 100,000 to 130,000 units in 2004. The Company believes the market for general purpose text terminals will continue to erode at 20-30% annually. The decline in text sales has resulted in a consolidation of former competitors, as well as the outsourcing of production from original equipment manufacturers to the remaining industry participants. Although industry data is not available, the Company believes its market share to be approximately 25%, with Wyse Technologies ("Wyse"), a Taiwanese company, holding an approximate 45% market share. In the period just prior to the bankruptcy filing, the Company believed the relative market shares of Boundless and Wyse were approximately equal at 35% each. The Company believes that the market will continue to decline and therefore lead to additional consolidation. Any market share increases for the Company will come at the expense of current industry competitors. General Display Terminal customer purchase criteria are based on quality, availability, customization, compatibility with other terminals, and price. The Company holds the leadership position in this market. The EMS market in 2003 was estimated by industry analysts to be in excess of $100 billion and was served by over 2,500 competitors in the U.S. alone. The number of competitors in this market has declined due to lack of capital, process expertise, or breadth of service offering. The market continues to be characterized by merger activity. Overall, the industry is still projected to grow at least at a 12% annual rate for at least the next six years. The industry's top six leaders still represent a substantial portion of the industry's revenue, at approximately 60% in 2003. Success rests on capitalizing on the opportunity to build partnerships with technology product developers and marketers to provide a full range of design, engineering, manufacturing and customer care services in a fully integrated solution business. Boundless Manufacturing is focused on delivering a level of service and commitment, to both middle-market OEMs, and start-up companies, and for smaller programs with top tier OEM customers. Patents, Trademarks and Licensing The Company owns approximately 20 patents relating to General Display Terminals issued in the United States and various foreign countries, none of which is believed to be material to its business. The patents expire during the next nine years, with expiration dates ranging from December 2005 through August 2013. The Company believes that the knowledge and experience of its management and personnel and their ability to develop, manufacture and market the Company's products in response to specific customer needs is more significant than its patent rights. The trademarks ADDS, Viewpoint, VT, and Dorio, are registered in the United States Patent and Trademark Office and in a number of foreign countries. Backlog We believe that backlog is not a meaningful indicator of future business prospects due to the build-to-order manufacturing processes employed by the Company. This process allows the Company to manufacture product to customer specification within three days of the receipt of the customer order. Therefore, we believe that backlog information is not material to an understanding of our overall business. Environmental Regulation Amounts incurred by Boundless in complying with federal, state and local legislation pertaining to protection of the environment during the past three years did not have a material effect upon capital expenditures or the financial condition of the Company. It is our policy to apply strict standards for environmental protection to sites inside and outside the U.S., even when not subject to local government regulations. State and local agencies, as well as federal lawmakers, may impose new laws and regulations that could have a significant impact on our business. Employees At June 10, 2005 and December 31, 2004, the Company had approximately 31 full-time employees engaged as 14 follows: 3 in product design and engineering, 21 in manufacturing and repair services, 2 in sales, systems services and marketing and 5 in administration. At December 31, 2003, the Company had approximately 57 full-time employees engaged as follows: 3 in product design and engineering, 40 in manufacturing and repair services, 5 in sales, systems services and marketing and 9 in administration. None of the Company's employees is covered by a collective bargaining agreement. The Company considers relations with its employees to be satisfactory. ITEM 2. PROPERTIES As of December 31, 2003, the Company's administrative offices were located in a 15,000 square foot leased facility at 100 Marcus Boulevard, Hauppauge, New York. Under the terms of sale of the Company's principal offices previously located at this site, the Company was entitled to utilize the 15,000 square feet free of charge for a term of one year following the sale. Boundless' manufacturing and service activities are currently conducted in a leased facility of approximately 32,000 square feet of space in Farmingdale, New York. The lease expires February 28, 2009, and calls for an annual base rent of $216,000 in the first year of the agreement, escalating to $243,200 in the fifth year. The Company leases one other small facility in Atlanta, Georgia for depot repair and support services. The annual lease commitment for this facility is not material. In December 2004 the Company consolidated its administrative offices into the Farmingdale facility. ITEM 3. LEGAL PROCEEDINGS In re: Boundless Corporation, et. al. As discussed above, on the Petition Date, the Company, and its wholly and majority owned subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Cases are being jointly administered under the caption "In re Boundless Corporation, et al., Case No. 03-81558-478." As debtors-in-possession, we are authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. As of the Petition Date, virtually all pending litigation (including some of the actions described below) is stayed, and absent further order of the Bankruptcy Court, no party, subject to certain exceptions, may take any action, again subject to certain exceptions, to recover on pre-petition claims against us. In addition, we may reject pre-petition executory contracts and unexpired lease obligations, and parties affected by these rejections may file claims with the Bankruptcy Court. At this time, it is not possible to predict the outcome of the Chapter 11 process or its effect on our business. An action was commenced by Kareem Mangaroo, employed by Boundless Technologies between February 1994 and April 1999 as a material handler ("Plaintiff"), on February 5, 2001, against Boundless Technologies, Boundless Corporation, and four employees of the Company (Joseph Gardner, its CFO, Michelle Flaherty, formerly manager of Human Resources, Thomas Iavarone, director of Logistics, and Anthony San Martin, manager of Shipping), seeking damages for the unlawful termination of Plaintiff's employment in violation of Plaintiff's rights under Title VII of the Civil Rights Act of 1964, as amended; the Equal Protection Clause and Due Process Clause, pursuant to the Civil Rights Act of 1886, as amended, 42 U.S.C. ss. 1981; and for damages as a result of the conspiratory actions of defendants to deprive Plaintiff of his equal protection and due process rights pursuant to 42 U.S.C. ss. 1985 and for violation of Plaintiff's rights under the Employee Retirement Income Security Act 29 U.S. C. ss.1001. Plaintiff further alleges claims under State law for breach of contract. The verified complaint was filed in the United States District Court, Eastern District of New York. Plaintiff seeks (i) compensatory damages of $1 million from each of Boundless Technologies and four employees of the company (jointly and severally), (ii) punitive damages of $2 million from each of Boundless Technologies, the Company, and four employees of the Company (jointly and severally), (iii) $1 million against Boundless Technologies for breach of contract, and (iv) the value of forfeited options, attorney's fees, costs of the action and other relief as the court deems necessary. 15 On February 17, 2003, the defendants' motion for summary judgment was granted. On March 21, 2003, Plaintiff served Notice of Appeal to the United States Court of Appeals for the Second Circuit in opposition to the granting of defendants' motion for summary judgment. On October 15, 2003, the United States Court of Appeal for the Second Circuit granted the defendants' motion to Stay the appeal in accordance with 11 U.S.C. ss. 362. The Company intends to vigorously defend this suit since it believes that it has meritorious defenses to the action. An action was commenced by Donald W. Lytle ("Plaintiff") on February 8, 2001, against Boundless Technologies, Inc., GN Netcom, Inc., Portal Connect, Inc., and Wholesale Audio Video, Inc. in the Iowa District Court, Johnson County; Law No. LACV061503 alleging negligence and products defects resulting in injuries to Plaintiff's hearing as a result of the use of one model of the Company's General Display Terminals. Plaintiff was suing for unspecified damages. On January 17, 2003, Plaintiff filed a Dismissal with Prejudice dismissing Plaintiff's claims against Boundless Technologies, Inc. In November 2002, Comdial Corporation filed a demand for arbitration with the American Arbitration Association against Boundless Manufacturing Services, Inc. ("Boundless"). Among other things, Comdial contends that Boundless breached its contractual obligations to Comdial by failing to meet Comdial's orders for the delivery of products manufactured by Boundless. The Comdial demand seeks damages in excess of $6.0 million. On February 6, 2003, Boundless responded to the demand by denying substantially all of Comdial's claims and asserting counterclaims totaling approximately $8.2 million, including approximately $0.8 million in past due invoiced amounts. On March 13, 2003, Boundless announced that it has filed for protection pursuant to Ch. 11 of the U.S. Bankruptcy Code, causing a stay in the arbitration matter. It is not known at this time whether this filing will have any long-term impact on the arbitration, or whether the arbitration will eventually proceed. No amounts have been accrued in the Company's financial statements for any losses. In May 2005 Comdial Corporation filed for protection under Ch. 11 of the U.S. Bankruptcy Code. Since the Company's claims against Comdial accrued prior to Comdial's filing for bankruptcy, any damages awarded to the Company will constitute pre-petition claims against Comdial. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of stockholders of the Company through the solicitation of proxies or otherwise during the fourth quarter of 2002 through December 31, 2004. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock, $.01 par value, ("Common Stock") had previously traded on The American Stock Exchange ("AMEX") under the symbol BND. However, as a result of the delisting of our securities, the last day of trading on the AMEX was April 9, 2003. The Company's securities have traded on the pink sheets since then under the symbol BDLSQ.PK. As of June 24, 2005, and December 31, 2003 and 2004, there were approximately 625 holders of record of the Company's Common Stock. The following table sets forth the high and low last sale prices for the Company's Common Stock, as reported by AMEX, for the periods indicated for the year 2002 and the first quarter of 2003. Price per share information for the second, third and fourth quarters of 2003 and for all of 2004 were as reported by CBS Marketwatch. Year Ended December 31, 2004: High Low ---- --- First quarter................................... $ 0.01 $ 0.01 Second quarter.................................. $ 0.05 $ 0.01 Third quarter................................... $ 0.01 $ 0.01 Fourth quarter.................................. $ 0.01 $ 0.01 16 Year Ended December 31, 2003: High Low ---- --- First quarter................................... $ 0.32 $ 0.06 Second quarter.................................. $ 0.25 $ 0.01 Third quarter................................... $ 0.01 $ 0.01 Fourth quarter.................................. $ 0.01 $ 0.01 Year Ended December 31, 2002: First quarter................................... $ 1.30 $ 0.91 Second quarter.................................. $ 1.09 $ 0.40 Third quarter................................... $ 0.67 $ 0.30 Fourth quarter.................................. $ 0.60 $ 0.09 The last sale price of the Company's Common Stock on August 31, 2005 was $ 0.00. The Company believes its presently outstanding equity securities will have no value and it is expected that those securities will be canceled under any plan of reorganization that we propose. For this reason, we urge that caution be exercised with respect to existing and future investments in any Company security. Recent Sales of Unregistered Securities None Dividend Policy The Company presently anticipates that all of its future earnings will be retained for development of its business and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. The payment of any future dividends will be at the discretion of the Company's Board of Directors and will depend upon, among other things, restrictions on the payment of dividends imposed by its lenders, future earnings, capital requirements, the general financial condition of the Company, and general business conditions. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data for the Company for the periods and the dates indicated. The consolidated balance sheet data and the consolidated statement of operations data as of and for the years ended December 31, 2001, December 31, 2000 and December 31, 1999 are derived from the consolidated financial statements which were audited by BDO Seidman, LLP, an independent registered public accounting firm. The consolidated balance sheet data and the consolidated statement of operations data as of and for the years ended December 31, 2003 and December 31, 2002 are derived from the consolidated financial statements which were audited by BP Audit Group, PLLC, an independent registered public accounting firm. The selected financial data should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements of the Company and related Notes and other financial information included elsewhere herein. 17 Consolidated Statement of Operations Data For the years ended December 31: (in thousands, except per share data)

~~Annual~~2003 ~~Compensation~~2002 ~~Long-Term~~2001 2000 1999 --------- --------- --------- ----- ~~Compensation Name and Principal Other Annual~~ ---- ---------- ~~All~~Total ~~Other~~revenues ~~Position~~$ ~~Year~~11,750 ~~Salary~~$ ~~Bonus~~26,843 ~~Compensation~~$ ~~Options~~59,581 $ 64,544 $ 80,510 Gross margin (#loss) 788 (2537) ~~Compensation~~6,283 15,500 23,812 Interest expense 1,093 1,402 1,599 1,455 1,438 Reorganization items 655 Gain on restructuring of payables -- (3,924) -- -- -- Income tax (credit) expense -- -- 1,383 (289) (333) Income (loss) from continuing operations (3,579) (7,623) (8,792) (3,255) 3,239 Loss from discontinued operations -- -- (2,150) (14,004) -- ----- ---- --------- --------- ----- ---- --------- J.Net ~~Gerald~~income ~~Combs~~(1loss) ~~12/31/01~~(3,579) ~~$316~~(7,~~250~~623) (10,942) (17,259) 3,239 Dividend on preferred stock of subsidiary -- -- -- -- ~~Former~~50 ~~CEO~~Accretion ~~and~~on ~~12/31/00~~preferred ~~$325,000~~stock ~~$150,000~~99 148 -- ~~125~~-- -- --------- --------- --------- --------- --------- Net income (loss) applicable to common shareholders $ (3,~~000~~678) ~~Chairman~~$ ~~12/31/99~~(7,771) $~~325~~ (10,~~000~~942) $ 50(17,~~000~~259) --$ 503,~~000~~189 --========= ~~Joseph~~========= V========= ========= ========= Income (loss) per common share from continuing operations: Basic $ (0.55) ~~Joy~~$ (31.21) $ (41.74) ~~12/31/01~~$ (0.72) $~~154,431~~ --0.72 --========= ~~2,000~~========= --========= ~~President,~~========= ~~and~~========= ~~current~~Diluted ~~Chief~~$ ~~12/31/00~~(0.55) $~~158,702~~ --(1.21) --$ --(1.74) --$ ~~Executive~~(0.72) ~~Officer~~$ ~~12/31/99~~0.71 ========= ========= ========= ========= ========= Net Income (loss) per common share: Basic $ ~~61,039~~(0.55) $ ~~10,000~~(1.21) ~~Anthony~~$ ~~Giovaniello~~(42.17) ~~12/31/01~~$ (3.81) $~~147,041~~ --0.72 --========= ========= ========= ========= ========= Diluted $ (0.55) $ (1.21) $ (2~~,000~~.17) --$ ~~Executive~~(3.81) VP$ ~~Boundless~~0.71 ~~12/~~========= ========= ========= ========= ========= Consolidated Balance Sheet Data At December 31~~/00~~: (in thousands) Working capital (deficit) $~~151~~ (39) $ (9,~~075~~775) $ 29(16,~~167~~473) ~~Manufacturing~~$ ~~12/31/99~~3,435 $ 5717,~~731~~942 ~~Joseph~~Total ~~Gardner~~assets ~~12/31/01~~4,138 ~~$162~~13,~~846~~236 33,215 39,604 50,460 Revolving credit loan (short-term) -- -- 28,~~000~~507 -- ~~Vice~~-- ~~President~~Current maturities of long-~~Finance~~term ~~12/31/00~~debt ~~$155~~837 3,~~196~~142 ~~$ 62~~6,~~500~~855 -- ~~40,000~~ -- ~~Chief~~Liabilities ~~Financial~~subject ~~Officer~~to ~~12/31/99~~compromise ~~$140~~13,~~193~~207 $-- ~~40,000~~-- -- ~~20,000~~ -- ~~Jeffrey~~Long-term K.obligations ~~Moore(~~1),581 ~~12/31/01~~8,294 ~~$145~~833 13,~~971~~442 14,206 Mandatorily redeemable preferred stock -- ~~$11~~1,~~400~~554 -- -- ~~Vice President~~-~~Corporate~~- ~~12/31/00~~Stockholder's ~~$145,198~~equity $(deficit) 70(14,~~000~~877) ~~$ 9~~(11,~~500~~199) ~~105~~(4,~~000~~143) ~~Development 12/31/99 $112~~5,~~500~~751 ~~$ 25~~21,~~000 -- 50,000~~415

18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The numbers and percentages contained in this Item 7 are approximate. Dollar amounts are stated in thousands. Critical Accounting Policies We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K. Note that our preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. Impairment of goodwill and valuation of deferred tax assets. We periodically evaluate acquired businesses for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on January 1, 2002, eliminating the amortization of goodwill and other intangible assets that have indefinite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets and any asset deemed to be impaired is to be written down to its fair value. Due to its March 2003 Chapter 11 proceedings, in December 2002, the Company recorded an expense of $3,262 to remove the remaining book value of all goodwill and associated intellectual property. The carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record adjustments to the valuation allowances against its deferred tax assets resulting in additional income tax expense or credits in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for changes in the valuation allowances quarterly. During the year ended December 31, 2001, the Company recorded $2.3 million of valuation allowances related to its net deferred tax assets, resulting in a 100% valuation allowance at December 31, 2001. For the years ended December 31, 2002, 2003 and 2004 the Company has continued to record valuation allowances at 100% of its deferred tax assets. Sales returns and other allowances, allowance for doubtful accounts. The preparation of financial statements requires our management to make estimates and assumptions that affect the 19 reported amount of assets at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Specifically, our management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates. Historically the Company has not experienced material levels of product returns. Similarly, our management must make estimates of the uncollectibility of our accounts receivable. Management specifically analyzes accounts receivable and analyzes historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Warranty and product guaranties. We provide for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability may be required. Inventory obsolescence. We record inventory valuation allowances for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory valuation allowances may be required. Results of Operations First quarter of 2003 compared with first quarter of 2002 On March 12, 2003, the Company filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Prior to the filing, the Company's inability to obtain material for production adversely impacted customer demand and the Company's ability to satisfy existing customer orders. Revenue - Revenue for the quarter ended March 31, 2003 was $2,470 as compared to $10,022 for the quarter ended March 31, 2002. Sales of the Company's General Display Terminals declined 67% to $1,963 for the quarter ended March 31, 2003 from $5,965 for the quarter ended March 31, 2002. The working capital constraints combined with the industry decline in demand for General Display Terminals contributed to the revenue decline. Revenues for the period ending March 31, 2002, from Boundless Manufacturing were $4,057, excluding intercompany revenue, as compared to $507 for the period ending March 31, 2003. The revenue decline is wholly attributable to the working capital constraints faced by the Company beginning in the second quarter of 2002. Net revenue from the Company's repairs and spare parts business for the quarter ended March 31, 2003 was $207 as compared to $548 for the quarter ended March 31, 2002. 20 Hewlett-Packard contributed 26% of the Company's revenue in the quarter ended March 31, 2003. Comdial, IBM and Compaq were the most significant customers for the Company's products, accounting for 12%, 8% and 8% of revenue, respectively, for the quarter ended March 31, 2002. Gross Margin - The Company recorded a gross margin loss for the three months ended March 31, 2003 of $112 compared to gross margin of $665 (7% of revenue) for the first quarter of 2002. The decrease in gross margin is attributable to the overall decline in revenue, as well as fixed overhead associated with the Company's manufacturing facility in Hauppauge, New York. Total Operating Expenses - For the quarter ended March 31, 2003, operating expenses, excluding interest expense and reorganization expenses associated with the Company's bankruptcy filing, decreased 67% to $537 (22% of revenue), compared to expenses for the first quarter of 2002 of $1,618 (16% of revenue). This decrease is attributable primarily to layoffs and other expense control activities which the Company had begun implementing to align sales, marketing and administrative expenses with the revenue decline. Reorganization expenses, primarily for legal fees, were $335 during the quarter ended March 31, 2003. Other credits - Other credits for the quarter ended March 31, 2002 was $339 compared to credits of $129 for the period ended March 31, 2003. In the first quarter of 2002, the Company reversed $450 of prior years' bonus accruals. This reversal stemmed from several employees' waiver of their 2000 bonus awards in 2002. This credit was partially offset by a charge of $98 for the write down of debt financing costs. Interest Expense - Interest expense for the quarter ended March 31, 2003 was $563 compared to $344 for the comparable period in 2002. In connection with the bankruptcy filing, during the quarter ended March 31, 2003, the Company obtained debtor-in-possession financing with Valtec Capital, LLC and wrote off $353 of capitalized debt financing costs associated with the asset-based lending agreement with the Company's prior lender. Income Tax Expense - For the first quarter of 2003 and 2002, the Company did not record an income tax credit against the recorded loss before income taxes of $1,419 and $958 respectively. As a result of uncertainties as to whether the related future tax benefits would be realized, the Company had provided for a 100% valuation allowance against the deferred tax assets attributable to these losses. Net Loss - For the quarter ended March 31, 2002, the Company recorded a net loss of $958, compared to net loss of $1,419 for the quarter ended March 31, 2003. Second quarter of 2003 compared with second quarter of 2002 Revenue - Revenue for the quarter ended June 30, 2003, was $4,008 as compared to $6,722 for the quarter ended June 30, 2002. Revenue for the six months ended June 30, 2003 was $6,478 versus $16,744 for 2002. Sales of the General Display Terminals declined 16% to $3,640 for the quarter ended June 30, 2003 from $4,343 for the quarter ended June 30, 2002. On a year-to-date basis, revenue for General Display Terminals declined 46% to $5,603 from $10,308 in year 2002. Revenues for the quarter ended June 30, 2002, from Boundless Manufacturing were $2,379, excluding intercompany revenue, as compared to $368 for the quarter ended June 30, 2003. As a result of the bankruptcy filing and the Company's decision to close the Boca Raton manufacturing facility in June of 2002, the Company's EMS customers had sought alternative suppliers. The Company completed contractual production for its one remaining EMS customer from its Hauppauge, New York facility during the second quarter of 2003. 21 Net revenue from the Company's repairs and spare parts business for the quarter ended June 30, 2003 was $300 as compared to $458 for the quarter ended June 30, 2002. Hewlett Packard contributed 39% of the Company's total revenue in the quarter ended June 30, 2003. Comdial, Hewlett Packard and Compaq were the most significant customers for the Company's products, each accounting for 10% of revenue for the quarter ended June 30, 2002. Gross Margin - Gross margin for the three months ended June 30, 2003 was $803, as compared to a gross margin loss of $459 for the comparable period in 2002. The gross margin loss for the 2002 period was caused in large part by the underabsorption of factory overhead due to the closing of the Florida manufacturing operations. Total Operating Expenses - For the quarter ended June 30, 2003, operating expenses, excluding interest expense and reorganization expenses, were $1,253 (31% of revenue), compared to expenses for the second quarter of 2002 of $1,618 (24% of revenue). For the six months ended June 30, 2003, operating expenses were $1,791 compared to expenses in the comparable period in 2002 of $3,236. Other credits during the second quarter ended June 30, 2003 were $21 compared to other charges of $887 for the comparable period in 2002. On July 19, 2002, the Company completed the sale of substantially all its machinery and equipment located at its leased manufacturing facility in Boca Raton, Fl. The Company received proceeds, net of expenses, of approximately $420 from the sale. During the second quarter of 2002, the Company recorded a loss of $778 relating to its decision to close the facility in Boca Raton and consolidate that facility's operations into its Hauppauge, NY, facility. The Company had previously negotiated a settlement of its remaining lease obligations with the landlord of the Boca Raton facility and, as of June 18, 2002, the Company had met its obligations under the settlement. During the second quarter ended June 30, 2003, the Company recorded reorganization expenses of $330, primarily for legal fees, associated with its bankruptcy filing. Interest Expense - Interest expense for the quarter ended June 30, 2003 was $196 compared to $303 for the comparable period in 2002. Included in interest expense for the 2002 period was amortization of capitalized debt financing costs. This asset was written off during the first quarter of 2003, resulting in lower interest expense as compared to the second quarter of 2002. Net gain on the restructuring of payables - As part of the restructuring of the Company's debt, the Company reached agreement with its unsecured creditors representing approximately $10,237 of debt which required the Company to make cash payments totaling approximately $2,878, issue shares of Preferred Stock with a stated value of approximately $3,115 and a carrying value of $1,002, allow offsets of receivables in the amount of $301 otherwise due the Company and agree to price increases in the total amount of $820 on future purchases of components. The Company recognized a gain on the restructuring of payables to creditors of $5,236. In addition the Company reached agreement with its then secured lenders to restructure $1,250 of debt through the issuance of Preferred Stock with a stated value of $1,250 and a carrying value of $404, resulting in the recognition of gain of $846. The amounts relating to the gain on the restructuring of the unsecured debt reflect an increase of $1,567 from the amount originally reported to correct the discount rate used to value the preferred stock. See Note 18 to the Consolidated Financial Statements Income Tax Expense - For the second quarter of 2002, the Company did not record an income tax expense against the recorded profit before income taxes of $2,815 due to an expected effective tax rate for the year of zero. As of June 30, 2002, the Company had not utilized all its available net operating losses. As a result of uncertainties as to whether the related future tax benefits would be realized, the Company had provided for a 100% valuation allowance against the deferred tax assets attributable to these losses. Net Income (Loss)- For the quarter ended June 30, 2003, the Company recorded a net loss of $955, compared to net income of $2,815 for the quarter ended June 30, 2002. 22 Third quarter of 2003 compared to third quarter of 2002 Revenue - Revenue for the quarter ended September 30, 2003, was $3,461 as compared to $5,186 for the quarter ended September 30, 2002. Revenue for the nine months ended September 30, 2003 was $9,939 versus $21,930 for 2002. Sales of the Company's General Display Terminals were $3,207 for the quarter ended September 30, 2003 compared to $3,212 for the quarter ended September 30, 2002. On a year-to-year basis, revenue for General Display Terminals declined 35% to $8,810 from $13,520 in year 2002. Due to the Company's weak financial position no EMS activity or revenue was recorded in the quarter ended September 30, 2003. Revenues for the quarter ended September 30, 2002, from Boundless Manufacturing were $1,974, excluding intercompany revenue. Revenue for the nine-month period for Boundless Manufacturing was $8,410 in 2002, as compared to revenue of $1,129 for the nine months ended September 30, 2003. To diversify its risk, Boundless began to sub-contract Comdial's production requirements during the third quarter of 2002. Net revenue from the Company's repairs and spare parts business for the quarter ended September 30, 2003 was $253 as compared to $435 for the quarter ended September 30, 2002. Hewlett Packard and NCR were the most significant customers of the Company for the quarter ended September 30, 2003, contributing 33% and 27%, respectively, of total revenue. Comdial and Hewlett Packard were the most significant customers for the Company's products, accounting for 22% and 16% of revenue respectively, for the quarter ended September 30, 2002. Gross Margin - Gross margin for the three and nine months ended September 30, 2003 were $691 (20% of revenue) and $1,382 (14% of revenue) respectively, as compared to a gross margin loss of $25 for the third quarter of 2002 and gross margin of $181 for the nine months ended September 30, 2002. Excess capacity at the Company's manufacturing facilities resulted in under-absorbed overhead expenses of $2,535, or 12% of revenue for the first nine months of 2002. For the quarter ended September 30, 2002, under-absorbed overhead expenses were $1,078. Total Operating Expenses - For the quarter ended September 30, 2003, operating expenses, excluding interest expense and reorganization expenses, decreased 73% to $333 (10% of revenue), compared to expenses for the third quarter of 2002 of $1,311 (25% of revenue). For the nine months ended September 30, 2003, operating expenses were $2,123 compared to expenses in the comparable period in 2002 of $4,547. Reduced employment levels following the bankruptcy filing are the primary contributor to the lower spending in 2003. Reorganization expenses were $287 and $952 for the three and nine months ended September 30, 2003, respectively. During the third quarter of 2003, the Company recognized gains of $48 from the sale of excess assets. During the nine-month period the Company incurred $974 representing legal fees and fees due the U.S. Trustee administering the bankruptcy case. Interest Expense - Interest expense for the quarter ended September 30, 2003 was $192 compared to $317 for the comparable period in 2002. Interest expense for the nine months was $951 in 2003 versus $964 in 2002. Income Tax Expense - For the third quarter of 2002, the Company did not record an income tax credit against the recorded loss before income taxes of $1,589. As of September 30, 2002, the Company had not utilized all its available net operating losses. As a result of uncertainties as to whether the related future tax benefits would be realized, the Company had provided for a 100% valuation allowance against the deferred tax assets attributable to these losses. 23 Net loss- For the quarter ended September 30, 2003, the Company recorded a net loss of $91, compared to a net loss of $1,589 for the quarter ended September 30, 2002. Years Ended December 31, 2003 and 2002 Revenues: Revenues for the year ended December 31, 2003 were $11,750, as compared to $26,843 for the year ended December 31, 2002. The decline in revenue is attributable to a reduction in sales of the Company's text terminals products, as customers moved to alternative technologies, including graphic displays. In addition, revenue for 2002 included $7,781 from the Company's EMS offerings, which services the Company did not perform during the bankruptcy period due to their working capital deficit position. Text revenue includes sales of the Company's general-purpose display terminals. The Company's product family falls into two general classes: ANSI or ASCII display terminals. The general purpose segment of the Text market, whether ANSI or ASCII, is primarily characterized as a "replacement sale" market. There exists limited opportunities for sales of the general display terminal into new installations. Text terminal customer purchasing criteria are based on quality, customization, compatibility with other terminals, price and, as a result of the markets replacement characterization, lead-times. Historically, the Company has been a leader in these categories. Sales of the Company's General Display Terminals declined by 40% to $10,347 for the year ended December 31, 2003 from $17,248 for the year ended December 31, 2002. The decline is attributable to a reduction in sales of the Company's OEM products to Digital, Hewlett Packard and IBM, which, in combination, accounted for a decline of approximately $1,897, or 34.8%, from sales in 2002. Actual Text revenue in 2003 is below that recorded by the Company in 2002, even after considering the industry decline in demand for this product. The abnormally high rate of decline in 2003 is attributable to: (i) the decline related to the Company filing for bankruptcy; (ii) a one month disruption in the Company's receipt of ANSI material; and, (iii) the failure of a key component vendor to timely place orders for key ASCII components to its sub-suppliers. This resulted in the delivery of product to the Company four months later than the quoted delivery date. This delay further exacerbated lead-times, causing the Company to attempt to reschedule its commitments to customers, as well as raising customer concerns as to the Company's ability to continue to function as a reliable source of text terminals. Therefore, customers cancelled orders and did not place orders with the Company for additional product. The decline in text sales has resulted in a consolidation of former competitors, as well as the outsourcing of production from original equipment manufacturers to the remaining industry participants. Although industry data is not available, the Company believes its market share to be approximately 25%, with Wyse Technologies ("Wyse"), a Taiwanese company, holding an approximate 45% market share. In the period just prior to the bankruptcy filing, the Company believes the relative market shares of Boundless and Wyse were approximately equal at 35% each. The Company believes that the market will continue to decline and therefore lead to additional consolidation. Any market share increases for the Company will come at the expense of current industry competitors. During 2003 the Company's ATFS/EMS services were adversely impacted by its working capital constraints and bankruptcy filing. For the year ended December 31, 2003, the Company recorded EMS revenue of $371. In 2002 the Company recorded ATFS/EMS revenue of $7,781. Participation in the EMS market requires a substantial investment in working capital as well as a high level of trust between the EMS provider and the customer; since, in effect, the customer's success is directly linked to the EMS provider's ability to perform the outsourced services. The inability of the Company to fund the start-up of Merinta, combined with the decline in text terminal sales, adversely impacted working capital. Lacking adequate working capital, the Company was not able to maintain the EMS growth they had achieved during 2001; and in June 2002 closed its manufacturing facility in Boca Raton, Florida, consolidating its operations into the Hauppauge, New York, facility. 24 Customer Services revenue for 2003 was $1,032 compared to $1,814 in 2002. Customer services revenue includes the sale of spare parts, repair of product outside of the warranty period, and the sale of multi-year warranty contracts. Historically, customer service revenue has been driven from the sales of the Company's text terminal products. The Company's engineering efforts have focused on cost reduction and reliability improvements. These efforts have decreased the average failure rate of the Company's text terminals and extended the average useful life of the text terminal. These improvements have reduced the Company's ability to generate revenue from spare parts sales and repair activities. In addition, a substantial market has evolved around the sale of used equipment, as customers trade in text terminals when they switch to alternative technologies, thereby reducing the Company's opportunity to sell new equipment. Spare parts sales in 2003 were also impacted by the Company's negative working capital position and their inability to acquire material to satisfy customer demand. Sales of spare parts in 2003 were $355 as compared to $598 in 2002. Hewlett Packard and NCR were the Company's most significant customers in 2003, accounting for approximately 32% and 13%, respectively, of the Company's total revenue. During 2002, Hewlett Packard contributed 14% of the Company's revenue. Gross Margin. Gross margin for the year ended December 31, 2003 was $788 (6.7% of revenue), as compared to a gross margin loss for the year ended December 31, 2002 of $537. To reduce overhead expenses, in December 2003 the Company sold its manufacturing facility in Hauppauge, New York, thereby eliminating $8,578 in principal amount of secured debt and $634 of accrued property tax and interest. Under the terms of the sales transaction, the Company leased 15,000 sq. feet of administrative and engineering space at no out of pocket cost to it during the first year of the lease. In accordance with generally accepted accounting principles, a factor for reasonable rent expense of $150 was imputed to the sale transaction. In February 2004 the Company executed a lease to rent 32,000 sq. ft. of manufacturing space in a facility located in Farmingdale, New York. The lease term is 5 years and calls for first year annual rent of $216, escalating to $243 in the final year. During the bankruptcy period, the supply chain disruption and the Company's lack of adequate working capital caused the Company to incur substantial airfreight expenses in order to accelerate receipt of raw materials to meet customers' demands and the Company's commitments. For the year ended 2003, airfreight expense totaled $414. Had the Company been able to avoid this expense, gross margin would have been improved by 3.5 points. As of December 31, 2003, the Company has restructured the supply chain for raw materials and eliminated unfavorable airfreight expense. In December 2003 the Company recorded a charge of $778, or 6.6 points of gross margin, to reserve against excess and obsolete inventory. Of this amount, $175 represents a reserve against exposure positions existing prior to the Filing Date. In addition, the Company accrued $528 to reserve against a portion of the inventory located at Ansen. Gross margin in future periods may be affected by several factors such as sales volume, shifts in product mix, pricing strategies and absorption of manufacturing costs. Changes in retail pricing did not have a material adverse effect on the Company's gross margin in 2003 or 2002. In a continuing effort to maintain and improve margins in an industry otherwise characterized by commodity pricing, management has focused on quality, flexibility, and product cost reductions. From time-to-time margins are adversely affected by industry shortages of key components. The Company emphasizes product and cost reductions in its research and development activities and frequently reviews its supplier relationships with the view to obtaining the best component prices available. See "Asset Management." 25 Total Operating Expenses. For the year ended December 31, 2003, operating expenses, including interest expense, were $3,905 (33% of revenue), compared to expenses for 2002 of $7,523 (28 % of revenue). Sales and Marketing Expenses. Sales and marketing expenses decreased 72% from $2,193 (8.2% of revenue) for the year ended 2002 to $610 (5.2% of revenue) for the year ended December 31, 2003. The decrease is attributable to the reorganization of the Company which resulted in a major reduction in personnel and marketing programs. Boundless Technologies promotes its products by means of a balanced mix of direct mail, telemarketing and cooperative channel marketing programs. Boundless Manufacturing promotes its services through its direct sales force. General and Administrative Expenses. General and administrative expenses decreased 31.6%, or $937, to $2,032 (17.3% of revenue), from $2,969 (11.1% of revenue) for the periods ending December 31, 2003 and 2002, respectively. The decrease stems from reductions in personnel costs, travel and professional services. Research and Development Expenses. Research and development expenses decreased to $170 in 2003 from $959 in 2002. Because General Display Terminals are mature products, development activities over the past year have only included enhancements to the existing product family. Other Charges (Credits). In October 2001 the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for fiscal years beginning after December 15, 2001. In June 2002, the Company recorded an expense of $778 for the impairment of the carrying value of machinery and equipment, which was sold in July 2002, upon closing of the Florida manufacturing facility. The actual loss incurred upon disposal in July was $708, resulting in a third quarter recovery of $70. In March 2003, the Company recorded an expense of $67 for the impairment of unique manufacturing machinery which became obsolete when that mode of operations ceased. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on January 1, 2002, eliminating the amortization of goodwill and other intangible assets that have indefinite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets and any asset deemed to be impaired is to be written down to its fair value. Due to its March 2003 Chapter 11 proceedings, in December 2002, the Company recorded an expense of $3,262 to remove the remaining book value of all goodwill and associated intellectual property. Amortization will continue to be recorded for intangible assets with definite useful lives Interest Expense. Interest expense amounted to $1,093 for the year ended December 31, 2003 compared to $1,402 for 2002. The decrease is attributable to lower levels of debt carried by the Company during 2003. Gain on Restructuring of Payables. The net gain on debt restructuring recognized in 2002 did not recur in 2003. Reorganization Items. For the year ended December 31, 2003 the Company recorded expenses $655 associated with the Company's bankruptcy case. Of this amount, $1,298 of expense was recorded for legal fees and fees of the United States Trustee, offset by $685 of gains associated with the sale of assets. Income Tax Expense/Credit. Due to the net losses, the Company did not record an income tax expense or credit for either of the years ended December 31, 2003 and 2002. The Company has provided a valuation allowance against the total amount of the net deferred tax assets due to the uncertainty of future realization. Net Loss. For the year ended December 31, 2003, net loss was $3,579 (30.5% of revenue), compared to a net loss of $7,623 (28% of revenue) for the year ended December 31, 2002. 26 Accretion on Preferred Stock. Convertible preferred stock issued in connection with the 2002 debt restructuring in the face amount of $4,365 was recorded at its estimated fair value $1,406. Assuming none of the holders of the Preferred Stock convert to Common Stock of Boundless Corporation, the Company would be required to record a charge to earnings available to stockholders over the ten-year redemption period such that the carrying value of the Preferred Stock equals its face value at the time of redemption. Pre-petition, the difference between the carrying value of the preferred stock and its face value was being treated as a dividend and charged to earnings available to stockholders over the ten-year redemption period unless conversion occurs, in which case accretion terminates at that point. As of December 31,2003, $247 was accreted and added to losses attributable to common stockholders. Net Loss Applicable to Common Shareholders. For the year ended December 31, 2003, the net loss applicable to common shareholders was $3,678, compared to a net loss applicable to common shareholders of $7,771 for the year ended December 31, 2002. Years Ended December 31, 2002 and 2001 Revenues: Revenues for the year ended December 31, 2002 were $26,843, as compared to $59,581 for the year ended December 31, 2001. Sales of the Company's General Display Terminals declined by 41.6% to $17,248 for the year ended December 31, 2002 from $29,531 for the year ended December 31, 2001. The decline is attributable to a reduction in sales of the Company's OEM product line to Hewlett Packard and IBM, which, in combination, accounted for a decline of approximately $9,659, or 63.4%, from sales in 2001. Sales of the Company's Windows(R)-based Terminals were $3,218 for the year ending December 31, 2001. The Company sold the Capio product line to Neoware Systems, Inc. in June 2001. Boundless Manufacturing recognized revenue of $ 26,709 for the year ended December 31, 2001 and $7,781 for the year ended December 31, 2002. The decline resulted from the Company's working capital constraints and the resultant loss of key customers during 2002, including Comdial Corporation, which itself provided $14,300 of the Company's total revenue in 2001. Net sales from the Company's Customer Services business- repairs and spare parts- were approximately $1,814 for the year ended December 31, 2002 compared to $2,108 for the year ended December 31, 2001. The decline in the number of units in the installed base as customers switched from text terminals to graphical display devices, as well as increases in the overall reliability of the Company's products underlie the decline. Comdial and IBM were the Company's most significant customers in 2001, accounting for approximately 24% and 11%, respectively, of the Company's total revenue. Gross Margin. The Company recorded negative gross margin for the year ended December 31, 2002 of $537, as compared to gross margin for the year ended December 31, 2001 of $6,283 (10.5% of revenue). The inability of the Company to quickly adjust its overhead expenses to match its declining revenue contributed to the decline. Changes in retail pricing did not have a material adverse effect on the Company's gross margin in 2002 or 2001. Total Operating Expenses. For the year ended December 31, 2002, operating expenses were $7,523 (28% of revenue), compared to expenses for 2001 of $13,692 (23 % of revenue). 27 Sales and Marketing Expenses. Sales and marketing expenses decreased 59.8% to $2,193 (8.2% of revenue) for the year ended 2002 to $5,459 (9.2% of revenue) for the year ended December 31, 2001. The decrease is attributable to the sale, in June 2001, of the Company's Windows-based terminal product line to Neoware. General and Administrative Expenses. General and administrative expenses decreased 61.4%, or $4,721, to $2,969 (11.1% of revenue), from $7,690 (12.8% of revenue) for the periods ending December 31, 2002 and 2001, respectively. The decrease stems from the shutdown of the Company's Boca Raton manufacturing facility in June 2002, and reductions in personnel costs, travel and professional services. During the fourth quarter of 2001, the Company recorded a $1,274 charge to earnings to recognize the settlement of employment contracts with two executives of the Company. Research and Development Expenses. Research and development expenses decreased to $959 in 2002 from $1,381 in 2001. The decline is due to the sale of the Company's Windows-based terminal product line to Neoware. Other Charges (Credits). In October 2001 the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for fiscal years beginning after December 15, 2001. In June 2002, the Company recorded an expense of $778 for the impairment of the carrying value of machinery and equipment, which was sold in July 2002, upon closing of the Florida manufacturing facility. The actual loss incurred upon disposal in July was $708, resulting in a third quarter recovery of $70. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on January 1, 2002, eliminating the amortization of goodwill and other intangible assets that have indefinite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets and any asset deemed to be impaired is to be written down to its fair value. Due to its March 2003 Chapter 11 proceedings, in December 2002, the Company recorded an expense of $3,262 to remove the remaining book value of all goodwill and associated intellectual property. Amortization will continue to be recorded for intangible assets with definite useful lives During the second quarter of 2001 the Company recorded a gain of $1,500 on the sale of the Windows-based terminal product line to Neoware and it reduced warranty liabilities amounting to $300 due to expiration of the warranty period. Also, during the fourth quarter of 2001, the Company recognized $365 of income from the reversal of prior year expense accruals for expired marketing programs and bonus awards. Gain on Restructuring of Payables. During the second quarter of 2002, the Company issued mandatorily redeemable convertible preferred stock (the "Preferred Stock"), in the face amount of $4,365, as partial payment to our former lenders for removing the lien on our assets and to certain vendors as settlement against the Company's trade payables. The Company retained the services of an independent firm to determine the fair value of the Preferred Stock for purposes of recording the transactions on the Company's book of records. The convertible preferred stock was valued as a combination of an unsecured fixed income like security ("Debt Portion") and a warrant. The combination of the Debt Portion and warrant provided for an estimated fair value of the Preferred Stock of $1,406, resulting in the Company's recognizing a gain on the settlement of troubled debt of $2,959 in the second quarter ended June 30, 2002. As part of the restructuring of debt the Company also reached agreement with its unsecured trade creditors to accept cash payments in an amount less than the face value of the outstanding trade debt, short-term notes, accounts receivable offsets as well as the return of on-hand inventories. These agreements resulted in the recognition of gain on the restructuring of debt of $3,123. Under these agreements the Company was required to make total cash payments of $2,878 during calendar years 2002 through 2006. The amounts relating to the gain on the restructuring of the unsecured debt reflect an increase of $1,567 from the amount originally reported to correct the discount rate used to value the preferred stock. See Note 18 to the Consolidated Financial Statements 28 Subsequently, the Company failed to meet its payment obligations under the agreements, resulting in a reversal during the fourth quarter of 2002 of $2,158 of gain on the settlement of unsecured trade debt previously recorded. Interest Expense. Interest expense amounted to $1,402 for the year ended December 31, 2002 compared to $1,599 for 2001. Lower levels of debt under the Company's revolving line of credit with CIT were responsible for the decline. Income Tax Expense/Credit. The Company recorded an income tax expense of $1,383 for the year ended December 31, 2001. The Company did not record an income tax expense or credit in 2002. The 2001 charge resulted from income tax credits of $898, which represented changes in estimates of previously provided income taxes, and the recording of a valuation allowance of $2,281 against the remaining portion of the net deferred tax assets, including net operating loss carryforwards, that the Company currently estimates may not be realized. Discontinued Operations. On May 11, 2001, the Board of Directors of the Company formally approved a plan to discontinue the operations of Merinta. Since November 2000, following an investment by National Semiconductor in Merinta, the Company was prohibited by its lender from contributing cash to the subsidiary. As a result, Merinta was required to fund its working capital needs from the proceeds of the National Semiconductor investment, cash generated from operations, and proceeds from any additional investments. However, the cash generated from operations was not sufficient to cover its operating needs and the Company was not successful in raising additional equity investments to supplement the proceeds from National Semiconductor. The loss from discontinued operations for the year ended December 31, 2001 was $2,150. Net Loss. For the year ended December 31, 2002, net loss was $7,623, compared to a net loss of $10,942 for the year ended December 31, 2001. Accretion on Preferred Stock. Assuming none of the holders of the Preferred Stock issued in the debt restructuring convert to Common Stock of Boundless Corporation, the Company would be required to record a charge to earnings available to stockholders over the ten-year redemption period such that the carrying value of the Preferred Stock equals its face value at the time of redemption. Pre-petition, the difference between the carrying value of the preferred stock and its face value was being treated as a dividend and charged to earnings available to stockholders over the ten-year redemption period unless conversion occurs, in which case accretion terminates at that point. As of December 31,2003, $247 was accreted and added to losses attributable to common stockholders. Net Loss Applicable to Common Shareholders. For the year ended December 31, 2002, the net loss applicable to common shareholders was $7,771, compared to a net loss applicable to common shareholders of $10,942 for the year ended December 31, 2001. 29 Impact of Inflation The Company has not been adversely affected by inflation because technological advances and competition within the microcomputer industry have generally caused prices of products sold by the Company to decline. The Company has flexibility in its pricing and could, if necessary, pass along price changes to most of its customers. Liquidity and Capital Resources The discussion below regarding liquidity and capital resources should be read together with the information included in Item 1. Business- "Bankruptcy Considerations", and Notes 1, 6, 7, 8 and 12 of Notes to Consolidated Financial Statements. The matters described in "Liquidity and Capital Resources," to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 process. Those proceedings involve, or may result in, various restrictions on the Company's activities, limitations on financing, the need to obtain Bankruptcy Court and Creditors' Committee approval for various matters and uncertainty as to relationships with vendors, suppliers, customers and others with whom we may conduct or seek to conduct business. Generally, under the Bankruptcy Code, most of a debtor's liabilities must be satisfied in full before the debtor's stockholders can receive any distribution on account of such shares. The rights and claims of our various creditors and security holders will be determined by the confirmed plan of reorganization. Further, it is also likely that pre-petition unsecured claims against the Company will be substantially impaired in connection with our reorganization. At this time we can make no prediction concerning how each of these claims will be valued in the bankruptcy proceedings. We believe that the Company's presently outstanding equity securities will have no value and it is expected that those securities will be canceled under any plan of reorganization that we propose. For this reason, we urge that caution be exercised with respect to existing and future claims or investments in any Boundless security. The Company is highly leveraged. As of December 31, 2003, the Company had a tangible net worth deficit of $14,877 and total liabilities of $19,015. The Company had a working capital deficit, inclusive of items subject to compromise, of approximately $13,246 as of December 31, 2003, compared to working capital deficit of $9,775 as of December 31, 2002. Historically, the Company has relied on cash flow from operations, bank borrowings and sales of its common stock to finance its working capital, capital expenditures and acquisitions. As a condition to the Valtec DIP Financing, Valtec required the Company to enter into the Ansen Corporation Manufacturing Services Agreement ("Ansen Agreement"), pursuant to which, Ansen Corporation ("Ansen") would provide post-petition manufacturing, production and delivery services to the Company. By Order dated April 16, 2003, the Bankruptcy Court approved the Company's execution of the Ansen Agreement. By letter dated October 5, 2003, Ansen purported to cancel the Ansen Agreement. On November 13, 2003, Ansen filed a Request for Payment of Administrative Claim pursuant to 11 U.S.C. ss. 503 in the amount of $1.3 million ("Ansen Administrative Claim"). At December 31, 2003 the balance due Ansen was approximately $1,130. As of the date hereof the Company estimates that its total potential liability to Ansen is approximately $235. On the Effective Date, the allowed amount of the Ansen Administrative Claim, as determined by the Bankruptcy Court, will be paid in cash, in full. Payment of the Ansen Administrative Claim shall be funded in cash by the Company. If there should be a shortfall, Oscar Smith, a principal of Vision, has agreed to provide the Company with sufficient funds, in cash, to satisfy the remaining balance, if any, pursuant to a written agreement to provide funding in an amount not to exceed $375 (the "Smith Agreement"). By letter dated September 23, 2004, Security Bank of Kansas City committed to advance to Oscar Smith up to $375 to satisfy Smith's obligations under the Smith Agreement. 30 Any advances made by Smith and/or Vision to the Company to fund payment of administrative claims ("Additional Vision Advances") shall be obligations of the Company and shall be repaid to Vision, with interest at the rate of 8% per annum, in equal monthly amortizing payments over a period of 36 months period commencing on the first month subsequent to payment in full of the Valtec Obligations, to which the Additional Vision Advances shall be subordinate in right of repayment. The Additional Vision Advances shall be evidenced by a promissory note to be issued to Vision by the Company on the Effective Date and shall provide for the Company's right to prepay the note in full without premium or penalty. On the Effective Date, the Company shall issue, or cause to be issued for Vision's benefit, and in its name, shares of Boundless Common Stock sufficient to provide Vision with 100% of the Boundless Common Stock issued and outstanding, or to be issued and outstanding, under the Plan (the "Vision Shares"). Such issuance of the Vision Shares shall be deemed to be in full satisfaction of the Vision Claim. On or about September 17, 2003, pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") by and among the Company, Independence Community Bank ("ICB"), JPMorgan Chase and 100 Marcus LLC, the Company agreed to transfer all of its right, title and interest in and to 100 Marcus Boulevard, Hauppauge, New York, which had served as the Company's main operating facility (the "Premises"). ICB and JPMorgan Chase held mortgages on the Premises and participated in the sale transaction. The Company successfully negotiated a sale of the Premises which provided for: (i) satisfaction of all liens and encumbrances of ICB and JPMorgan Chase; (ii) payment of all outstanding real estate tax obligations from the proceeds of the sale; (iii) the Company's use of 15,000 square feet, rent free, for a period of one (1) year post-closing; (iv) the payment of $250 to the Company and (v) ICB and JP Morgan Chase retaining unsecured claims against the Company for the difference between the Company's Obligations to such banks and the amount of the proceeds of the sale of the Premises remitted to such bank. As a result, such banks will have pre-petition unsecured claims against the Company aggregating approximately $2,271. The Company's Plan of Reorganization contemplates an annual payment of cash to holders of allowed unsecured claims (the "Claims"). The Company believes that these Claims aggregate approximately $14,556. Holders of Claims shall receive their Pro Rata share of cash payments in an amount equal to 2% of annual revenues up to and including $7 million, on each of the first, second and third anniversary dates of the Effective Date; and cash payments in an amount equal to 4% of annual revenues exceeding $7 million, on each of the first, second and third anniversary dates of the Effective Date. Payments of Claims shall be escrowed on a monthly basis, and the Company must forward monthly sales reports and confirmation of the escrow to Committee Counsel. Each of the annual payments to be distributed to holders of the Claims shall be: (i) not less than $150 on each of the first and second anniversary dates; and (ii) not less than $200 on the third anniversary dates. The total amount to be distributed to holders of the Claims shall be not less than $500 (the "Minimum Distribution"). If the Company merges with another entity or is acquired by another entity prior to the payments of all amounts due and owing pursuant to the payment plan, the remaining entity must assume the Company's obligations contained herein. Annual revenues shall include only those revenues generated from sales of the Company's product line existing prior to any merger or acquisition. At December 31, 2003, the Company had accrued approximately $756 primarily for legal assistance throughout the bankruptcy period. As of December 31, 2004, outstanding professional fees, inclusive of legal fees, are estimated to approximate $1,400 as of the Effective Date. Upon application for payment pursuant to ss.ss. 330, 331 and 503(a) of the Bankruptcy Code and approval by the Bankruptcy Court, any and all professional fees not paid on or before the Effective Date shall be paid by the Company on such terms as the parties shall agree. Interest shall accrue on any unpaid professional fees from the Effective Date at a rate of eight (8%) percent per annum. 31 Since it is anticipated that professional fees shall not be paid in full on the Effective Date, the Professionals (other than auditors) shall be granted a security interest upon all of the Company's assets, junior to the security interest thereon of Valtec but pari passu with the Vision security interest, if any. When the Professionals shall have been paid in full, the security interest in their favor shall be cancelled and be of no further force and effect. Our liquidity is affected by many factors, some of which are based on the normal ongoing operations of our businesses and some of which arise from uncertainties related to global economies. In the event there is a decline in the Company's sales and earnings and/or a decrease in availability under the credit line, the Company's cash flow would be further adversely affected. Accordingly, the Company may not have the necessary cash to fund all of its obligations. Net cash used in operating activities during the year ended December 31, 2003 was $229, principally related to a net loss before reorganization expenses of $2,924. This amount was offset by non-cash expenses consisting of depreciation and amortization, inventory provisions, write-off of debt financing costs, and accounts receivable doubtful accounts allowances totaling $2,362, decreases in accounts receivable of $1,357 and decreases in accounts payable and other accrued expenses of $763. Net cash provided by reorganization activities amounted to $25 principally from proceeds of $189 from the sale of the Company's Hauppauge facility and payment of legal fees of professionals and fees of the United States Trustee. Net cash provided by investing activities was comprised of $117 stemming from the sale of miscellaneous equipment. Net cash provided by financing activities was $844 which includes proceeds of $1,572 from DIP loans offset by payments on loans and capital leases of $728. Net cash provided by operating activities during the year ended December 31, 2002 was $3,950, principally related to a reduction in accounts receivables and inventory of $6,999 and $5,594, respectively; and offset by a gain on the restructuring of accounts payable of $3,924. This amount was further reduced by a reduction in accounts payable of $4,522, and $3,262 relating to the write-off of goodwill. Other non-cash expenses included depreciation and amortization of $1,709, inventory provisions of $565 and accounts receivable doubtful accounts allowances of $599. Net cash provided by investing activities was comprised of $443 from the sale of the assets at the Company's Boca Raton manufacturing facility; offset by $127 in capital expenditures. Net cash used in financing activities was $4,287 and included proceeds of $1,478, principally unsecured loans from Valtec Capital, proceeds from the sale of the Company's common stock in a private placement amounting to $162, and payments on loans of $5,927 Net cash used in operating activities during the year ended December 31, 2001 was $1,646, principally related to a net loss of $10,942. This amount was offset by non-cash expenses, principally depreciation and amortization of $3,670, decreases in inventory of $798 and increases in accounts payable and other accrued expenses of $2,783. Net cash provided by investing activities was comprised of $1,600 stemming from the sale of the Company's Windows-based terminal product line to Neoware Systems, Inc., offset by capital expenditures of $401. Net cash provided by financing activities was principally comprised of the proceeds from the sale of the Company's common stock in the amount of $1,189 and proceeds of $1,733 from the issuance of debt. These amounts were offset by repayments of $2,602 due under the Company's mortgage note and revolving line of credit. Capital Commitments. Following is a summary of our material contractual cash obligations, including operating lease commitments (which are sometimes referred to as "off-balance sheet debt") as of December 31, 2003: 32 Less than Years Years one year 2 and 3 4 -6 Total -------- ------- ---- ----- Long-term debt $ 837 $ 1,148 $ 433 $ 2,418 Operating leases 228 513 517 1,258 ------- ------- ------- ------- Total contractual cash obligations $ 1,065 $ 1,661 $ 950 $ 3,676 ------- ------- ------- ------- The Company is not generally permitted to make any payments on pre-petition debt as a result of the bankruptcy filing. The Company has reached repayment agreements with its secured lenders, as well as other administrative creditors. The amounts included in the above table represent only those obligations for which we have finalized an agreement; however, these numbers are still subject to change until such time as the plan of reorganization is approved and we emerge from bankruptcy. In addition, we may still assume, assume and assign or reject certain executory contracts and unexpired leases pursuant to the Bankruptcy Code. As a result, we anticipate that other lease obligations as currently identified in the above table will continue to change as well. Going Concern Comment and Management's Plan of Action Our auditors' reports on our financial statements includes a comment regarding our ability to continue as a going concern. The primary issues management will focus on immediately following confirmation of the Company's Plan of Reorganization include: o Working with its secured lender on a restructuring of the terms of the DIP debt which it holds, thereby reducing the Company's cost of borrowing. o Initiating negotiations with suppliers to secure trade financing of working capital of approximately $1-2 million under terms and conditions to be agreed upon. There can be no assurance that such financing will materialize. o The continual negotiation of material contracts for the sale of its manufacturing services to customers which management believes will provide additional liquidity for operations. There can be no assurances that these contracts will materialize. o The ability of the Company to generate cash from operations and to maintain adequate cash on hand; and o The ability of the Company to achieve profitability. The Company believes that positive operating cashflows and profitability will not come from the general purpose text terminal marketplace. The Company has been and will continue to focus on the current business from the current customers in order to provide a reliable cash flow with which to execute growth plans. The paths to growth that the Company has developed include: 1. Repositioning the Company's business from a text terminal company to a Point-of-Service/Point-of-Sale ("POS") technology company, and build upon our historical success in POS to establish a strong link between the Company's and POS' applications. A key activity in support of the POS initiative includes leveraging the Company's existing technology platforms 2. Gaining access to a more modern and growing market through new product offerings including Web terminals and terminals utilizing the Linux operating system which provide high security, high levels of productivity and high reliability. 3. Enter the Radio Frequency Identification ("RFID") market place with a high value-to-cost offering. Position the company as a RFID provider to POS integrators and OEMs. RFID Controllers - read/write RFID modules for both 13.56 mhz and 900 mhz- will be embedded into the Company's technology platforms. 4. Applying its robust Build-to-Order ("BTO") processes to growth products and markets. 33 Asset Management Inventory. Management has instituted policies and procedures to maximize product availability and delivery while minimizing inventory levels so as to lessen the risk of product obsolescence and price fluctuations. Most components and sub-assemblies are stocked to provide for an order-to-ship cycle of seven days. The Company follows an inventory cycle count program that dictates monthly, quarterly, or semi-annual physical inventory counts depending upon product cost and usage. The Company utilizes various subcontractors that manufacture component parts of its products based on specifications supplied by the Company. As a guideline, the Company attempts to have two qualified subcontractors for each of its high dollar value, long lead time, customized components that it chooses to outsource. In certain cases, the Company may decide to purchase components from only one of the qualified subcontractors in an attempt to control manufacturing overhead costs tied to supplier management and development. In most cases, backup qualified subcontractors are identified by the Company in the event that termination of the primary source should occur. If such a termination occurs, the Company may experience short-term production delays and increases in material and freight costs as the alternate subcontractor initiates production runs and expedites delivery to the Company. Furthermore, worldwide shortages of raw material creates supply problems for the computer industry from time to time. Such supply shortages may cause market price increases and allocated production runs which could have an adverse effect on the Company's business. Inventory turnover was 5.5 times in 2003 and 2002. Inventory reserves at December 31, 2003 were $1,242 and were $789 for the year ended December 31, 2002. The higher reserve in 2003 is mainly attributable to a non-cancellable inventory purchase commitment with our board supplier, Ansen, which resulted in an additional provision of $528, per the Company's policy for excess inventory reserve requirements. Accounts Receivable. The Company sells its products primarily on net 30-day terms. Receivable turnover was 6.0 in 2001, 4.3 in 2002 and 6.8 in 2003. The decline in receivable turnover in 2002 is due to the failure of Comdial Corporation to pay for products purchased in 2002. See Item 3- Legal Matters. New Accounting Pronouncements In May 2003, the EITF reached a consensus on Issue No. 03-5, "Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software." The FASB ratified this consensus in August 2003. EITF Issue No. 03-5 affirms that AICPA Statement of Position 97-2 applies to non-software deliverables, such as hardware, in an arrangement if the software is essential to the functionality of the non-software deliverables. The adoption of EITF Issue No. 03-5 did not have a material impact on the Company's results of operations and financial condition. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. The provisions of this Standard do not have a significant effect on our financial position or operating results. In November 2003, the EITF reached a consensus on issue 03-10, Application of EITF 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers, addressing how a reseller is to account for the redemption of a 34 manufacturer's coupon by a consumer at the reseller's location. The final consensus eliminates the option that permitted resellers to report the value of the consideration received as a reduction in costs of goods sold, but rather mandates that it be recorded as revenue. EITF 03-10 is applicable to new arrangements, including modifications to existing arrangements, entered into in fiscal periods beginning after November 25, 2003. The provisions of this consensus do not have a significant effect on our financial position or operating results. In November 2003, the EITF reached a consensus on issue 03-0 1, The Meaning of Other-Than- Temporary Impairment and its Application to Certain Investments. EITF 03-0 1 establishes additional disclosure requirements for each category of FAS 115 investments in a loss position. Effective for years ending after December 15, 2003, companies must disclose the aggregate amount of unrealized losses, and the aggregate related fair value of their investments with unrealized losses. Those investments are required to be segregated by those in a loss position for less than twelve months and those in a loss position for greater than twelve months. Additionally, certain qualitative disclosures should be made to clarify a circumstance whereby an investment's fair value that is below cost is not considered other-than-temporary. The provisions of this consensus do not have a significant effect on our financial position, operating results or disclosures. In December 2003, the FASB issued revised SFAS No. 132 (revised 2003), "Employer's Disclosure about Pensions and Other Post-Retirement Benefits." SFAS 132(R) revised employers' disclosure about pension plans and other post-retirement benefit plans. SFAS 132(R) requires additional disclosures in annual financial statements about the types of plan assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit cost of defined benefit pension plans and other post-retirement benefit plans. The annual disclosure requirements are effective for fiscal years ending after December 15, 2003. SFAS 132(R) also requires interim disclosure of the elements of net periodic benefit cost and the total amount of contributions paid or expected to be paid during the current fiscal year if significantly different from amounts previously disclosed. The provisions of SFAS 132(R) are not currently applicable to Boundless. In December 2003, the FASB issued Interpretation 46R, "Consolidation of Variable Interest Entities" (revised December 2003), ("FIN 46R") which further clarified the provisions of FIN 46 and delayed the effective date for applying the provisions of FIN 46 until the end of the first quarter of 2004 for interests held by public entities in VIEs or potential VIEs created before February 1, 2003. See Note 2(n), "Summary of Significant Accounting Policies - New Accounting Pronouncements" in the Notes to Consolidated Financial Statements for more details on FIN 46 and FIN 46R and their impact on the Company. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by Boundless in the first quarter of fiscal 2006, beginning on January 1, 2006. Boundless is currently evaluating the effect that the adoption of SFAS 151 will have on its consolidated results of operations and financial condition but does not expect SFAS 151 to have a material impact. In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition. Pursuant to a modification of the effective date issued by the Securities and Exchange Commission, we will be required to adopt SFAS 123R at the beginning of 2006. Under SFAS 123R, we must determine the appropriate fair value model to be used for 35 valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are evaluating the requirements of SFAS 123R and we expect that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per share. We have not yet determined the method of adoption or the effect of adopting SFAS 123R, and we have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted by Boundless in the third quarter of fiscal 2005, beginning on July 1, 2005. Boundless is currently evaluating the effect that the adoption of SFAS 153 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's exposure to market risk for changes in interest rates related primarily to the Company's revolving credit facility and long-term debt obligations. The Company managed this risk through utilization of interest rate swap agreements in amounts not exceeding the principal amount of its outstanding obligations. Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a hedging derivative's change in fair value is immediately recognized in earnings. At December 31, 2002 the Company had in place an interest rate swap agreement in the amount of $305,551 bearing three-month LIBOR interest of 1.4%. The interest rate swap agreement expired March 31, 2003. The deferred loss resulting from the swap agreements, as calculated using the mark-to market method, was not material. At December 31, 2002, the Company's interest rate swap, a cash flow hedge, was closed out to the statement of operations. The Company places its investments with high credit quality issuers and, by policy, is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. As of December 31, 2003 the Company's investments consisted of cash balances maintained in its corporate account with the Chase Manhattan Bank. 36 All sales arrangements with international customers are denominated in U.S. dollars. These customers are permitted to elect payment of their next month's orders in local currency based on an exchange rate provided one month in advance from the Company. The Company does not use foreign currency forward exchange contracts or purchased currency options to hedge local currency cash flows or for trading purposes. Foreign currency transaction gains or losses have not been material to the Company's results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Item 15(a)(1) and (2) of Part IV of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE For information regarding the Company's change in independent auditors from BDO Seidman LLP to BP Audit Group PLLC, please refer to Boundless' Form 8-K filed with the SEC on December 1, 2003. ITEM 9A. CONTROLS AND PROCEDURES. An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Company's management, including the CEO and CFO, has concluded that the Company's disclosure controls and procedures are effective. During the period covered by this report, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. OTHER Not applicable. 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers The directors and executive officers of the Company are as follows: Name Age Positions and Offices ---- --- --------------------- Frank Stephens 53 Chairman of the Board of Directors Richard Bowman 44 Director John D. Ryan 54 Acting Chief Executive Officer Joseph Gardner 46 Vice President - Finance, Chief Financial Officer J. Frank Stephens has been a member of the Board since July 2001. Mr. Stephens has over 30 years domestic and international experience in the consumer, food service, and industrial ingredients channels. Since April 1997 Mr. Stephens has held the office of President, Capital Sigma Investments ("CSI"), a privately funded equity group focused in the health and soyfoods category. Since April 1998, concurrent with CSI's acquisition of Quong Hop & Co., a regional soy foods company, Mr. Stephens has served as the Chief Executive Officer of Quong Hop & Co. Prior to this, and from August 1996 until March 1997, Mr. Stephens served as the Director of Strategic Planning for Global Consumer Products, Inc., a company specializing in new product development and branding for consumer-oriented companies. Mr. Bowman has served on the Board of the company since February 2002. He has extensive experience in agribusiness, technology development and the financing of commercial agri-processing projects in lesser developed countries. He is presently the President, Chief Executive Officer, and Corporate Director of AgCheck Canada Ltd., a Canadian based firm specialized in the design, implementation and marketing of carbon offset projects. He has served in this position since January, 2003. Prior to this, from March 2000 until starting his current position, Mr. Bowman served as an executive consultant, advising select agribusiness and environmental firms in North America in the areas of production management, environmental compliance, and options for environmentally based financing. John D. Ryan ("Jack") has served as the Vice President of Operations since 2000, and as the acting Chief Executive Officer since June 2004. Jack is a manufacturing executive with over 30 years experience in Manufacturing Operations, Supply Base Management, Quality Assurance and Product Development within the Computer, Computer Peripheral, Microelectronics, and Communications industries. He is currently the Chief Operating Officer for Boundless Corporation. Prior to joining Boundless Corporation, Jack held a variety of senior management positions in Manufacturing, Supply Chain Management, Product Outsourcing, and Quality Assurance for companies including Solectron, NCR and AT&T. Jack has worked at the SUNY Stony Brook Harriman School of Management and Policy as a lecturer on topics including High Velocity Flexible Manufacturing, and Strategic Planning for Manufacturing. Joseph Gardner has served as Vice President of Finance and Chief Financial Officer of the Company since October 31, 1997. Mr. Gardner has been employed by Boundless Technologies, Inc. since April of 1990. Prior to 1997, Mr. Gardner 38 served as the Controller and Vice President of Quality Assurance for Boundless Technologies. Before joining Boundless, Mr. Gardner served in various executive financial positions with NCR Corporation including Business Planning for the Financial Systems Division and Cash Management/Foreign Exchange Exposure Management. Mr. Gardner is also a Certified Public Accountant as well as a Certified Management Accountant and received his MBA from Bowling Green State University. In June 2004 Mr. Joseph V. Joy, Jr. resigned from his position as president and CEO of the Company and from his position on the Board of Directors. The Company provided payments to Mr. Joy equal to four-months salary, payable over six months, for consulting and transition services. The total payments made to Mr. Joy under the period were approximately $72,000. In October 2004 Mr. Anthony Giovaniello resigned from his position as Senior Vice President- Business Development. In connection with the Company's bankruptcy filing on March 12, 2003, Messrs. Brooks, Masri and Smith resigned from the Board of Directors. On September 30, 2004, Mr. John McGovern resigned from his position as the Chairman of the Board of Directors. Prior to February 28, 2002, non-employee members of the Company's Board of Directors received $12,000 annually, and $500 for each Board of Director meeting attended, as compensation for services rendered to the Company in their capacity as directors of the Company. In addition, non-employee members of the Company's Board of Directors received $6,500 annually for services provided as a member of either the Audit or Compensation Committees. Due to the significant increase in time devoted to the Company Messrs. Matheson and Wood, each a member of the Board of Directors prior to February 28, 2002, also were entitled to payments of approximately $4,500 per month during the first six months of 2001. Due to cash constraints, the Company reached agreement to defer payments due to the non-employee members of the Board of Directors for services rendered to the company in 2001. On February 21, 2002, the Company issued to each of Messrs. Matheson and Wood a promissory note in the principal amount of $38,666.76, bearing interest thereon at the rate of 7% per annum. The Company issued to Mr. Murphy, a member of the Board of Directors prior to February 28, 2002, a promissory note in the principal amount of $18,666.72, also bearing interest thereon at a rate of 7% per annum. The promissory notes were payable in equal installments over 52 weeks beginning March 15, 2002. On February 21, 2002 the Company also negotiated a settlement of its obligations to Mr. Stephens, for his services as a Director to the Company during 2001, with the delivery to him of its convertible promissory note in the principal amount of $18,666.72. The promissory note carries interest at a rate of 8% per annum, and matures August 21, 2003. The note may be converted into shares of the Company's common stock at any time from the date of the note at a conversion rate of $1.05 per share of common stock. The Company is obligated to register the shares available upon conversion if, at any time, the Company determines to register any of its securities under the Securities Act of 1933 for sale to the public. On February 21, 2002, the Company granted to each of its non-employee members of the Company's Board of Directors non-qualified stock options to purchase shares of the Company's common stock. The options vest immediately, have a strike price per share of common stock of $1.05, and expire five years following the date of grant. The number of shares of common stock which may be purchased under the option granted are as follows: Mr. Matheson, 44,000; Mr. Wood, 34,000; Mr. Murphy, 27,000; and Mr. Stephens, 28,000. 39 On February 28, 2002, the Company granted to certain of its then non-employee members of the Company's Board of Directors, each of Messrs. Bowman, Brooks, Masri, McGovern and Smith, two non-qualified stock options to purchase a total of 40,000 shares of the Company's Common Stock. The first option, to purchase 25,000 shares of Common Stock, vests immediately, has a strike price per share of common stock of $1.03, and expires five years following the date of grant. The second option, covering the purchase of up to 15,000 shares of Common Stock, vests pro rata over a 24-month period, has a strike price of $1.03 per share of Common Stock, and expires five years following the date of grant. In addition the Company granted to Mr. Stephens, a non-employee member of the Company's Board of Directors, an option to purchase 15,000 shares of the Company's Common Stock. Of the 15,000 shares which may be purchased under the option, 5,000 vest immediately, and 10,000 vest pro rata over an 16-month period. The option has a strike price per share of Common Stock of $1.03 and expires five years from the date of grant. The stock options granted on February 28, 2002, contain such forfeiture provisions as are normally contained in options granted by the Company to its employees, except that such options will immediately vest in the event there is a change of control of the Company or if such Director ceases to serve as a Director of the Corporation for any reason, except due to his own initiative. Audit Committee Financial Expert The Board of Directors of Boundless Corporation has determined that J. Frank Stephens, Chair of the Audit Committee, is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A and Items 401(h)(1)(ii) of Regulation S-K of the Exchange Act. Audit Committee Boundless Corporation has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee are J. Frank Stephens and Richard Bowman. Section 16(a) Beneficial Ownership Reporting Compliance A review of the Forms 3, 4 and 5 filed or due with the Commission in 2001 indicates that each of J. Gerald Combs, Joseph Gardner, Anthony Giovaniello, Daniel Matheson, Jeffrey Moore and Gary Wood was late in filing either a Form 4 or a Form 5 with respect to one transaction, that Joseph Joy was late in filing Form 4 reports with respect to two transactions and that Jack Murphy was late in filing a Form 3 following his appointment to the Company's Board of Directors. The late reports by Messrs. Combs, Gardner, Matheson, Moore and Wood related to stock option grants, made to each of them effective as of the end of 2000, about which those persons were not notified by the Company until after the respective Section 16(b) reports were due. A review of the Forms 3, 4 and 5 filed or due with the Commission in 2002 indicates that each of Joseph Joy, Joseph Gardner, Anthony Giovaniello, Daniel Matheson, Jack Murphy and Gary Wood did not file either a Form 4 or a Form 5 with respect to one transaction, that Frank Stephens did not file a Form 4 or a Form 5 report with respect to two transactions and that each of Richard Bowman, Gary Brooks, Safwan Masri, John McGovern and Oscar Smith did not file a Form 3 following his appointment to the Company's Board of Directors. A review of the Forms 3, 4 and 5 filed or due with the Commission in 2003 and 2004 indicates that each of Joseph Joy, Joseph Gardner, Anthony Giovaniello, Richard Bowman, Gary Brooks, Safwan Masri, John McGovern, Oscar Smith, and Frank Stephens did not file a Form 5 as required under section 16(b) of the Exchange Act. 40 ITEM 11. EXECUTIVE COMPENSATION The table below discloses all cash compensation awarded to, earned by or paid to our Chief Executive Officer and our four most highly compensated executive officers who earned more than $100,000 for services rendered in all capacities to us during the fiscal year ended December 31, 2003 (collectively, the "named executive officers"). In addition, it provides information with respect to the compensation paid by us to the named executive officers during 2002 and 2001. Summary Compensation Table

~~Number~~Annual ofCompensation ~~Percent~~Long-Term of------------------------------------ ~~Total~~Compensation ~~Potential~~------------ ~~Realizable~~Name ~~Securities~~and ~~Options/SARs~~Principal ~~Value~~Other ~~at Assumed Underlying Granted under Exercise or~~ Annual ~~Rates~~All ofOther ~~Stock~~Position ~~Options/SARs~~Year ~~Incentive~~Salary ~~Base~~Bonus ~~Price~~Compensation ~~Expiration Price Appreciation for Name Granted~~Options(#) ~~Plans~~ (~~$/Sh~~2) ~~Date~~Compensation ~~Option Term~~ ---- ------- ---- ------ ----- ------------ ------------- ------------ 5%Joseph V. Joy($3) ~~10%~~($4) 12/31/03 $143,257 -- -- -- -- Former President, and 12/31/02 $136,327 -- -- 170,000 -- ~~Joseph~~Chief V.Executive ~~Joy~~Officer 12/31/01 $154,431 ~~Jr.~~-- ~~(1)~~-- 2,000 ~~0.8%~~-- Anthony Giovaniello(4) 12/31/03 $134,317 ~~2.60~~-- 2-- -- -- Executive VP Boundless 12/2331/0602 1$130,~~437~~326 3-- -- 140,~~175~~000 ~~Anthony~~-- ~~Giovaniello(1)~~Manufacturing 12/31/01 $147,041 -- -- 2,000 ~~0.8%~~-- Joseph Gardner 12/31/03 $136,610 ~~2.60~~-- 2-- -- -- Vice President-Finance 12/2331/0602 1$134,~~437~~574 3-- -- 75,~~175~~000 ~~Joseph~~-- ~~Gardner(1)~~Chief Financial Officer 12/31/01 $162,846 -- -- 2,000 0-- J.8% Gerald Combs 12/31/01 $316,250 2-- -- -- -- Former Chief Executive Officer Jeffrey K.60 2Moore 12/2331/0601 1$145,~~437~~971 3-- $11,~~175~~400 -- -- Former Vice President Corporate Development

(2) Options granted in February 2001 to the named executive officers have a strike price of $2.60 per share of Common Stock. Options granted in October 2002 to the named executive officers have a strike price of $0.45 per share of Common Stock. (3) Promoted to Chief Executive Officer and President January 2002. Resigned from the company June 30, 2004 (4) In accordance with their employment agreements discussed below, each of Messrs. Joy and Giovaniello was granted an option in 1999 to purchase for $2,000 shares of Boundless Manufacturing common stock representing 12.5% of the outstanding shares of Boundless Manufacturing. Such options were exercised. See "Employment Agreements and Change-in-Control Arrangements" for additional information concerning the option of either Mr. Joy or Giovaniello to convert shares of Boundless Manufacturing into Common Stock of the Company. 41 Employment Agreements and Change-in-Control Arrangements The Company had entered into employment agreements with Mr. Combs, then the Company's Chairman of the Board and Chief Executive Officer, and Mr. Jeffrey K. Moore, then the Company's Vice President, Corporate Development on March 1, 2000. The employment agreements were originally scheduled to expire February 27, 2003. On January 17, 2002, the Company filed a report on Form 8-K with the Securities and Exchange Commission reporting that it had reached agreement with each of Messrs. Combs and Moore to the termination of their respective employment agreements with the Company. The Company had reached agreement on the substantive details of the agreements during December 2001 and finalized the details of the separation agreements involving Mr. Combs and Mr. Moore on January 17, 2002; but the documents were made effective as of January 1, 2002. Pursuant to the separation arrangements described below, the Board of Directors of the Company accepted the resignations, effective as of January 1, 2002, of J. Gerald Combs, its Chairman and Chief Executive Officer, and Jeffrey K. Moore, its Vice President of Corporate Development, from all of their positions with the Company and its subsidiaries. However, Mr. Combs and Mr. Moore were to remain as members of the Company's Board of Directors (with Mr. Combs also remaining as Chairman of the Board) until the February 28, 2002, meeting of the Company's stockholders, at which Mr. Combs, but not Mr. Moore, was to stand for re-election to the Board. The Company entered into a Separation Agreement and General Release (the "Separation Agreement") with each of Mr. Combs and Mr. Moore and issued a 6% Convertible Promissory Note (the "Note") to each of them, with a principal amount of $475,000 for Mr. Combs and $382,600 for Mr. Moore, representing the separation payments. The principal amount of the notes include a bonus previously awarded by the Company for the year 2000 ($75,000 for Mr. Combs and $25,000 for Mr. Moore), which had not been paid by the Company. Simultaneously, the Company entered into a Consulting Agreement with Mr. Combs and an Employment and Consulting Agreement with Mr. Moore (together, the "Consulting Agreements"). Mr. Combs was to serve as a consultant to the Company until March 31, 2003, and Mr. Moore was to remain as an employee of the Company at a reduced salary and in a non-officer capacity until March 31, 2002 and thereafter serve as a consultant to the Company until February 27, 2003. Under the Consulting Agreements the Company agreed to pay a total of $241,056 to Mr. Combs and $137,500 to Mr. Moore. The Company agreed that, to the extent not already vested, all stock options held by Mr. Combs (480,000) and Mr. Moore (205,000) would be fully vested immediately and such options would be exercisable for five years from January 1, 2002. The exercise prices of such stock options were not changed. The Company (including its subsidiaries) granted releases to Mr. Combs and Mr. Moore, each of whom granted reciprocal releases to the Company (and its subsidiaries). Each Note was payable on February 27, 2003 and entitled the holder to convert it at the price of $1.25 per share into restricted shares of the Company's common stock at any time prior to such maturity date. However, if the Notes were not converted and the Company had not raised equity financing of at least $2,500,000 prior to such maturity date, the Company had the option to extend the Notes for two years and to pay the Notes in 24 monthly installments. The Company's obligations to make payments under the Notes were subordinated to its current or future obligations to repay all other indebtedness for borrowed money. The shares into which the Notes could have been converted were accompanied by "piggyback" registration rights. As a result of the bankruptcy filing, the obligations to both Messrs. Combs and Moore are unsecured and subject to compromise. Under the Consulting Agreements, if Mr. Combs or Mr. Moore introduced the Company to a party with which the Company completed a financing, merger or acquisition transaction between June 1, 2002 and December 31, 2003, he would be entitled to certain commissions of either 2% or 4% of the transaction or financing amount. In addition to advising the Company on financings, mergers and acquisitions and business development, the duties of Mr. Combs and Mr. Moore under these agreements included cooperation in the transfer of his duties to his successor at the Company and providing testimony in any future proceeding involving the Company. No obligation of the Company was incurred as a result of the Consulting Agreements. 42 Under the Separation Agreements, each of Mr. Combs and Mr. Moore agreed to transfer to the Company his 2,000,000 shares of the outstanding common stock of Boundless Manufacturing Services, Inc., resulting in the Company's holding 75% of the 20,000,000 outstanding shares of Boundless Manufacturing. In addition, Mr. Combs and Mr. Moore each agreed to the termination of his Employment Agreement with the Company, surrendering his rights to early termination payments, which would have exceeded the amount each of them was receiving under the Notes and Consulting Agreements, and agreed to certain covenants including, among others, those relating to confidentiality, non-competition and notification to the Company of business opportunities. The Company and Boundless Manufacturing Services, Inc. had entered into employment agreements with Messrs. Joseph Joy and Anthony Giovaniello, respectively then the President of Boundless Manufacturing and Executive Vice President, Business Development. The terms and conditions of the agreements for each of Messrs. Joy and Giovaniello were substantially similar, having an initial term of approximately four years and expiring July 1, 2003, unless sooner extended or terminated as provided for in the agreements. The agreements called for the purchase, by each of Messrs. Joy and Giovaniello, of 12.5% of Boundless Manufacturing Services, Inc.'s issued and outstanding common stock. These shares could have been repurchased by Boundless Manufacturing Services, in a manner as defined in the agreements, should that company fail to meet defined minimum performance standards. The agreements called for annual salaries of approximately $155,000, subject to an annual review; and a cash bonus of up to $100,000 annually determined by achievement against specified objectives. Pursuant to their employment agreements, Mr. Joy and Mr. Giovaniello had the option, upon attainment of certain defined performance standards, to convert their shares of Boundless Manufacturing into up to an aggregate of 300,000 shares of the Company's Common Stock. In the event either of Messrs. Joy or Giovaniello was terminated for failure to attain the minimum performance standards, as defined, he would be entitled to continuation of base salary for a period not to exceed six months. In the event of termination without cause, or if either Messrs. Joy or Giovaniello resigned as a result of a change of control of the Company, he would be entitled to continuation of base salary for a period not to exceed 18 months. In addition, in the event of termination without cause or resignation resulting from a change of control, the employee was entitled to payment of the pro rata portion of the cash bonus the employee would have been entitled to had he remained continuously employed through the end of the year within which termination occurs. In June 2004 Mr. Joseph V. Joy, Jr. resigned from his position as president and CEO of the Company and from his position on the Board of Directors. The Company provided payments to Mr. Joy equal to four-months salary, payable over six months, for consulting and transition services. The total payments made to Mr. Joy under the period were approximately $72,000. In October 2004 Mr. Anthony Giovaniello resigned from his position as Senior Vice President- Business Development. While each of Messrs. Joy and Giovaniello retain their respective ownership position of Boundless Manufacturing, the Company has no obligations resulting from the employment agreements. Compensation Committee Interlocks and Insider Participation Mr. Combs and Mr. Jeffrey Moore, who were executive officers of the Company during 2001, were also members of the Company's Board of Directors during such times and participated in deliberations concerning executive officer compensation. Their joint deliberations gave rise to conflicts of interest, which could have affected their compensation, and the number of stock options granted to them individually and as a group. Mr. Moore was also member of the Board and an officer of Morgan Kent Group during 2000 which had certain relationships, and entered into certain transactions, with the Company during 2000 as described below under "Item 13- Certain Relationships and Related Transactions." 43 1995/ 1997/ 2000 Incentive Plans The Company's 1995 Incentive Plan covered the issuance of up to 600,000 shares of Common Stock. As additional shares were no longer available to be issued under the 1995 Incentive Plan, the Board adopted the 1997 Incentive Plan in July 1997 which covers the issuance of up to 1,000,000 shares of Common Stock. In December 2000 the Board created the 2000 Incentive Plan which covers up to 1,000,000 shares of Common Stock. The number of shares granted on a calendar year basis under the 2000 Incentive Plan is limited to 5% of the total number of shares of Common Stock outstanding, or 10% of the outstanding Common Stock in any five-year period. Option Grants in 2002 The following table sets forth information, as of December 31, 2002, regarding the outstanding options to purchase the Company's Common Stock granted in 2002 under either the Company's 1995, 1997, or 2000 Incentive Plans to the named executive officers:

~~Value~~Number of ~~Unexercised~~Potential ~~Number~~Realizable ofSecurities ~~Unexercised~~Percent ~~Options~~of ~~In-the-Money~~Total ~~Options~~Value at atAssumed ~~December~~Underlying ~~31,~~Options/SARs ~~2001~~Exercise ~~(#)~~or ~~December~~Annual ~~31,~~Rates ~~2001~~of ~~($)(1)~~Stock ~~-------------------------~~Options/SARs ~~-----------------------~~Granted ~~Shares~~under ~~Acquired~~Base onPrice ~~Value~~Expiration Price Appreciation for Name ~~Exercise~~Granted (#) ~~Realized~~Incentive ~~Exercisable~~Plans ~~Unexercisable~~($/Sh) ~~Exercisable~~Date ~~Unexercisable~~Option Term ---- ----------- -------- -------~~----~~ ------ ----~~---~~ ----------- 5% ($) 10% ($) ------ ------- JJoseph V. ~~Gerald~~Joy, ~~Combs~~Jr. 0(1) ~~$0 435~~170,000 ~~45,000~~9.4% $- $-0.45 ~~Joseph~~10/30/07 V.21,136 ~~Joy~~46,704 JrAnthony ~~0 0 500~~ Giovaniello(1) 140,~~500~~000 -7.7% --$ ~~Anthony Giovaniello~~ 0.45 010/30/07 ~~500~~17,406 138,~~500~~462 ~~- --~~ Joseph Gardner(1) ~~0 0~~ 75,~~082~~000 ~~16,918 - -- Jeffrey K~~4.1% ~~Moore~~$ 0.45 010/30/07 ~~160~~9,~~000~~325 4520,~~000 - --~~605

---------- (1) Options were granted 10/30/02 and vest over a maximum period of four years. Option Grants in Last Fiscal Year The Company did not grant options to the named executive officers during the fiscal year ending December 31, 2003. 44 Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table provides information on the value of the named executive officers' unexercised options to purchase shares of Common Stock at December 31, 2003.

~~December~~Value ~~31,~~of ~~December~~Unexercised ~~31,~~Number ~~December~~of ~~31,~~Unexercised ~~------------~~Options In-the-~~----------~~Money ~~------------~~Options ~~2001~~at ~~2000~~at ~~1999~~December ~~-------- -------- -------- Revenue: Product sales $ 57~~31,~~473~~ $2003 ~~62,642~~(#) $December 7831,~~027~~ ~~Services~~2003 ~~2,108~~ ($)(1~~,902~~) ~~2,483~~ -------- -------- -------- ~~Total revenue 59,581 64,544 80,510~~ -----~~---~~ -------- -------- ~~Cost of revenue: Product sales 51,608 47,326 55,126 Services 1,690 1,718 1,572~~ -------- ----~~----~~ ~~--------~~Shares ~~Total~~Acquired ~~cost~~on ofValue ~~revenue~~Name 53,298 49,044 56,698 -------- -------- -------- Gross margin 6,283 15,500 23,812 -------- -------- -------- Operating expenses: Sales and marketing 5,459 7,442 10,292 General and administrative 7,690 8,279 6,979 Research and development 1,381 1,691 5,908 Other charges Exercise(~~credits~~#) ~~(Notes~~Realized 3,Exercisable 4Unexercisable ~~and~~Exercisable ~~11)~~Unexercisable ~~(2,437) 177 (3,711)~~ ----~~----~~ -------- ---~~-----~~ ~~Total operating expenses 12,093 17,589 19,468~~ -------- -------- ---~~-----~~ ~~Operating income (loss) (5,810) (2,089) 4,344 Interest expense, net 1,599 1,455 1,438~~ -------- -----~~---~~ -------- ~~Income (loss) before income taxes (7,409) (3,544) 2,906 Income tax (credit) expense (Note 7) 1,383 (289) (333)~~ ---~~-----~~ -------- -----~~---~~ ~~Income~~Joseph ~~(loss)~~V. ~~from continuing operations (8~~Joy,~~792)~~ ~~(3,255)~~Jr. ~~3,239~~0 ~~Loss~~$0 ~~from discontinued operations (Note 17) (2~~51,~~150)~~583 ~~(14~~120,~~004)~~417 $-- $--~~------~~ ~~--------~~Anthony ~~--------~~Giovaniello ~~Net~~0 ~~income~~0 ~~(loss) $(10~~42,~~942)~~833 ~~$(17~~99,~~259)~~167 ~~$ 3,239 ======== ======== ======== Dividend on preferred stock of subsidiary~~ -- -- 50Joseph ~~--------~~Gardner ~~--------~~0 ~~--------~~0 ~~Net income (loss) applicable to common stockholders $(10~~125,~~942)~~124 ~~$(17~~31,~~259)~~876 $ 3,189 ======== ======== ======== Weighted average common shares outstanding 5,048 4,535 4,438 ======== ======== ======== Basic net income (loss) per common share: Continuing operations (1.74) (0.72) 0.72 Discontinued operations (0.43) (3.09) -- -------- -------- -------- Basic net income (loss) per common share $ (2.17) $ (3.81) $ 0.72 ======== ======== ======== Weighted average dilutive shares outstanding 5,048 4,535 4,490 ======== ======== ======== Diluted net income (loss) per common share $ (2.17) $ (3.81) $ 0.71 ======== ======== ========

(1) The last sale price of the Company's Common Stock on December 31, 2003, $ 0.01. 45 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's outstanding Common Stock as of April 1, 2004, by (i) each of the Company's directors and "named executive officers," (ii) directors and executive officers of the Company as a group and (iii) each person believed by the Company to own beneficially more than 5% of its outstanding shares of Common Stock. Except as indicated each such person has sole voting and investment powers with respect to his and her shares. The address of Goldplate Holdings, LTD. is 241 Fifth Avenue, Suite 302, New York, NY. The address of Unique Co-Operative Solutions Inc./ Oscar L. Smith is 9185 Bond, Overland Park, KS 66214. The address of Neoware Systems, Inc. is 400 Feheley Dr., King of Prussia, PA 19406. Number of Shares Percentage of Name of Beneficial Owner Beneficially Owned Outstanding Shares ------------------------ ------------------ ------------------ Unique Co-Operative Solutions, 1,017,389(1)(3) 15.0% Inc./ Oscar L. Smith JPMorganChase 900,000(5) 12.5% J. Gerald Combs 905,923(2)(3)(6) 12.0% Neoware Systems, Inc. 383,335(4) 5.7% Valtec Capital Corp. 400,000(8) 5.6% Joseph V. Joy, Jr 134,684(3) 2.0% Joseph Gardner 127,844(3) 1.9% Anthony Giovaniello 95,438(3) 1.4% Frank Stephens 91,263(3)(7) 1.3% Richard Bowman 75,000(3) 1.1% John McGovern 40,000(3) * Jeffrey Hilk 22,718(3) * Aziz El-Farra 3,747(3) * All current directors and executive officers as a group 590,694(3) 8.3% (eight individuals) ---------- * Less than 1%. (1) Includes 41,667 shares issuable upon the exercise of a warrant. The warrant was granted June 4, 2001, in connection with a sale of our common stock. The common shares underlying the warrant vest immediately, have an exercise price per share of common stock of $1.30, and expire five years following the date of grant. Prior to our sale of the Windows-based terminal product line in June 2001, Unique Co-operative Solutions, Inc. had been a reseller of our products. Sales of products to Unique Co-operative Solutions, Inc. during the past three years were not material to the results of our operations. (2) Resigned as the Chief Executive Officer of the Company effective January 2002. (3) Includes or consists of shares of Common Stock issuable upon exercise of options as follows: Mr. Smith: 40,000; Mr. Combs: 480,000; Mr. Gardner: 112,936; Mr. Joy: 69,291; Mr. Bowman: 40,000, Mr. Stephens: 43,000; Mr. Giovaniello: 57,416; Mr. Hilk: 22,718; Mr. El-Farra: 3,747; and Mr. McGovern: 40,000. Includes or consists of shares of Common Stock issuable upon exercise of warrants as follows: Mr. Combs: 5,834; Mr. Gardner: 1,945; Mr. Joy: 8,042; Mr. Stephens: 6,097; and Mr. Giovaniello: 2,917. (4) Includes 50,001 shares issuable upon the exercise of a warrant. The warrant was issued June 29, 2001, in connection with a sale of our common stock. The common shares underlying the warrant, have an exercise price per share of common stock of $1.10, and the warrant expires five years following the date of grant. In 46 June 2001 Neoware Systems Inc. purchased our Windows-based terminal product line for $1,600,000. As part of the transaction, we secured an agreement to manufacture certain products for Neoware Systems, Inc. (5) On June 27, 2002, the Company entered into an agreement with its then secured lenders to terminate its revolving line of credit (the "Chase Credit Line"). In return for termination of the Chase Credit Line, the Company, amongst other consideration, agreed to issue 750,000 shares of its common stock and shares of its newly-created convertible preferred stock (the "Preferred Stock") with a stated value of $1,250,000. The Company has agreed to register under the Securities Act of 1933 such common stock and the shares into which the Preferred Stock may be converted. The lenders have certain anti-dilution protection for their shares of common stock. The Preferred Stock may be converted after the first anniversary of their issuance into shares of the Company's common stock at $3.00 per share and, unless sooner converted into common stock, must be redeemed by the Company on June 30, 2012 for their stated value. Includes 100,000 shares underlying three warrants held by JPMorganChase to purchase shares of Common Stock at an exercise price of $6.875 per share with respect to 50,000 shares, $4.50 per share with respect to 35,000 shares, and $7.00 per share with respect to 15,000 shares. (6) Includes 380,000 shares of Common Stock issuable upon the conversion of a convertible promissory note. The principal amount of the note is $475,000 and may be converted into shares of Common Stock of the Company, at the option of Mr. Combs, at a conversion price of $1.25 per share of Common Stock. See Item 11- "Employment Agreements and Change-in-Control Arrangements" for additional information concerning the issuance of the promissory note to Mr. Combs. (7) Includes 17,778 shares of Common Stock issuable upon the conversion of a convertible promissory note. The principal amount of the note is $18,667 and may be converted into shares of Common Stock of the Company, at the option of Mr. Stephens, at a conversion price of $1.05 per share of Common Stock. See Item 10- "Directors and Executive Officers of the Registrant" for additional information concerning the issuance of the promissory note to Mr. Stephens. (8) By a Loan and Security Agreement dated December 3, 2002 (the "Valtec Loan Agreement"), the Company consolidated prior borrowings and received additional borrowings from Valtec in the aggregate amount of approximately $1.2 million (plus accrued and unpaid interest and other charges). In connection with the Valtec Loan Agreement, the Company issued a warrant to Valtec to purchase 400,000 shares of the Company's Common Stock. The common shares underlying the warrant, have an exercise price per share of common stock of $0.36, and the warrant expires five years following the date of grant. Under the Plan of Reorganization, all outstanding common stock and derivative securities of the Company will be cancelled upon the Company's emergence from bankruptcy. 47 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the fourth quarter of 2001 the Company established a reserve in the amount of $67,625 against a $50,000 note receivable and accrued interest thereon from the Morgan Kent Group. The note, evidencing a loan to the Morgan Kent Group, was entered into July 18, 1997, and was due and payable July 1999 but was extended to July 2001. At the time of the loan, Morgan Kent held beneficial ownership of approximately 54% of the Company. On June 27, 2002, the Company entered into an agreement with its then secured lenders to terminate its revolving line of credit (the "Chase Credit Line"). In return for termination of the Chase Credit Line, the Company, amongst other consideration, agreed to issue 750,000 shares of its common stock and shares of its newly-created convertible preferred stock (the "Preferred Stock") with a stated value of $1,250,000. The Company had agreed to register under the Securities Act of 1933 such common stock and the shares into which the Preferred Stock may be converted. The lenders had certain anti-dilution protection for their shares of common stock. The Preferred Stock may be converted after the first anniversary of their issuance into shares of the Company's common stock at $3.00 per share and, unless sooner converted into common stock, must be redeemed by the Company on June 30, 2012 for their stated value. During the period from the Petition Date through and including April 30, 2003, Valtec provided debtor-in-possession financing ("Valtec DIP Financing") to the Company. As a condition to the Valtec DIP Financing, Valtec required the Company to enter into the Ansen Corporation Manufacturing Services Agreement ("Ansen Agreement"), pursuant to which, Ansen Corporation ("Ansen") would provide post-petition manufacturing, production and delivery services to the Company. Ansen is majority owned by Valtec. By Order dated April 16, 2003, the Bankruptcy Court approved the Company's execution of the Ansen Agreement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Independent Accountant Fees The aggregate fees billed for professional services rendered by BP Audit Group and by BDO Seidman, LLP for the years ended December 31, 2001, 2002 and 2003 are as follows (amounts in dollars): 48 2003 2002 2001 ---------- ---------- ---------- BP Audit Group Audit fees $ 67,404 $ 52,425 $ -- Audit-related fees -- -- -- Tax fees -- -- -- All other fees -- -- -- ---------- ---------- ---------- $ 67,404 $ 52,425 $ -- ---------- ---------- ---------- BDO Seidman, LLP Audit fees $ 2,500 $ 42,050 $ 259,110 Audit-related fees -- 18,000 12,970 Tax fees -- 66,792 81,968 All other fees -- 41,924 2,944 ---------- ---------- ---------- $ 2,500 $ 168,766 $ 356,992 ---------- ---------- ---------- Total Independent Accountant Fees Audit fees $ 69,904 $ 94,475 $ 259,110 Audit-related fees -- 18,000 12,970 Tax fees -- 66,792 81,968 All other fees -- 41,924 2,944 ---------- ---------- ---------- $ 69,904 $ 221,191 $ 356,992 ========== ========== ========== Fees for audit services consist of audits of the Company's consolidated financial statements and limited reviews of the Company's consolidated quarterly financial statements. Fees for audit-related services consist of statutory audits of the Company's 401K plan. Fees for tax services consisted of assistance with preparation of state and federal tax returns. All Other Fees billed in 2002 consisted of review of the Company's registration statement on Form S-3 and reorganization consulting. All of the services under the Audit Related, Tax and All Other Fees categories above have been approved by the Audit Committee pursuant to paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X of the Exchange Act. Audit Committee Pre-Approval Policy and Procedures. The Audit Committee of the Boundless Board of Directors adopted the policy on pre-approval of services of independent accountants in October 2003. The policy provides that the Audit Committee shall pre-approve all audit and non-audit services to be provided to the Company and its subsidiaries and affiliates by its auditors. The process by which this is carried out is as follows: For recurring services, the Audit Committee reviews and pre-approves BP Audit Group's annual audit services and employee benefit plan audits in conjunction with the Committee's annual appointment of the outside auditors. The materials include a description of the services along with related fees. The Committee also reviews and pre-approves other classes of recurring services along with fee thresholds for pre-approved services. In the event that the pre-approval fee thresholds are met and additional services are required prior to the next scheduled Committee meeting, pre-approvals of additional services follow the process described below. Any requests for audit, audit-related, tax and other services not contemplated with the recurring services approval described above must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval 49 between meetings, as necessary, has been delegated to the Chairman of the Audit Committee. The Chairman must update the Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval. On a periodic basis, the Audit Committee reviews the status of services and fees incurred year-to-date and a list of newly pre-approved services since its last regularly scheduled meeting PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

~~December~~Page ~~31,~~No. ~~December 31, December 31,~~ --------~~----~~ ~~------------ ------------ 2001 2000 1999 -------- -------- ------ Net income~~ (~~loss~~a) $(~~10,942~~1) $(~~17,259~~2) ~~$3,239~~Financial ~~Other~~Statements ~~comprehensive~~and ~~loss:~~Schedules ~~Cumulative~~Index ~~effect~~to ofConsolidated ~~adoption~~Financial ofStatements ~~FAS~~and ~~133~~Financial ~~(30)~~Statement --Schedules F-- Cash flow hedges, net of taxes (111) -- -- -------- -------- ------ Other comprehensive loss (141) -- -- -------- -------- ------ Total comprehensive income (loss) $(11,083) $(17,259) $3,239 ======== ======== ======1

All other financial statements and schedules not listed have been omitted since the required information is either included in the Financial Statements and the Notes thereto as included in the Company's Annual Report on Form 10-K for the Year ended December 31, 2003 or is not applicable or required. (b) Reports on Form 8-K On February 2, 2005, we filed a current report on Form 8-K disclosing we entered into a secured post-petition financing agreement with Entrepreneur Growth Capital, LLC ("EGC") pursuant to which EGC was granted a lien on all of our personal property On March 12, 2003, the Company and three of its subsidiaries, Boundless Technologies, Inc., Boundless Manufacturing Services, Inc. and Boundless Acquisition Corp. (a non-operating subsidiary) (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Eastern District of New York, Central Islip (the "Bankruptcy Court"). On April 2, 2003, we filed a current report on Form 8-K disclosing BDO Seidman, LLP resigned its engagement as our independent auditors concurrent with our filing for protection under Chapter 11 of the U.S. Bankruptcy Code. On December 1, 2003 we issued a current report on Form 8-K announcing the appointment of BP Audit Group, PLLC as our independent auditors. 50 EXHIBIT INDEX Exhibit No.* Description of Exhibit ------------ ---------------------- 3.1[2] Certificate of Incorporation of Registrant and Certificates of Amendment thereto. 3.2[1] By-Laws of Registrant. 10(a) Registrant's 1995 Incentive Plan (Incorporated by reference to and filed as Exhibit E to Registrant's Information Statement, dated September 28, 1995). 10(b) Registrant's 1997 Incentive Plan (Incorporated by reference to and filed as Exhibit A to Registrant's Information Statement, dated March 6, 1998). 10(c)[6] Registrant's 2000 Incentive Plan. 10(d)[4] Restatement, Extension, Assumption and Modification Agreement, dated June 24, 1999, between Boundless Technologies, Inc. and Independence Community Bank (Originally filed as Exhibit 10(a)). 10(e)[4] Restated Business Installment Promissory Note, dated June 24, 1999, from Boundless Technologies, Inc. to Independence Community Bank (Originally filed as Exhibit 10(b)). 10(f)[4] Restated Mortgage and Security Agreement, dated June 24, 1999, between Boundless Technologies, Inc. and Independence Community Bank (Originally filed as Exhibit 10(c)). 10(g)[5] Promissory Note, dated September 30, 1999, in the amount of $500,000 from General Automation, Inc. to Boundless Technologies, Inc. (Originally filed as Exhibit 10(p)). 10(h)[5] Secured Convertible Promissory Note from General Automation, Inc. to Boundless Technologies, Inc (Originally filed as Exhibit 10(o)). 10(i)[5] Warrant issued by General Automation, Inc. to Boundless Technologies, Inc (Originally filed as Exhibit 10(q)). 10(j)[5] Employment Agreement, dated July 1, 1999, among Registrant, Boundless Manufacturing Services, Inc. and Joseph Joy (Originally filed as Exhibit 10(f)). 10(k)[5] Employment Agreement, dated July 1, 1999, among Registrant, Boundless Manufacturing Services, Inc. and Anthony Giovaniello (Originally filed as Exhibit 10(g)). 10(l)[6] Employment Agreement, dated March 1, 2000, among Registrant, Boundless Technologies, Inc. and James Gerald Combs. 51 Exhibit No.* Description of Exhibit ------------ ---------------------- 10(m)[6] Employment Agreement, dated March 1, 2000, among Registrant, Boundless Technologies, Inc. and Jeffrey K. Moore. 10(n)[6] Second Amended and Restated Credit Agreement and Guaranty (plus exhibits thereto) dated as of May 25, 2000 among Boundless Technologies, Inc., Boundless Manufacturing Services, Inc. and Merinta as co-borrowers, Boundless Acquisition Corp. and Boundless Corporation, as guarantors, and The Chase Manhattan Bank, Silicon Valley Bank and National Bank of Canada as the Banks and The Chase Manhattan Bank, as Administrative Agent for the Banks. 10(o)[6] First Amendment, dated as of July 31, 2000, to Second Amended and Restated Credit Agreement and Guaranty with Chase. 10(p)[6] Second Amendment, dated as of November 7, 2000, to Second Amended and Restated Credit Agreement and Guaranty with Chase. 10(q)[6] Third Amendment, dated as of November 16, 2000, to Second Amended and Restated Credit Agreement and Guaranty with Chase. 10(r)[6] Form of Warrant issued by Merinta Inc. to the Chase Manhattan Bank, Silicon Valley Bank and National Bank of Canada for the purchase of a total of 100,000 shares of Merinta common stock (40,000 shares on May 25, 2000, 25,000 shares on July 31, 2000 and 35,000 shares on November 7, 2000). 10(s)[3] Common Stock Purchase Warrant dated as of April 14, 1999 issued to Chase Manhattan Bank for the purchase of Registrant's common stock (Originally filed as Exhibit 10(b)). 10(t)[6] Common Stock Purchase Warrant, dated as of May 25, 2000, issued to Chase Manhattan Bank for the purchase of Registrant's common stock. 10(u)[6] Merinta Inc.'s Amended and Restated Certificate of Incorporation, effective November 6, 2000, including the terms of Merinta's Series A Convertible Preferred Stock issued to National Semiconductor Corporation. 10(v)[7] Registrant's 2001 Incentive Plan. (Incorporated by reference to and filed as Appendix B to Definitive Proxy Statement, dated January 31, 2002). 10(w)[8] Separation Agreement and General Release, effective as of January 1, 2002, with Mr. J. Gerald Combs. 10(x)[8] Consulting Agreement, effective as of January 1, 2002, with Mr. J. Gerald Combs. 10(y)[8] Non-negotiable Convertible Note by and between the Registrant and Mr. J. Gerald Combs. 10(z)[8] List of Stock Options held by Jeffrey K. Moore and list of additional consideration or benefits to be provided to him pursuant to the Separation Agreement and General Release, dated as of January 1, 2002, by and between him and the Registrant (including the Registrant's subsidiaries) (constituting Exhibits B and E to such Agreement). 52 Exhibit No.* Description of Exhibit ----------- ----------------------- 10(aa)[9] Seventh Amendment, dated as of March 27, 2002, to Second Amended and Restated Credit Agreement and Guaranty with Chase. 11** Statement re Computation of Per Share Earnings. See Consolidated Financial Statements. 12.1[10] Letter Agreement, dated January 27, 2005, from Entrepreneur Growth Capital LLC to Boundless Corporation and its subsidiaries. 12.2[10] Loan and Security Agreement, dated January 27, 2005, by and among Entrepreneur Growth Capital LLC and Boundless Corporation and its subsidiaries. 12.3[10] Corporate Guaranty of All Liability with Collateral, dated January 27, 2005, by Boundless Corporation and its subsidiaries in favor of Entrepreneur Growth Capital LLC. 12.4[10] Certificate of Corporate Resolutions, dated January 27, 2005, of Boundless Corporation, Boundless Acquisition Corp., Boundless Technologies, Inc., and Boundless Manufacturing Services, Inc. 12.5[10] Intercreditor and Subordination Agreement, dated January 27, 2005, by and between Vision Technologies, Inc. and Entrepreneur Growth Capital. 21[5] List of Subsidiaries 31 Section 302 Certification 32 Section 906 Certification ---------- [1] Incorporated by reference to Registrant's Registration Statement on Form S-18 (File No. 33-32396-NY). [2] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. [3] Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. [4] Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. [5] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1999. [6] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000. 53 Exhibit No.* Description of Exhibit ----------- ----------------------- [7] Incorporated by reference to the Registrant's Definitive Proxy Statement on Form DEF 14A, filed January 31, 2002. [8] Incorporated by reference to the Registrant's Report on Form 8-K filed January 23, 2002. [9] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001. [10] Incorporated by reference to the Registrant's Report on Form 8-K filed February 2, 2005. * Numbers inside brackets indicate documents from which exhibits have been incorporated by reference. Unless otherwise indicated, documents incorporated by reference refer to the identical exhibit number in the original documents from which they are being incorporated. ** Filed herewith 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 31, 2005 BOUNDLESS CORPORATION By: /s/ John D. Ryan ----------------------------------- John D. Ryan Acting Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John D. Ryan Acting Chief Executive Officer August 31, 2005 ---------------------------- John D. Ryan /s/ Joseph Gardner Vice President - Finance, Chief Financial August 31, 2005 ---------------------------- Officer (Principal Accounting Officer) Joseph Gardner /s/ Richard Bowman Director August 31, 2005 ---------------------------- Richard Bowman /s/ Frank Stephens Chairman, Board of Directors August 31, 2005 ---------------------------- Frank Stephens

55 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-possession) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2003 and 2002 F-3 Consolidated Statements of Operations for the years ended December 31, 2003 and 2002 F-4 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2003 and 2002 F-5 Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2003 and 2002 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2002 F-7 Notes to Consolidated Financial Statements F-9-26 Report of Independent Registered Public Accounting Firm F-27 Consolidated Balance Sheet as of December 31, 2001 F-28 Consolidated Statements of Operations for the years ended December 31, 2001 and 2000 F-29 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2001 and 2000 F-30 Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2001 and 2000 F-31 Consolidated Statements of Cash Flows for the years ended December 31, 2001 and 2000 F-32 Notes to Consolidated Financial Statements F- 34-51 Schedule I - Condensed Financial Information of Registrant S- 1-3 Schedule II - Valuation and Qualifying Accounts S- 4-5 F-1 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Boundless Corporation (Debtor-in-Possession) Farmingdale, New York We have audited the accompanying consolidated balance sheets of Boundless Corporation and Subsidiaries (Debtor and Debtors-in-Possession) as of December 31, 2003 and 2002 and the related consolidated statements of operations, comprehensive loss, changes in stockholders' deficit and cash flows for each of the years then ended. We have also audited the schedule of valuation and qualifying accounts for each of the years ended December 31, 2003 and 2002. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boundless Corporation and Subsidiaries (Debtor and Debtors-in-Possession) as of December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the schedule of valuation and qualifying accounts presents fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company and its subsidiaries filed for protection under Chapter 11 of the U.S. Bankruptcy Code on March 12, 2003. The Company has suffered substantial losses from operations in each of its last four fiscal years. In addition, as of December 31, 2003, the Company has a stockholders' deficit of $14,877,000 and has a working capital deficit of $39,000, excluding liabilities and other items subject to compromise of $13,207,000. These factors raise substantial doubt about the Company's ability to continue as a going concern. Although the Company and its subsidiaries are currently operating as debtors-in-possession under the jurisdiction of the Bankruptcy Court, the continuation of the business as a going concern is first contingent upon the ability of the Company to confirm a plan of reorganization under the Bankruptcy Code and emerge from bankruptcy protection and then subsequently, among other things: (1) the ability of the Company to restructure the terms of its secured debtors-in-possession financing, thereby reducing its cost of borrowing; (2) the ability of the Company to negotiate trade financing with suppliers at acceptable terms; (3) the ability of the Company to negotiate contracts for the sale of its manufacturing services to customers to provide additional liquidity for operations; (4) the ability of the Company to generate cash from operations and to maintain adequate cash on hand; and (5) the ability of the Company to achieve profitability. Management's plans in regard to these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BP Audit Group, PLLC Farmingdale, NY May 13, 2004, except as to Notes 5 and 10 for which the date is May 19, 2005 F-2 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED BALANCE SHEETS (in thousands)

~~Accumulated~~December ~~Common~~31 ~~Stock~~December ~~Additional~~31 ~~other~~----------- ----------- 2003 2002 ----------- ~~Paid~~-in---------- ~~Accumulated~~ASSETS ~~comprehensive~~Current ~~Shares~~assets: ~~Amount~~Cash ~~Capital~~and ~~Deficit~~cash equivalents $ 761 $ 4 Trade accounts receivable, net 995 2,456 Inventories (~~loss~~Note 3) ~~Total~~2,072 1,913 Prepaid expenses and other current assets 179 24 ------- --- ----- ----- Total current assets 4,007 4,397 Property and equipment, net (Note 4) 131 8,423 Other assets --- 416 -------- -- ----- -----~~---~~ ~~Balance,~~Total ~~January~~assets 1,$ ~~1999~~ 4,~~429~~138 $ 4413,236 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIT Liabilities not subject to compromise Current liabilities: Current portion of long-term debt $ ~~30,940~~837 $~~(14~~ 3,~~327)~~142 $Accounts --payable $900 166,~~657~~896 ~~Stock~~Notes ~~options~~payable ~~exercised~~-- 28965 1Accrued ~~163~~salaries ~~164~~71 ~~Options~~567 ~~and~~Accrued ~~warrants~~legal ~~issued~~fees ~~for~~756 ~~services~~56 toPurchase ~~non-employees~~order ~~504~~commitments ~~504~~1,130 ~~Tax~~-- ~~benefit~~Accrued ~~related~~payroll toand ~~employee~~sales ~~stock~~taxes ~~options~~payable ~~901~~212 ~~901~~210 ~~Dividend~~Accrued onwarranty ~~preferred~~59 ~~stock~~716 ofOther ~~subsidiary~~accrued ~~(50)~~liabilities (50Note 6) ~~Net~~81 ~~income 3~~1,~~239~~620 ~~3,239~~ ------- ---~~-----~~ -------- --~~------~~ ~~-------~~Total ~~--------~~current ~~Balance,~~liabilities ~~December 31, 1999~~ 4,~~457~~046 ~~45 32~~14,~~508~~172 ~~(11,138)~~ Long--term 21debt,~~415~~ ~~Stock~~less ~~options~~current ~~exercised~~maturities ~~121~~(Note 18) 1,~~001~~581 18,~~002~~294 ~~Options~~Deferred ~~and~~credits ~~warrants~~181 ~~issued~~415 ~~for~~Items ~~services~~subject to ~~non-employees~~compromise: ~~197~~Mandatorily ~~197~~redeemable ~~Warrants~~preferred ~~exercised~~stock 52(Note ~~396~~9) ~~396~~1,652 ~~Net~~-- ~~loss~~Liabilities subject to compromise (~~17,259~~Note 7) ~~(17~~11,~~259)~~555 -- ----- ----- --- -------- Total liabilities 19,015 22,881 -------- -- ----- -----~~---~~ ~~Balance,~~COMMITMENTS ~~December~~AND ~~31,~~CONTINGENCIES ~~2000~~(Notes ~~4,630~~12 46and ~~34,102~~13) Mandatorily redeemable preferred stock (~~28,397~~Note 9) -- 51,~~751~~554 ---------- ---------- Stockholders' deficit: Common stock ~~sold~~67 ~~1,058~~67 11Additional 1paid-in capital 35,~~178~~844 135,~~189~~844 ~~Net~~Accumulated ~~loss~~deficit (1050,~~942~~788) (1047,~~942~~110) ~~Other comprehensive loss~~ -- ~~(141) (141)~~ -------- -------- -- Total stockholders' deficit (14,877) (11,199) ------ ----~~----~~ ------- ---~~-----~~ ~~Balance,~~Total ~~December~~liabilities ~~31,~~and ~~2001~~stockholders' ~~5,688~~deficit $ ~~57 $ 35~~4,~~280~~138 $~~(39,339)~~ ~~$ (141) $ (4~~13,~~143)~~236 ======= ===~~=====~~ ======== ==~~====== ======= ========~~

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-3 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, (in thousands, except per share data)

December 31, December 31, ------------ ------------~~------------------~~ ~~2001~~2003 ~~2000~~2002 ~~1999~~ ------------- ------------- ~~------------- Cash flows from operating activities~~Revenue: ~~Net~~Product ~~income~~sales ~~(loss)~~ $( 10,~~942)~~718 $~~(17,259)~~ ~~$ 3~~25,~~239~~029 ~~Adjustments~~Services ~~to reconcile net income (loss)to net cash provided by (used in) operating activities: Loss from discontinued operations 2~~1,~~150~~032 141,~~004~~814 ---------- ~~Depreciation~~---------- ~~and~~Total ~~amortization~~revenue 311,~~670~~750 226,~~968~~843 ~~2,111 (Gain) loss on the disposition of assets (1,461) (223) 59 Credit from sale of partnership~~ -- -- ~~(2,324) Change in deferred revenues 2 (249) 441 Provision for doubtful accounts 450 221 380 Provision for excess and obsolete inventory 1,055 844 340 Provision for long~~-~~term asset impairment~~ -- ~~824~~ --- ~~Options and warrants issued for services~~ ---------- ~~197~~Cost ~~504~~of ~~Deferred taxes 2,281 14 (827) Changes in assets and liabilities~~revenue: ~~Trade~~Product ~~accounts~~sales ~~receivable (1~~10,~~218)~~165 225,~~872~~651 ~~516~~Services ~~Income~~797 ~~tax refunds 290 530~~ 1,~~072~~729 ~~Inventories 798 2,982 (1,526) Other assets (20) (1,178) (539) Accounts payable and accrued expenses 2,783 5,478 (1,266) Net change in assets and liabilities of discontinued operations 666 (666)~~ -- -------- -------- --~~------~~ ~~Net~~Total ~~cash:~~cost ~~Provided~~of byrevenue ~~continuing operations 504 11~~10,~~359~~962 227,~~180~~380 ~~Used in discontinued operations (2,150) (12,513)~~ -- -------- -------- --~~------~~ ~~Net~~Gross ~~cash~~margin ~~provided by~~ (~~used in~~loss) ~~operating~~788 ~~activities~~ (~~1,646~~537) ~~(1,154) 2,180~~ -------- -- ------ ----~~----~~ ~~Cash~~Operating ~~flows from investing activities~~expenses: ~~Capital~~Sales ~~expenditures~~and ~~(401)~~marketing ~~(1,136)~~610 (12,~~023)~~193 ~~Proceeds~~General ~~from~~and ~~sale~~administrative of2,032 ~~partnership~~2,969 --Research --and ~~1,500~~development ~~Proceeds~~170 ~~from~~959 ~~sale~~Interest ofexpense ~~assets~~ 1,~~600~~093 1,~~538~~402 -- -------- -------- --~~------~~ ~~Net~~3,905 ~~cash provided by investing activities 1~~7,~~199~~523 ~~402 477~~ -------- --~~------~~ -------- ~~Cash flows from financing activities: Payment of mandatorily redeemable preferred stock~~ -- -- (3,~~555~~117) ~~Proceeds~~(8,060) ~~from~~Other ~~exercise~~expense (income): Write-off of ~~warrants~~goodwill and ~~employee~~other ~~stock~~intangible ~~options~~assets(Note 2) -- 13,~~398~~262 ~~164~~ Net ~~proceeds~~gain ~~from~~on ~~issuance~~the ofrestructuring ~~debt 1,733 4,400 10,412 Proceeds from issuance~~ of ~~common~~payables ~~stock 1,189~~ -- ~~-- Payments on loans payable and capital leases~~ (23,~~602~~924) Other charges (~~6,179~~credits) (~~9,075~~193) ~~Payment~~225 ~~of preferred stock dividend~~ -- -- ~~(50)~~ -------- -------- --~~------~~ ~~Net~~Loss ~~cash~~before ~~provided~~reorganization byitems (~~used~~2,924) in(7,623) ~~financing~~Reorganization ~~activities~~items ~~320~~ (~~381~~655) ~~(2,104)~~ -- ------ ---- ---- -------- Net ~~increase~~loss (~~decrease~~3,579) ~~in cash and cash equivalents~~ (~~127) (1~~7,~~133~~623) ~~553~~Accretion ~~Cash and cash equivalents at beginning~~ of ~~year~~preferred ~~152~~stock ~~1,285~~99 ~~732~~148 -------- -- ------ ----~~----~~ ~~Cash~~Net ~~and~~loss ~~cash~~attributable ~~equivalents~~to atcommon ~~end~~stockholders of$ ~~year~~(3,678) $ 25(7,771) ========== ========== Basic and diluted loss per common share $ ~~152~~(0.55) $ (1~~,285~~.21) ========== ========== Weighted average shares outstanding 6,706 6,430 ========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-4 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Years Ended December 31, (in thousands, except per share data) December 31, December 31, ------------ ------------ 2003 2002 ------------ ------------ Net loss $ (3,579) $ (7,623) Other comprehensive income: Cash flow hedges, net of taxes 141 ---------- ---------- Total comprehensive loss $ (3,579) $ (7,482) ========== ========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-5 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands)

~~December~~Accumulated ~~31,~~Common Stock Additional other ------------------------ Paid-in Accumulated comprehensive Shares Amount Capital Deficit (loss) Total ---------- ---------- ~~2001~~---------- ~~2000~~---------- ~~1999~~---------- ---------- Balance, January 1, 2002 5,688 $ 57 $ 35,280 $ (39,339) $ (141) $ (4,143) Common stock sold 267 2 160 162 Common stock issued in consideration of -- debt modification 750 8 404 412 Net loss (7,623) (7,623) Preferred stock accretion (148) (148) Other comprehensive loss -- 141 141 ---------- ---------- ---------- ---------- ~~Non~~-~~cash~~--------- ~~transactions:~~---------- ~~Options~~Balance, ~~and~~December ~~warrants~~31, ~~issued~~2002 ~~for~~6,705 ~~services~~67 $35,844 (47,110) -- $(11,199) ~~197~~Net $loss ~~504~~(3,579) ~~Equipment~~(3,579) ~~acquisitions~~Preferred ~~funded~~stock ~~through~~accretion ~~capital~~(99) ~~leases~~(99) 1---------- ---------- ---------- ---------- ---------- ---------- Balance,~~348~~ 1December 31,~~635~~ ~~681~~2003 ~~Cash~~6,705 ~~paid~~$ ~~for:~~67 ~~Interest~~$ 135,~~309~~844 1$ (50,~~426~~788) 1$ -- $ (14,~~442~~877) ~~Taxes~~========== 21========== ~~329~~========== ~~501~~========== ========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-6 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended (in thousands)

~~For~~Dec ~~the~~31, ~~Year~~Dec ~~Ended December~~ 31, ~~1999~~--------------------- 2003 2002 -------- -------- Cash flows from operating activities: Net loss before reorganization items $ (2,924) $ (7,623) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain on restructuring of payables -- (3,924) Depreciation and amortization 800 1,709 Write-off of debt financing costs 289 98 Write-off of goodwill -- 3,262 Loss (gain) on the disposition of assets (44) 713 Change in deferred revenues (94) (91) Provision for doubtful accounts 104 599 Provision for excess and obsolete inventory 1,169 565 Changes in assets and liabilities: Trade accounts receivable 1,357 6,999 Income tax refunds 4 9 Inventories (198) 5,594 Other assets 71 562 Accounts payable and accrued expenses (763) (4,522) -------- -------- Net cash provided by (used in) operating activities (229) 3,950 -------- ~~Income~~-------- ~~Shares~~Cash ~~Per~~flows ~~Share~~provided by (~~Numerator~~used in) reorganization activities: Reorganization items, net (~~Denominator~~655) ~~Amount~~-- Gain on disposition of property and equipment (685) -- Proceeds from disposition of property 189 -- Increase in liabilities, net 1,176 -- -------- -------- Net cash provided by reorganization activities 25 -- -------- -------- Cash flows from investing activities: Capital expenditures -- (127) Proceeds from sale of assets 117 443 -------- -------- Net ~~income~~cash ~~$3,239~~provided ~~Preferred~~by ~~stock~~investing ~~dividends~~activities 50117 316 -------- ~~Basic~~-------- ~~net~~Cash ~~income~~flows ~~per~~from ~~share~~financing activities: ~~Income~~Net ~~applicable~~proceeds tofrom ~~common~~issuance ~~shareholders~~of 3debt 1,~~189~~572 41,~~438~~478 ~~$0.72~~Proceeds ~~Effect~~from issuance of ~~dilutive~~common ~~securities:~~stock ~~Options~~-- 162 Payments on loans payable and ~~warrants~~capital leases (728) (5,927) -------- 52-------- Net cash provided by (used in) financing activities 844 (4,287) -------- -------- ~~Diluted~~Net ~~net~~increase ~~income~~(decrease) ~~per~~in ~~share:~~cash ~~Income~~and ~~applicable~~cash toequivalents ~~common~~757 ~~shareholders~~(21) ~~plus~~Cash ~~assumed~~and ~~conversions~~cash ~~$3,189~~equivalents at beginning of year 4~~,490~~ 25 -------- -------- Cash and cash equivalents at end of year $~~0.71~~ ~~========~~761 $ 4 ======== ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-7 BOUNDLESS CORPORATION AND SUBSIDIARIES (Debtor and Debtors-in-Possession) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended (in thousands)

~~December~~2003 ~~31,~~2002 -------- -------- Non-~~---------~~Cash ~~2001~~Investing ~~2000~~& ~~-------~~Financing ~~-------~~Activities: ~~Raw~~Asset ~~materials~~sale ~~and~~proceeds ~~purchased~~paid ~~components~~directly $to ~~6,329~~creditors $ 87,~~006~~000 ~~Finished~~$ ~~goods 952 1,233 Service parts 792 686~~ --~~-----~~ ~~------- $ 8,073 $ 9,925 ======= ======= 6. Property and~~ Equipment ~~Property~~acquisitions ~~and~~funded ~~equipment~~through ~~consists~~debt ~~of the following: December 31,~~ --~~------------------------~~ ~~2001~~16 ~~2000~~Common ~~-------~~stock ~~-------~~issued ~~Land~~in $consideration ~~2,502~~for $debt ~~2,502~~modification ~~Buildings~~-- ~~and~~412 ~~improvements~~Manditorily ~~6,503~~redeemable ~~6,544~~preferred ~~Machinery~~stock ~~and~~issued ~~equipment~~in ~~9,856~~exchange ~~8,264~~for ~~-------~~debt --~~-----~~ 181,~~861~~406 ~~17,310~~Cash ~~Less~~paid ~~accumulated~~for: ~~depreciation~~Interest ~~and~~123 ~~amortization 7~~1,~~868~~737 ~~6,486~~Taxes --~~-----~~ ~~------- $10,993 $10,824 ======= =======~~12

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS F-8 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code The Company voluntarily petitioned for relief under Chapter 11 of the United States Bankruptcy Code on March 12, 2003, (the "Petition Date") in the United States Bankruptcy Court for the Eastern District of New York, Central Islip The Debtor will continue to operate its business as "debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders. In general, as debtors-in-possession, the Debtor is authorized under Chapter 11 to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. In order to successfully exit Chapter 11, the Company will need to propose, and obtain confirmation by the Bankruptcy Court of, a plan of reorganization that satisfies the requirements of the Bankruptcy Code. Background Boundless Corporation (the "Company") was incorporated in 1988 under the laws of the State of Delaware. The Company through its subsidiaries, Boundless Technologies, Inc. ("Boundless Technologies") and Boundless Manufacturing Services, Inc. ("Boundless Manufacturing"), is a provider of text terminals and manufacturing services. Our headquarters is located at 50 Engineers Lane, Farmingdale, New York 11735 (telephone number (631) 962-1500). Boundless Technologies, a wholly-owned subsidiary, is engaged in supplying computer terminals for commercial use. The Company's general strategy is to provide fast, easy-to-use, and cost-effective products that enable access to applications and data in commercial environments, as well as older "legacy" applications, running on mainframes, mid-range, and Unix systems. Boundless Technologies principally designs, sells and supports (i) desktop computer display terminals, which generally do not have graphics capabilities, ("General Display Terminals"), and (ii) other products that are used in multi-user computing environments. Boundless Technologies offers standard and custom models of its General Display Terminals primarily to retail, financial, telecommunications and wholesale distribution businesses requiring them for data entry and point of sale activities. Boundless Manufacturing is pursuing opportunities in the electronic manufacturing services ("EMS") marketplace. As of December 31, 2003, the Company owned 75% of the outstanding shares of common stock of this subsidiary. Services include supply chain optimization, global supply base management, systems assembly and test, distribution and logistics, repair centers and end-of-life management. Boundless Manufacturing also offers in-house engineering expertise- product design, test development and product development- to significantly reduce time-to-market for original equipment manufacturers ("OEM") customers. Boundless Manufacturing provides a complete supply chain that is designed and built to each customer's specifications. Boundless Manufacturing also has post-manufacturing support capability in New York and Atlanta. Financial Statement Presentation. The accompanying consolidated financial statements have been prepared in accordance with American Institute of Certified Public Accountants' Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," and on a going-concern basis, which contemplates continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. SOP 90-7 requires that the financial statements for periods subsequent to the Chapter 11 filing petition distinguish transactions and events that are directly associated with the reorganization from the operations of the business. Accordingly, revenues, expenses (including professional fees), realized gains and losses, and provisions for losses directly associated with the reorganization and restructuring of the business are reported separately in the financial statements. The Consolidated Balance Sheet distinguishes pre-petition liabilities and other items subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities and other items subject to compromise are reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. F-9 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition, as a result of the Chapter 11 filing, the realization of assets and satisfaction of liabilities, without substantial adjustments or changes in ownership, are subject to uncertainty. Given this uncertainty, there is substantial doubt about the Company's ability to continue as a going concern. While operating as debtors-in-possession under the protection of Chapter 11 of the Bankruptcy Code and subject to approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business, the Debtors, or some of them, may sell or otherwise dispose of assets and liquidate or settle liabilities for some amounts other than those reflected in the consolidated financial statements. Further, a plan of reorganization could materially change the amounts and classifications in the historical consolidated financial statements. The primary issues management will focus on immediately following confirmation of the Company's Plan of Reorganization include: o Working with its secured lender on a restructuring of the terms of the DIP debt which it holds, thereby reducing the Company's cost of borrowing. o Initiating negotiations with suppliers to secure trade financing of working capital of approximately $1-2 million under terms and conditions to be agreed upon. There can be no assurance that such financing will materialize. o The continual negotiation of material contracts for the sale of its manufacturing services to customers which management believes will provide additional liquidity for operations. There can be no assurances that these contracts will materialize. o The ability of the Company to generate cash from operations and to maintain adequate cash on hand; and o The ability of the Company to achieve profitability. The Company believes that positive operating cashflows and profitability will not come from the general purpose text terminal marketplace. The Company has been and will continue to focus on the current business from the current customers in order to provide a reliable cash flow with which to execute growth plans. The paths to growth that the Company has developed include: 1. Repositioning the Company's business from a text terminal company to a Point-of-Service/Point-of-Sale ("POS") technology company, and build upon our historical success in POS to establish a strong link between the Company's and POS' applications. A key activity in support of the POS initiative includes leveraging the Company's existing technology platforms 2. Gaining access to a more modern and growing market through new product offerings including Web terminals and terminals utilizing the Linux operating system which provide high security, high levels of productivity and high reliability. 3. Enter the Radio Frequency Identification ("RFID") market place with a high value-to-cost offering. Position the company as a RFID provider to POS integrators and OEMs. RFID Controllers - read/write RFID modules for both 13.56 mhz and 900 mhz- will be embedded into the Company's technology platforms. 4. Applying its robust Build-to-Order ("BTO") processes to growth products and markets. There is no assurance that the Company will be successful in obtaining confirmation of their Plan of Reorganization. If we are not, liquidation of the Company's assets would most likely ensue. If the Company does emerge from Chapter 11., there is no assurance that our operations will be profitable and cash flow positive; in the alternative, the scope of operations could be severely curtailed or discontinued entirely. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. DIP Financing During the period from the Petition Date through and including April 30, 2003, Valtec Capital Corporation ("Valtec"). provided debtor-in-possession financing ("Valtec DIP Financing") to the Company. Pursuant to the Bankruptcy Court's Interim Order entered on April 17, 2003 (the "Interim Order"), the Bankruptcy Court approved: (i) the Company's use of Valtec's cash collateral ("Valtec's Cash Collateral"); (ii) direct borrowings from Valtec of an amount up to $1,500; and (iii) the Debtor-in-Possession Financing and Security Agreement by and among Valtec and the Company (the "DIP Financing Agreement"). See Note 19- Subsequent Events, of Notes to Consolidated Financial Statements, for additional information concerning the Company's DIP financing. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company, after elimination of intercompany accounts and F-10 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS transactions. As of December 31, 2003 the Company owned 100%, 84%, and 55% of the outstanding common stock of Boundless Technologies, Merinta and Boundless Manufacturing, respectively. Due to the equity deficits of the latter two companies, no minority interest is reflected. Cash and Cash Equivalents All highly liquid investments with maturities at purchase of three months or less are considered cash equivalents. Allowance for Doubtful Accounts An allowance for uncollectible trade receivables is provided based on write-off history, aging analysis, and any specific, known troubled accounts. The allowance for doubtful accounts was $623 and $763 at December 31, 2003 and 2002, respectively. Property and Equipment Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over a 25-year period, and machinery and equipment are depreciated over periods ranging from 2 to 15 years. Expenditures that increase the value or extend the life of an asset are capitalized, while costs of maintenance and repairs are expensed as incurred. Gains or losses upon disposal of assets are recognized in the statements of operations. Long-Lived Assets In October 2001 the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", effective for fiscal years beginning after December 15, 2001. In June 2002, the Company recorded an expense of $778 for the impairment of the carrying value of machinery and equipment, which was sold in July 2002, upon closing of the Florida manufacturing facility. The actual loss incurred upon disposal in July was $708, resulting in a third quarter recovery of $70. In March 2003, the Company recorded an expense of $67 for the impairment of unique manufacturing machinery which became obsolete when that mode of operations ceased. The loss is included in other charges for the year ended 2002. Goodwill In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on January 1, 2002, eliminating the amortization of goodwill and other intangible assets that have indefinite useful lives. SFAS 142 also requires at least an annual impairment review of goodwill and other intangible assets and any asset deemed to be impaired is to be written down to its fair value. Due to its March 2003 Chapter 11 proceedings, in December 2002, the Company recorded an expense of $3,262 to remove the remaining book value of all goodwill and associated intellectual property. Amortization will continue to be recorded for intangible assets with definite useful lives, if any. Minority Interest In the absence of a commitment by minority shareholders to fund losses in excess of their equity, such losses have been attributed to the Company. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, current liabilities and long-term debt reported on the balance sheets approximate their fair value. The Company estimated the fair value of long-term debt by comparing the carrying amount to the future cash flows of the instrument, discounted using the Company's incremental rate of borrowing for a similar instrument. The Company believes the fair value of liabilities and other items subject to compromise is not determinable. Revenue Recognition The Company recognizes revenue from product sales upon shipment to the customer or passage of title and assumption of risk. The Company monitors product returns, generally which are for stock rotation with a coinciding replacement order, and records provisions for estimated future returns and potential warranty liability at the time revenue is recorded. The Company recorded bad debt expense of $104 and $ 599 for the years ending December 31, 2003 and 2002, respectively. Service revenue is recognized when services are performed and billable. Revenue from maintenance and extended warranty agreements is deferred and recognized ratably over the term of the agreement. The Company had two customers representing 32% and 13% of revenues respectively in 2003; and one customer representing 14% of revenues in 2002. Supplier Concentration The Company purchases subassemblies and components for its products from more than 40 domestic and Far East suppliers. Purchases from Radiance Electronics (formerly Goldtron Electric), Ansen Corporation and Hewlett Packard, accounted for approximately 24%, 20% and 18%, respectively, of the dollar amount of the Company's total purchases in 2003 of subassemblies and components. In 2002 Goldtron Electric, Arrow Electronics and Clinton Electric Corp. accounted for approximately 22%, 9% and 6%, respectively, of the dollar amount of the Company's total purchases of subassemblies and components. F-11 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentration of Credit Risk The Company is required by SFAS No. 105, "Disclosure of Information about Financial Instruments with Concentrations of Credit Risk," to disclose concentrations of credit risk regardless of the degree of such risk. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company's cash policy limits credit exposure; however, for limited periods of time during the year bank balances may exceed the FDIC insurance coverage. The Company routinely assesses the financial strength of its customers and as a consequence, believes that its accounts receivable credit risk exposure is limited. No collateral is required. The Company extends credit in the normal course of business to a number of distributors and value-added resellers in the computer industry. Shipping and Handling The Company records as revenue all amounts billed to customers for shipping and handling. All costs associated with shipping and handling are included in cost of revenue. Advertising Advertising costs are expensed as incurred. The amount charged to advertising expense was $12 and $94 for the years ended December 31, 2003 and 2002. Net (Loss) Per Common Share Net loss attributable to common stockholders includes the accretion of mandatorily redeemable preferred stock. SFAS No. 128, "Earnings Per Share," requires a reconciliation of the numerator and denominator of the basic net income (loss) per share computation to the numerator and denominator of the diluted net income (loss) per share computation. There were no dilutive instruments for 2003 and 2002. Pervasiveness of Estimates 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. Income Taxes As more fully discussed in Note 5, income taxes are provided in accordance with the liability method of accounting for income taxes pursuant to SFAS No. 109. Accordingly, deferred income taxes are recorded to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial amounts at year-end. Deferred tax assets are reduced by an estimated valuation allowance. Stock Based Compensation The Company accounts for stock options and warrants issued to employees in accordance with APB 25 "Accounting for Stock Issued to Employees." The Company follows SFAS No. 123 "Accounting for Stock Based Compensation" for financial statement disclosure purposes and issuances of options and warrants to non-employees for services rendered. Comprehensive Income (Loss) The adoption of FAS 133, "Accounting for Derivative Instruments and Hedging Activities," at January 1, 2001, resulted in recording $30 in accumulated other comprehensive loss for the cumulative effect of the accounting change. At December 31, 2002 the Company had in place an interest rate swap agreement in the amount of $306 bearing three-month LIBOR interest of 1.4%. The interest rate swap agreement expired March 31, 2003. The deferred loss resulting from the swap agreements, as calculated using the mark-to market method, was not material. At December 31, 2002, the Company's interest rate swap, a cash flow hedge, was closed out to the statement of operations. New Accounting Pronouncements F-12 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In May 2003, the EITF reached a consensus on Issue No. 03-5, "Applicability of AICPA Statement of Position 97-2, Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software." The FASB ratified this consensus in August 2003. EITF Issue No. 03-5 affirms that AICPA Statement of Position 97-2 applies to non-software deliverables, such as hardware, in an arrangement if the software is essential to the functionality of the non-software deliverables. The adoption of EITF Issue No. 03-5 did not have a material impact on the Company's results of operations and financial condition. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. The provisions of this Standard do not have a significant effect on our financial position or operating results. In November 2003, the EITF reached a consensus on issue 03-10, Application of EITF 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers, addressing how a reseller is to account for the redemption of a manufacturer's coupon by a consumer at the reseller's location. The final consensus eliminates the option that permitted resellers to report the value of the consideration received as a reduction in costs of goods sold, but rather mandates that it be recorded as revenue. EITF 03-10 is applicable to new arrangements, including modifications to existing arrangements, entered into in fiscal periods beginning after November 25, 2003. The provisions of this consensus do not have a significant effect on our financial position or operating results. In November 2003, the EITF reached a consensus on issue 03-0 1, The Meaning of Other-Than- Temporary Impairment and its Application to Certain Investments. EITF 03-0 1 establishes additional disclosure requirements for each category of FAS 115 investments in a loss position. Effective for years ending after December 15, 2003, companies must disclose the aggregate amount of unrealized losses, and the aggregate related fair value of their investments with unrealized losses. Those investments are required to be segregated by those in a loss position for less than twelve months and those in a loss position for greater than twelve months. Additionally, certain qualitative disclosures should be made to clarify a circumstance whereby an investment's fair value that is below cost is not considered other-than-temporary. The provisions of this consensus do not have a significant effect on our financial position, operating results or disclosures. In December 2003, the FASB issued revised SFAS No. 132 (revised 2003), "Employer's Disclosure about Pensions and Other Post-Retirement Benefits." SFAS 132(R) revised employers' disclosure about pension plans and other post-retirement benefit plans. SFAS 132(R) requires additional disclosures in annual financial statements about the types of plan assets, investment strategy, measurement dates, plan obligations, cash flows, and components of net periodic benefit cost of defined benefit pension plans and other post-retirement benefit plans. The annual disclosure requirements are effective for fiscal years ending after December 15, 2003. SFAS 132(R) also requires interim disclosure of the elements of net periodic benefit cost and the total amount of contributions paid or expected to be paid during the current fiscal year if significantly different from amounts previously disclosed. The provisions of SFAS 132(R) are not currently applicable to Boundless. In December 2003, the FASB issued Interpretation 46R, "Consolidation of Variable Interest Entities" (revised December 2003), ("FIN 46R") which further clarified the provisions of FIN 46 and delayed the effective date for applying the provisions of FIN 46 until the end of the first quarter of 2004 for interests held by public entities in VIEs or potential VIEs created before February 1, 2003. 3. Inventories Inventories are stated at the lower of cost or market with costs determined on a first-in first-out basis. On a quarterly basis the Company reviews quantities on hand and on order and records a provision for excess and obsolete inventory based on forecasted demand. For the year ended December 31, 2003 and 2002, the Company recorded provisions of $1,169 and $565 for excess and obsolete inventory. Inventory includes allocated factory overhead. The major components of inventories are as follows: F-13 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, December 31, ------------ ------------ 2003 2002 ------------ ------------ Raw materials and purchased components $ 2,843 $ 2,114 Finished goods 135 201 Manufacturing inventory reserves (1,242) (789) Service parts, net 336 387 ---------- ---------- $ 2,072 $ 1,913 ========== ========== 4. Property and Equipment Property and equipment consists of the following: December 31, December 31, ------------ ------------ 2003 2002 ------------ ------------ Land $ -- $ 2,502 Buildings and improvements -- 6,517 Machinery and equipment 6,605 7,858 ---------- ---------- 6,605 16,877 Less accumulated depreciation and amortization 6,474 8,454 ---------- ---------- $ 131 $ 8,423 ========== ========== On or about September 17, 2003, pursuant to that certain Purchase and Sale Agreement ("Purchase Agreement") by and among the Company, Independence Community Bank ("ICB"), JPMorgan Chase and 100 Marcus LLC, the Company agreed to transfer all of its right, title and interest in and to 100 Marcus Boulevard, Hauppauge, New York, which had served as the Company's main operating facility (the "Premises"). ICB and JPMorgan Chase held mortgages on the Premises and participated in the sale transaction. The Company successfully negotiated a sale of the Premises which provided for: (i) satisfaction of all liens and encumbrances of ICB and JPMorgan Chase; (ii) payment of all outstanding real estate tax obligations from the proceeds of the sale; (iii) the Company's use of 15,000 square feet, rent free, for a period of one (1) year post-closing; (iv) the payment of $250 to the Company and (v) ICB and JP Morgan Chase retaining unsecured claims against the Company for the difference between the Company's Obligations to such banks and the amount of the proceeds of the sale of the Premises remitted to such bank. As a result, such banks will have pre-petition unsecured claims against the Company aggregating approximately $2,271. The Company recognized a gain on the sale of the building and other miscellaneous assets of $685; which gain includes approximately $150, representing the fair market rental value of the premises for the one-year rent-free period. Depreciation expense for the years ending December 31, 2003 and 2002 was $752 and $1,557, respectively. In 2003 the Company recorded repairs and maintenance expenses of $26 as compared to $102 for the year ended December 31, 2002. F-14 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Income Taxes The provision for income taxes consisted of the following for the years ended December 31: 2003 2002 ---------- ---------- Current: Federal -- -- State -- -- Deferred: Federal -- -- State -- -- The benefit from income taxes differs from the amount of income tax determined by applying the statutory federal income tax rate to continuing operations before income taxes as a result of the following: 2003 2002 ---------- ---------- Federal income tax benefit at statutory rate $ (1,217) $ (2,592) Losses not producing tax benefits 1,217 2,592 ---------- ---------- Income tax benefit $ 0 $ 0 ========== ========== The components of the net deferred tax assets and liabilities were as follows: December 31, 2003 2002 ---------- ---------- Current deferred tax assets: Inventory $ 702 $ 618 Accounts receivable 321 371 Warranties 145 322 Other deferred tax assets 676 708 Less valuation allowance (1,844) (2,019) ---------- ---------- Total current deferred tax assets $ -- $ -- ========== ========== Noncurrent deferred tax assets- Goodwill and other $ 835 $ 330 Noncurrent deferred tax liabilities- Property and equipment (588) (636) Net operating loss carryforwards 15,726 14,889 Less valuation allowance (15,973) (14,583) ---------- ---------- Net noncurrent deferred tax assets $ -- $ -- ========== ========== The increase (decrease) in the valuation allowance for deferred tax assets for the years ending December 31 was as follows: 2003 2002 ---------- ---------- Current deferred tax asset valuation allowance $ (175) $ (1,551) Long-term deferred tax asset valuation allowance 1,390 5,415 ---------- ---------- $ 1,215 $ 3,864 ========== ========== F-15 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has provided a valuation allowance against the total amount of the net deferred tax assets due to the uncertainty of future realization. 6. Other accrued liabilities At December 31, 2003 and 2002 other accrued liabilities consisted of the following: 2003 2002 -------- -------- Accrued debt settlements $ -- $ 906 Accrued audit expense 12 216 Accrued interest expense 60 101 Accrued separation agreement expense 81 Other accrued expenses 9 316 -------- -------- $ 81 $ 1,620 ======== ======== 7. Liabilities and Other Items Subject to Compromise Liabilities and other items subject to compromise refers to liabilities incurred and the issuance of preferred stock prior to the commencement of the Chapter 11 Cases. These amounts represent the Company's estimate of known or potential pre-petition claims to be resolved in connection with the Chapter 11 Cases. Such claims remain subject to future adjustments. Adjustments may result from negotiations, actions of the Bankruptcy Court, the determination as to the value of any collateral securing claims, proofs of claim or other events. It is anticipated that such adjustments may be material. Payment terms for these amounts will be established in connection with the Chapter 11 Cases. At December 31, 2003, the Company had liabilities and other items subject to compromise of approximately $13,207 which consisted of the following: Liabilities: Accounts payable $ 9,971 Convertible notes payable, principally related to prior separation agreements 965 Accrued salaries 397 Accrued warranty 222 -------- 11,555 Other: Mandatorily redeemable preferred stock 1,652 -------- $ 13,207 ======== F-16 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The mandatorily redeemable preferred stock is convertible into shares of common stock of the Company at a conversion price of $3 per share. The Plan of Reorganization contemplates that all equity instruments of the Company will be cancelled on the Effective Date. As a result, the conversion of the preferred stock to shares of common stock is doubtful and therefore the mandatorily preferred stock is included with other items subject to compromise. 8. Debt Long-term debt at December 31, 2003 and 2002 consisted of the following:

~~2001~~2003 ~~2000~~2002 ~~1999~~ -------- -------- ~~--------~~Note ~~Federal~~payable ~~income~~to ~~tax~~Independence Community Bank, bearing interest at ~~statutory~~7.75% ~~rate~~payable ~~$(2~~monthly,~~519)~~ balloon payment of $(14,~~205)~~439 $due ~~988~~on ~~Utilization~~or ofbefore ~~prior~~July ~~year~~1, ~~net~~2009, ~~operating~~collateralized ~~loss~~by ~~carryforwards~~land ~~(195)~~and --building $ -- ~~State~~$ ~~income~~5,790 ~~taxes~~Note payable toValtec Capital Corporation, ~~net~~bearing ofinterest ~~federal~~at ~~income~~8%, ~~tax~~collateralized ~~benefit~~by --receivables, --inventory ~~180~~and ~~Reversal~~equipment of1,321 ~~prior~~1,218 ~~year~~Notes ~~overaccruals~~payable ~~(898)~~toVision --Technologies, ~~(410)~~Inc., ~~Adjustment~~bearing ofinterest ~~deferred~~at ~~taxes~~8%, aspayable ain ~~result~~36 equal monthly installments, commencing the month following payment in full of ~~tax~~the ~~examinations~~Valtec Capital note, collateralized by receivables, inventory and equipment, subordinate to Valtec Capital 650 -- Term loan, collateralized by land and buildings, subordinate to Independence Community Bank -- (12,~~121)~~570 ~~Other~~Revolving loan, ~~net~~collateralized 38by ~~(273)~~receivables, 30inventory ~~Change~~and inequipment ~~valuation~~-- ~~allowance~~749 onCapital ~~deferred~~lease ~~tax~~obligations, secured by underlying assets ~~4,957~~447 1,~~189~~109 -------- -------- 2,418 11,436 Less current maturities on long-term debt 837 3,142 -------- -------- ~~Income tax expense (benefit)~~ $ 1,~~383~~581 $ ~~(289)~~8,294 ~~$ (333)~~ ======= =~~======~~ ========

As of December 31, 2003, the Company's pre-petition lease obligations are in default Aggregate debt scheduled maturities at December 31, 2003 were as follows: 2004 $ 837 2005 931 2006 217 2007 217 2008 216 -------- $ 2,418 ======== 9. Equity At December 31, 2003 and 2002, stockholders' deficit consisted of the following: F-17 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, December 31, ------------ ------------ 2003 2002 ------------ ------------ Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued $ -- $ -- Common stock, $0.01 par value, 25,000,000 shares authorized,6,705,613 shares issued and outstanding 67 67 Additional paid-in capital 35,844 35,844 Accumulated deficit (50,788) (47,110) ---------- ---------- Total stockholders' deficit $ (14,877) $ (11,199) ========== ========== Mandatorily Redeemable Preferred Stock and Related Gain on Debt Settlement. During the second quarter of 2002, the Company issued mandatorily redeemable convertible preferred stock (the "Preferred Stock"), in the respective face amounts of $1,250 and $3,115 as part of two debt settlements. The Company retained the services of an independent firm to determine the fair value of the aggregate face value of $4,365 of the Preferred Stock for purposes of recording the transactions on the Company's books. The convertible preferred stock was valued as a combination of an unsecured fixed income like security ("Debt Portion") and a warrant. The combination of the Debt Portion and warrant provided for an estimated fair value of the Preferred Stock of $1,406, resulting in the Company's recognizing a gain in the second quarter ended June 30, 2002 of $846 and $2,113 respectively on the portion of troubled debt attributable to the issuance of the Preferred Stock. In satisfying the secured debt and in return for removing the lien on our assets, the Company, amongst other consideration, also agreed to issue 750,000 shares of its common stock to the lenders and shares of the Preferred Stock referred to above with a stated value of $1,250 and a carrying value of $404, resulting in the recognition of gain of $846 as reflected above. The Company had agreed to register under the Securities Act of 1933 such common stock and the shares into which the Preferred Stock may be converted. The lenders have certain anti-dilution protection for their shares of common stock. The Company also reached agreement with its unsecured creditors representing approximately $10,237 of debt which required the Company to make cash payments totaling approximately $2,878, issue shares of Preferred Stock as discussed above with a stated value of approximately $3,115 and a carrying value of $1,002, allow offsets of receivables in the amount of $301 otherwise due the Company and agree to price increases in the total amount of $820 on future purchases of components. The Company recognized a gain on the restructuring of these payables to creditors of $5,236 including the gain attributable directly to the Preferred stock in the amount of $2,113 as shown above. The amounts relating to the gain on the restructuring of the unsecured debt reflect an increase of $1,567 from the amount originally reported to correct the discount rate used to value the preferred stock. See Note 18 to the Consolidated Financial Statements. Subsequently, the Company failed to meet its payment obligations under the agreements, resulting in a reversal during the fourth quarter of 2002 of $2,158 of gain on the settlement of unsecured trade debt previously recorded. As a result, the gain of $6,082 from the second quarter was reduced to a net gain of $3,924 for the full year. In reporting the gain as a component of continuing operations, the Company early adopted the provisions of SFAS No. 145. SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. The Preferred Stock issued to the lenders and unsecured creditors was convertible after the first anniversary of their issuance into shares of the Company's common stock at $3.00 per share and, unless sooner converted into common stock, must be redeemed by the Company on June 30, 2012 for their stated value. If all of such Preferred Stock, including the Preferred Stock which the Company is required to issue to the lenders, are converted, the Company would be required to issue approximately 1,455,073 shares of its common stock, subject to adjustment. As part of the Company's Plan of Reorganization, which requires Bankruptcy Court approval, it is contemplated that the shares issuable under the Preferred Stock will be cancelled. The carrying value of the mandatorily redeemable stock is included in other items subject to compromise at December 31, 2003. F-18 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assuming none of the holders of the Preferred Stock convert to Common Stock of Boundless Corporation, the Company would be required to record a charge to earnings available to stockholders over the ten-year redemption period such that the carrying value of the Preferred Stock equals its face value at the time of redemption. Pre-petition, the difference between the carrying value of the preferred stock and its face value was being treated as a dividend and charged to earnings available to stockholders over the ten-year redemption period unless conversion occurs, in which case accretion terminates at that point. As of December 31,2004, $247 was accreted and charged to losses attributable to common stockholders. During the quarter ended September 30, 2002, the Company sold to nine individuals (the "Subscribers") 267,367 shares of unregistered Common Stock of the Company for proceeds of $162. Proceeds of the offering were used for general working capital purposes. The purchase price was calculated by taking the average closing price of the Common Stock on the American Stock Exchange during the five (5) consecutive trading days ending on the trading date immediately preceding the purchase date. In connection with this sale, the Company granted to the Subscribers warrants to purchase 267,367 shares of the Company's Common Stock. The warrants are exercisable at between $0.47 and $0.70 per share of Common Stock and expire on the fifth anniversary from the date of issuance. 10. Options and Warrants The Company believes its presently outstanding equity securities will have no value and it is expected that those securities will be canceled under any plan of reorganization that we propose. On March 6, 1998, the Company filed an Information Statement on Schedule 14C with the Securities and Exchange Commission in connection with, amongst other items, the Board of Directors of the Company approving the Company's 1997 Incentive Plan permitting the grant of stock options, stock appreciation rights, performance shares, stock awards, stock units and incentive awards to employees, directors and others. The Company had previously adopted its 1995 Incentive Plan which permitted up to 600,000 shares of Common Stock to be issued thereunder. As additional shares were no longer available to be issued under the 1995 Incentive Plan, the Board adopted the 1997 Incentive Plan. The maximum number of shares to be issued under the 1997 Incentive Plan is not to exceed 1,000,000. The exercise price of each option granted is to be equal to or greater than the market price of the Company's stock on the date of grant. The terms of the options are generally over five years with vesting occurring in 25% increments beginning one year after the grant date. In December 2000 the Board created the 2000 Incentive Plan that covers up to 1,000,000 shares of Common Stock. The number of shares granted on a calendar year basis under the 2000 Incentive Plan is limited to 5% of the total number of shares of Common Stock outstanding, or 10% in any five-year period. The Company has elected to continue to account for stock options issued to employees in accordance with APB 25, "Accounting for Stock Issued to Employees". During the years ended December 31, 2003 and 2002, all options issued to officers and employees were granted at an exercise price which equaled or exceeded the market price per share at the date of grant and accordingly, no compensation was recorded. The Company follows the disclosure requirements of FASB Statement 123, "Accounting for Stock-Based Compensation". This statement requires the Company to provide pro forma information regarding net income and net income per share as if compensation cost for the Company's employee stock options granted had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model. There were no option grants in 2003. The following weighted average assumptions were used for grants in 2002: 1. Dividend yield of 0% 2. Expected volatility of 114%. 3. Risk-free interest rates ranging from 1.47% to 2.1% 4. Expected term of 3 years F-19 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the accounting provisions of SFAS No. 123, the Company's net loss and net loss per share would have been equal to the pro forma amounts indicated below: 2003 2002 ---------- ---------- Net loss As reported $ (3,579) $ (7,623) Under SFAS No. 123 (3,696) (8,096) Net loss per share As reported - basic $ (0.55) $ (1.21) As reported - diluted (0.55) (1.21) Under SFAS No. 123 - basic (0.55) (1.26) Under SFAS No. 123 - diluted (0.55) (1.26) A summary of the status of the Company's stock options and warrants as of December 31, 2003 and 2002, and changes during the years ending on those dates is as follows:

~~2001~~Options ~~2000~~-Boundless Corporation 2003 2002 ------------------------------- ---------------------------- ~~Note~~---------------------------- ~~payable~~Weighted toWeighted ~~Independence~~Average ~~Community~~Average ~~Bank,~~Shares ~~bearing~~Exercise ~~interest~~Price atShares ~~7.75%~~Exercise ~~payable~~Price ~~monthly,~~----------- ~~balloon~~-------------- ~~payment~~----------- -------------- Outstanding at beginning of year 2,326,247 $4 2.42 1,~~439~~473,959 ~~due~~$ on3.96 orGranted ~~before~~-- ~~July~~-- 1,808,700 ~~2009~~2.12 Exercised -- -- -- -- Forfeited (333,532) ~~collateralized~~(1.92) by(956,412) ~~land~~(4.24) ~~and~~----------- ~~building~~--------- $----------- 5--------- Outstanding at end of year 1,~~946~~992,715 $ 62.50 2,~~118~~326,247 ~~Note~~$ ~~payable~~2.42 to=========== ~~Boca~~========= ~~Research,bearing~~=========== ~~interest~~========= Options exercisable at 6%end ~~payable~~of ~~quarterly~~year 1,653,171 ~~principal~~$ ~~due~~2.92 on1,622,035 or$ ~~before~~3.20 ~~March~~=========== 6,========= ~~2002~~=========== ~~collateralized~~========= byWeighted ~~equipment~~average fair value of options granted during the year N/A $ 0.46 ========= ========= Warrants-- ~~625~~Boundless ~~Term~~Corporation ~~loan~~2003 2002 ------------------------------- ~~1,267~~---------------------------- ~~Revolving~~---------------------------- ~~loan~~Weighted ~~8,507~~Weighted ~~6,773~~Average ~~Capital~~Average ~~lease~~Shares ~~obligations~~Exercise ~~1,742~~Price ~~932~~Shares Exercise Price ----------- -------------- 16----------- -------------- Outstanding at beginning of year 1,~~195~~530,900 15$ 3.55 893,~~715~~532 ~~Less~~$ ~~current~~6.35 ~~maturities~~Granted on-- ~~long~~-~~term~~- ~~debt~~667,368 150.48 Exercised -- -- -- -- Forfeited (67,~~362~~340) 2(9.69) (30,~~273~~000) (18.60) ----------- --------- ----------- --------- Outstanding at end of year 1,463,560 $ ~~833~~3.27 1,530,900 $13 3.55 =========== ========= =========== ========= Warrants exercisable at end of year 1,~~442~~463,560 $ 3.27 1,530,900 $ 3.55 =========== ========= =========== ========= Weighted average fair value of warrants granted during the year N/A $ 0.24 ========= =========

F-20 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes information about fixed stock options and warrants outstanding at December 31, 2003:

Weighted Average Number Number Weighted Remaining Exercisable at Outstanding at Average Contractual Life December 31, Options - Boundless Corp. December 31, 2003 Exercise Price (Years) 2003 ------------------------- ~~2001~~----------------- ~~2000~~-------------- ---------------- -------------- ~~Preferred stock~~564,400 $ 0.0145 ~~par~~3.83 ~~value~~231,106 1215,000 1.03 2.81 208,750 148,000 ~~shares~~1.05 ~~authorized~~3.14 148,000 ~~none~~220,000 ~~issued~~1.50 $2.45 --220,000 $180,100 --3.60 ~~Common~~1.04 ~~stock~~180,100 $0131,060 4.0150 ~~par~~2.98 ~~value~~131,060 25150,000 4.88 3.00 150,000 ~~shares~~176,155 ~~authorized~~5.00 1.76 176,155 205,000 5.62 3.00 205,~~688~~000 3,~~037~~000 ~~and~~8.40 41.00 3,~~630~~000 ------------ ------------ ------------ ------------ 1,~~160~~992,715 ~~shares~~$ ~~issued~~2.50 2.87 1,653,171 ============ ============ ============ ============ Weighted Average Number Number Remaining Exercisable at Outstanding at Contractual Life December 31, ~~2001~~Warrants ~~and~~- ~~2000~~Boundless Corp. December 31, ~~respectively~~2003 57Exercise 46Price ~~Additional~~(Years) ~~paid~~2003 -in------------------------- ~~capital~~----------------- 35-------------- ---------------- -------------- 400,~~280~~000 34$ 0.36 3.92 400,~~102~~000 ~~Accumulated~~172,430 ~~deficit~~0.65 ~~(39~~3.51 172,~~339)~~430 ~~(28~~146,~~397)~~676 ~~Accumulated~~0.84 ~~other~~3.16 ~~comprehensive~~146,676 ~~loss~~152,952 ~~(141)~~2.40 1.70 152,952 46,500 5.00 2.01 46,500 150,000 5.80 1.38 150,000 65,000 6.90 1.14 65,000 307,502 7.50 0.95 307,502 20,000 7.97 0.48 20,000 2,500 18.40 0.95 2,500 ------------ ------------ ------------ ~~Total~~------------ ~~stockholders'~~1,463,560 ~~equity~~$ ~~(deficit)~~3.27 $2.44 (41,~~143)~~463,560 $============ ~~5,751~~============ ============ ============

In accordance with SFAS No. 123, the Company is required to account for options issued to non-employees for services rendered using the fair value method over their vesting period. On February 23, 2001, the Company sold 110,000 shares of its Common Stock to three individuals for total proceeds of $225. In connection with the sale, the Company issued warrants to purchase 27,500 shares of its Common Stock at an exercise price of $2.40 per share of Common Stock. The warrants expire four years from the date of grant. Mr. Joseph V. Joy, Jr. and Mr. Jack Ryan, then the President and Vice President, Supply Chain Services, of Boundless Manufacturing, respectively, participated in this offering. Mr. Frank Stephens, currently a member of the Company's Board of Directors, but who was not associated with the Company at the time of the sale, also participated in the offering. Proceeds from this sale were used for general working capital purposes. From May 29, 2001, through June 29, 2001, the Company sold 947,877 shares of its Common Stock in a private placement offering, raising gross proceeds of $964. In connection with this sale, the Company issued warrants to purchase 142,190 shares of its Common Stock at exercise prices ranging from $1.10 to $1.36 per share of Common Stock. The warrants expire five years following the date of grant. Fourteen individuals or legal entities participated in the private placement, including four executive officers of the Company and a member of the Company's Board of Directors. In connection with a sale of common stock in September, 2001, the Company granted to the subscribers warrants to purchase 267,367 shares of the Company's Common Stock. The warrants are exercisable at between $0.47 and $0.70 per share of Common Stock and F-21 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS expire on the fifth anniversary from the date of issuance. The warrants issued to non-employees were recorded based on the fair values of the warrants on the grant date, using the Black-Scholes option-pricing model. Due to the expected cancellation of all of the Company's outstanding equity securities, including the mandatorily redeemable Preferred Stock, as a result of the Chapter 11 proceedings, none of the outstanding warrants or options is believed to have any economic or dilutive effect on the Company's finances. 11. Related Party Transactions Sale of common shares On February 23, 2001, the Company sold 110,000 shares of its Common Stock to three individuals for total proceeds of $225. In connection with the sale, the Company issued warrants to purchase 27,500 shares of its Common Stock at an exercise price of $2.40 per share of Common Stock. The warrants expire four years from the date of grant. Mr. Joseph V. Joy, Jr. and Mr. Jack Ryan, then the President and Vice President, Supply Chain Services, of Boundless Manufacturing, respectively, purchased securities in this offering. Mr. Frank Stephens, currently a member of the Company's Board of Directors, but who was not associated with the Company at the time of the sale, also purchased securities in the offering. Proceeds from this sale were used for general working capital purposes. Other In 2002 the Company issued certain convertible notes in connection with separation agreements. These are included in liabilities subject to compromise. For a description of these obligations see "Item 11. Executive Compensation- Employment Agreements and Change-in-Control Arrangements". 12. Commitments Leases The Company leases certain manufacturing, sales and administrative facilities and office equipment under operating lease agreements, which expire at various times through February 2009. The only significant lease is for the Company's facility in Farmingdale, New York, entered into February 2004, with a total outstanding commitment of $1,111. Total rent expense was $91 and $591 in 2003 and 2002, respectively. Future minimum rental commitments, as of December 31, 2003, and including the commitments for the Farmingdale facility, were as follows: Leases 2004 $ 228 2005 272 2006 241 2007 235 2008 241 2009 41 -------- $ 1,258 ======== 13. Contingencies The Company is subject to lawsuits and claims that arose in the normal course of business. Management is of the opinion that all such matters are without merit, or are of such kind, or involve such amounts, as would not have a significant effect on the financial position, results of operations or cash flows of the Company if disposed unfavorably. See "Item 3. Legal Proceedings" for a description of outstanding lawsuits and claims. F-22 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. Segment Reporting and Geographic Information The Company's manufacturing is conducted at its New York facility and its sales force operates from three geographically dispersed locations in the United States and United Kingdom. Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by its decision making group. For 2002, the Company had two reportable segments. With the Company's restructuring in conjunction with Chapter 11 filing on March 12, 2003, the business segment reporting ceased. The results of the reportable segments are derived from the Company's management reporting system. These results are based on the Company's method of internal reporting and are not necessarily in conformity with generally accepted accounting principles. These results are used to evaluate the performance of each segment and determine the appropriate resource allocation mix. Information for 2002 by business segment is presented below (in thousands):

~~2001~~Boundless ~~2000~~Boundless ~~1999~~For the year ended Elimi- Technol- Manufact- December 31, 2002 Total nations ogies/Corp. uring -------------------------------- ---------- ---------- ~~Net~~---------- ~~income~~---------- ~~(loss)~~Customer ~~applicable~~Revenue to$ ~~common~~26,843 ~~shareholders~~$ As17,248 ~~reported~~ $ ~~(10~~9,~~942)~~595 Intercompany Revenue $ (1712,~~259~~153) ~~$ 3~~12,~~189~~153 ~~Under~~---------- ~~SFAS~~---------- ~~No.~~---------- ~~123~~---------- ~~(11~~Total Revenue $ 26,~~236)~~843 $ (1812,~~005~~153) 2$ 17,~~315~~248 ~~Net~~$ ~~income~~21,748 ~~(loss)~~========== ~~per~~========== ~~share~~========== As========== ~~reported~~Gross -Margin ~~basic~~ $ (~~2.17~~537) $ (~~3.81~~371) $ ~~0.72~~4,473 As$ ~~reported~~(4,639) -========== ~~diluted~~========== (========== ========== Gross Margin percent -2.~~17)~~0% (325.~~81)~~9% 0-21.713% ~~Under~~========== ~~SFAS~~========== ~~No.~~========== ~~123~~Operating -income ~~basic~~(loss) $ (~~2.23~~8,060) $ (~~3.97~~1,567) ~~0.52~~$ ~~Under~~(6,493) ~~SFAS~~========== ~~No.~~========== ~~123~~========== -Total ~~diluted~~assets ~~(2.23)~~by (business segment $ 13,236 $ 9,575 $ 3~~.97)~~,661 ~~0.51~~========== ========== ==========

Foreign sales were approximately $3,473 and $7,430 for 2003 and 2002, respectively. The following table shows the approximate percentage of total revenue attributable to export sales to the regions described for each of the years ended December 31: 2003 2002 -------- -------- Western Europe 25% 17% Other European countries 0% 0% Other foreign countries 4% 11% -------- -------- Total 29% 28% ======== ======== All significant long-lived assets of the Company are in the United States. 15. Defined Contribution Plan Concurrent with its filing for protection under Chapter 11, the Company ceased providing a 401(k) retirement savings plan (the "401(k) Plan") for its full-time employees. Effective March 1, 2002, the Company had terminated its contributions to the 401(k) plan, with only employee contributions remaining. In 2002, there were three instances where the Plan failed to timely remit withheld employee contributions totaling approximately $14. In 2003, there was one instance where the Plan failed to timely remit withheld employee contributions totaling approximately $3. These delinquent participant contributions are considered prohibited transactions. Accordingly, the Company is expected to reimburse the Plan for the lost interest that would have been earned had the contribution been made timely. The amount of the reimbursement is approximately $1. 16. Reorganization Expenses The Company voluntarily petitioned for relief under Chapter 11 of the United States Bankruptcy Code on March 12, 2003, (the F-23 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS "Petition Date") in the United States Bankruptcy Court for the Eastern District of New York, Central Islip. The Company has retained the law firm of Ruskin, Moscou, Faltischek, P.C. as counsel in the bankruptcy proceedings. On March 14, 2003, the Bankruptcy Court signed an Order directing that the bankruptcy cases be consolidated for procedural purposes and jointly administered. On March 25,2003, an Official Committee of Unsecured Creditors (the "Committee") was appointed. The law firm of Platzer Swergold Karlin Levine Goldberg & Jaslow, LLP was retained to represent the Committee. During 2003 the Company incurred the following expenses which relate to its reorganization: Professional fees $ 1,266 United States District Court fees 32 Facility relocation expenses 42 (Gain) on the disposition of building and equipment (685) -------- $ 655 ======== 17. Derivative Financial Instruments The Company's exposure to market risk for changes in interest rates related primarily to the Company's revolving credit facility and long-term debt obligations. The Company managed this risk through utilization of interest rate swap agreements in amounts not exceeding the principal amount of its outstanding obligations. Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a hedging derivative's change in fair value is immediately recognized in earnings. At December 31, 2002 the Company had in place an interest rate swap agreement in the amount of $306 bearing three-month LIBOR interest of 1.4%. The interest rate swap agreement expired March 31, 2003. The deferred loss resulting from the swap agreements, as calculated using the mark-to market method, was not material. At December 31, 2002, the Company's interest rate swap, a cash flow hedge, was closed out to the statement of operations. 18. Selected Quarterly Financial Data - (unaudited) Provided below is the selected unaudited quarterly financial data from 2003 and 2002. F-24 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Options~~For ~~-Boundless~~the ~~Corporation~~three ~~2001~~months ~~2000~~ended ~~------------------------------~~December 31, September 30, June 30, March 31, ---------------------------------- -----------------------~~------~~ ~~Weighted~~2003 ~~Weighted~~2003 ~~Average~~2003 ~~Average~~2003 ~~Exercise Exercise Shares Price Shares Price~~ ------------ ------------- ------------ ------------ ~~Outstanding~~Net atrevenue ~~beginning~~$ of1,811 ~~year~~$ 13,~~546,178~~461 $ 4~~.61 1~~,~~395,765~~008 $ ~~5.70~~2,470 ~~Granted~~Cost ~~200~~of product sold and services 2,~~938~~405 2~~.04~~,770 ~~417~~3,~~000~~205 2~~.76~~,582 ~~Exercised~~Gross --profit --(loss) (~~161~~594) 691 803 (112) Net loss $ (1,~~539~~113) ~~8.67~~$ ~~Forfeited~~(92) $ (~~270~~955) $ (1,~~657~~419) 5Per share amounts: Basic and diluted net loss per common share $ (0.1317) $ (~~105,048~~0.01) 5$ (0.9015) $ (0.22) For the three months ended December 31, September 30, June 30, March 31, ---------- ---------- ---------- ---------- ~~Outstanding at end of year 1,476,459 $ 3.97 1,546,178 $ 4.61 ==========~~ ---------- ~~==========~~ -------~~---~~ ~~Options~~2002 ~~exercisable~~2002 at2002 ~~end~~2002 ~~of year 1,175,301 $ 4.10 1,052,441 $ 4.49 ========== ========== ========== ========== Weighted average fair value of options granted during the year $ 0.91 $ 1.22 ========== ========== 1999~~ ------------ ------------- -------- ~~Weighted Average Exercise Shares Price~~ ---- ------- -----~~-----~~ ~~Outstanding~~Net atrevenue ~~beginning~~$ of4,913 ~~year~~$ ~~923~~5,~~716~~186 $ ~~8.26~~6,722 ~~Granted~~$ ~~705~~10,~~360~~022 ~~5.13~~Cost ~~Exercised~~of ~~(29~~product sold and services 5,~~053)~~631 5~~.60~~,211 ~~Forfeited~~7,181 ~~(204~~9,~~258~~357 Gross profit (loss) ~~15.30~~(718) ~~-----------~~(25) ~~----------~~(459) ~~Outstanding~~665 atGain ~~end~~on ofdebt ~~year~~restructuring/(loss ~~1,395,765~~on $subsequent ~~5.70~~payment ~~===========~~default) (2,158) --~~--------~~ ~~Options~~6,082 ~~exercisable~~Net atincome ~~end~~(loss) of$ ~~year~~(7,891) ~~661~~$ (1,~~563~~589) $ ~~6.47~~2,815 ~~===========~~$ ~~==========~~(958) ~~Weighted~~Per ~~average~~share ~~fair~~amounts: ~~value~~Basic ofand ~~options~~diluted ~~granted~~net ~~during~~income ~~the~~(loss) ~~year~~per common share $ 2(1.4724) ~~==========~~$ (0.26) $ 0.46 $ (0.17)

On August 14, 2002, the Company filed with the Securities and Exchange Commission a quarterly report on Form 10-Q for the period ending June 30, 2002. The condensed consolidated statements of operations for the three and six months ended June 30, 2002 included a net gain on the restructuring of payables of approximately $4,515. The Company utilized an incorrect discount rate on the preferred stock in calculating the gain originally reported during the second quarter of 2002. The following table shows the effect of the correction on amounts previously reported on our Form 10-Q for the quarter ending June 30, 2002: As Previously Reported As Restated ------------- ------------- Net gain on restructuring of payables 4,515 6,082 =========== =========== Net income $ 1,248 $ 2,815 =========== =========== Per share amounts: Basic net income (loss) per common share $ 0.20 $ 0.46 =========== =========== Diluted net income (loss) per common share $ 0.20 $ 0.46 =========== =========== F-25 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Subsequent Events On November 30, 2004, the Company filed a motion with the Bankruptcy Court for an order authorizing the Company to (i) incur post-petition secured indebtedness, and (ii) grant a security interest and priority claims pursuant to Sections 364(c) and 364(d) of the Bankruptcy Code. On January 27, 2005, the Bankruptcy Court approved the order. As of January 31, 2005, the Company entered into an agreement with its secured lender Valtec Capital, LLC, as assignee of Valtec Capital Corporation, (the "Prior Lender") to terminate our debtor-in-possession ("DIP") financing and to release their liens on our personal property. At the same time, the Company entered into another secured DIP financing agreement (the "EGC Agreement") with Entrepreneur Growth Capital, LLC ("EGC") pursuant to which EGC was granted a lien on all of our personal property. In general, the EGC Agreement permits us to borrow up to 80% of our eligible accounts receivable. Under the EGC Agreement, the annual interest rate is 6% above the prime rate announced by Citibank, N.A. and we are required to pay a monthly service fee equal to three quarters of one percent (0.75%) of the face value of invoices assigned to EGC for the preceding month. The EGC Agreement requires us to pay minimum monthly interest of approximately $8 even though our actual borrowings may result in a lesser interest charge. The Company is responsible for certain fees and fees for early termination of the facility. The maximum availability under the EGC Agreement is $1,000 and the term is one year. In return for termination of the prior DIP financing we also agreed to pay Valtec Capital a total of $100 for legal fees they incurred during our bankruptcy period. This amount is payable to Valtec Capital on the date that our Plan of Reorganization becomes effective. On February 2, 2005, the Company filed, as exhibits, the EGC Agreement on Form 8-K with the Securities and Exchange Commission. In February 2004 the Company entered into a lease with LJM Associates for a facility of approximately 32,000 square feet of space in Farmingdale, New York. The lease expires February 28, 2009, and calls for an annual base rent of $216 in the first year of the agreement, escalating to $243 in the fifth year. F-26 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Boundless Corporation Hauppauge, New York We have audited the accompanying consolidated balance sheet of Boundless Corporation and Subsidiaries as of December 31, 2001 and the related consolidated statements of operations, comprehensive loss, changes in stockholders' equity (deficit) and cash flows for each of the two years in the period ended December 31, 2001. We have also audited the schedules on pages S-1, S-2, S-3, and S-5 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boundless Corporation and Subsidiaries as of December 31, 2001 and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the schedules present fairly, in all material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered substantial losses from operations in 2001 and 2000. In addition, as of December 31, 2001, the Company has a stockholders' deficit of $4,143,000 and has a working capital deficit totaling $16,473,000, resulting primarily from the reclassification of debt under the Company's loan and mortgage agreements to current liabilities as a result of loan covenant violations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP Melville, New York March 14, 2002 F-27 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED BALANCE SHEET (in thousands) December 31, ------------ 2001 -------- Current assets: Cash and cash equivalents $ 25 Trade accounts receivable, net 10,053 Income tax refunds 13 Inventories (Note 5) 8,073 Prepaid software license fees 37 Prepaid expenses and other current assets 543 --------- Total current assets 18,744 Property and equipment, net (Note 6) 10,993 Goodwill, net 3,187 Other assets 291 --------- $ 33,215 ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt (Note 8) $ 15,362 Accounts payable 15,355 Accrued salaries 1,430 Accrued taxes payable 13 Accrued warranty 645 Accrued marketing programs 100 Other accrued liabilities (Note 11) 2,002 Deferred revenue 310 --------- Total current liabilities 35,217 --------- Long-term liabilities: Long-term debt, less current maturities (Note 8) 833 Other (Note 11) 1,308 --------- Total long-term liabilities 2,141 --------- Total liabilities 37,358 --------- Commitments and contingencies (Notes 12 and 13) Stockholders' deficit (Note 9): Preferred stock -- Common stock 57 Additional paid-in capital 35,280 Accumulated deficit (39,339) Accumulated other comprehensive loss (141) --------- Total stockholders' deficit (4,143) --------- $ 33,215 ========= The accompanying notes are an integral part of these consolidated financial statements F-28 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, (in thousands, except per share data) December 31, December 31, ------------ ------------ 2001 2000 -------- -------- Revenue: Product sales $ 57,473 $ 62,642 Services 2,108 1,902 -------- -------- Total revenue 59,581 64,544 -------- -------- Cost of revenue: Product sales 51,608 47,326 Services 1,690 1,718 -------- -------- Total cost of revenue 53,298 49,044 -------- -------- Gross margin 6,283 15,500 -------- -------- Operating expenses: Sales and marketing 5,459 7,442 General and administrative 7,690 8,279 Research and development 1,381 1,691 Other charges (credits) (Notes 3, 4 and 11) (2,437) 177 -------- -------- Total operating expenses 12,093 17,589 -------- -------- Operating loss (5,810) (2,089) Interest expense, net 1,599 1,455 -------- -------- Loss before income taxes (7,409) (3,544) Income tax (credit) expense (Note 7) 1,383 (289) -------- -------- Loss from continuing operations (8,792) (3,255) Loss from discontinued operations (Note 17) (2,150) (14,004) -------- -------- Net loss $(10,942) $(17,259) ======== ======== Weighted average common shares outstanding 5,048 4,535 ======== ======== Basic net loss per common share: Continuing operations (1.74) (0.72) Discontinued operations (0.43) (3.09) -------- -------- Basic net loss per common share $ (2.17) $ (3.81) ======== ======== Weighted average dilutive shares outstanding 5,048 4,535 ======== ======== Diluted net loss per common share $ (2.17) $ (3.81) ======== ======== The accompanying notes are an integral part of these consolidated financial statements F-29 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Years Ended December 31, (in thousands, except per share data) December 31, December 31, ------------ ------------ 2001 2000 -------- -------- Net loss $ (10,942) $ (17,259) Other comprehensive loss: Cumulative effect of adoption of FAS 133 (30) -- Cash flow hedges, net of taxes (111) -- --------- --------- Other comprehensive loss (141) -- --------- --------- Total comprehensive loss $ (11,083) $ (17,259) ========= ========= The accompanying notes are an integral part of these consolidated financial statements F-30 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)

~~Warrants-~~Accumulated ~~Boundless~~Common ~~Corporation~~Stock ~~2001~~Additional ~~2000~~other ---------------------- Paid-in Accumulated comprehensive Shares Amount Capital Deficit (loss) Total -------- -------- -------- --------~~-------~~ -------- --------~~------------~~ ~~Weighted~~Balance, ~~Weighted~~January ~~Average~~1, ~~Average~~2000 ~~Exercise~~4,457 ~~Exercise~~$ ~~Shares~~45 ~~Price~~$ ~~Shares~~32,508 ~~Price~~$(11,138) ~~-----------~~$ --~~---------~~ ~~----------~~$ ~~-----------~~21,415 ~~Outstanding~~Stock atoptions ~~beginning~~exercised of121 ~~year~~1 ~~677~~1,~~342~~001 $1,002 ~~7.67~~Options ~~640,058~~and $warrants ~~7.85~~issued ~~Granted~~for ~~216,190~~services ~~2.20~~to ~~70,000~~non-employees ~~7.19~~197 ~~Exercised~~197 --Warrants --exercised ~~(31,375)~~52 ~~10.00~~396 ~~Forfeited~~396 --Net --loss (117,~~341~~259) ~~12.96~~(17,259) -------- -------- -------- -------- ~~Outstanding at end of year 893,532 $ 6.35 677,342 $ 7.67 ========~~ -------- ~~========~~ -------- ~~Warrants~~Balance, ~~exercisable~~December at31, ~~end~~2000 of4,630 ~~year~~46 ~~847~~34,~~032~~102 $(28,397) ~~6.42~~-- ~~657~~5,~~342~~751 $Common ~~7.67~~stock ~~========~~sold ~~========~~1,058 ~~========~~11 ~~========~~1,178 ~~Weighted~~1,189 ~~average~~Net ~~fair~~loss ~~value~~(10,942) of(10,942) ~~warrants~~Other ~~granted~~comprehensive ~~during~~loss ~~the~~(141) ~~year~~(141) ~~$ 1.06 $ 2.60 ======== ======== 1999~~ -------- -------- -------- -------- ~~Weighted Average Exercise Shares Price~~ -------- -------- ~~Outstanding~~Balance, atDecember ~~beginning~~31, of2001 ~~year 534~~5,~~492~~688 $ ~~8.27~~57 ~~Granted~~$ ~~117~~35,~~340~~280 ~~7.80 Exercised -- -- Forfeited~~ $(1139,~~774~~339) ~~26.08~~$ ~~-------~~(141) ~~--------~~$ ~~Outstanding at end of year 640~~(4,~~058~~143) $======== ~~7.85~~======== ======== ~~-------- Warrants exercisable at end of year 572,718 $ 7.64~~ ======== ======== ~~Weighted average fair value of warrants granted during the year $ 2.32~~ ========

The accompanying notes are an integral part of these consolidated financial statements F-31 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended (in thousands)

The accompanying notes are an integral part of these consolidated financial statements F-32 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS, continued For the Years Ended (in thousands) December 31, -------------------- 2001 2000 -------- -------- Non-cash transactions: Options and warrants issued for services $ -- $ 197 Equipment acquisitions funded through capital leases 1,348 1,635 Cash paid for: Interest 1,309 1,426 Taxes 21 329 The accompanying notes are an integral part of these consolidated financial statements F-33 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) 1. Background Boundless Corporation (the "Company") is engaged, through its subsidiary, Boundless Technologies, Inc. ("Boundless"), in designing and manufacturing computer terminals and network computers for business use. The Company's general strategy is to provide highly efficient, low cost access to corporate computing environments, including client/server, mainframes, LANS, WANS, intranets and the Internet. The Company entered into the General Display Terminal and high resolution, high performance desktop graphics display terminals ("Network Graphics Displays") businesses in December 1994 when the Company, through its wholly owned subsidiary, Boundless Acquisition Corp. ("Acquisition"), purchased Applied Digital Data Systems, Inc. ("ADDS") from NCR Corporation ("NCR"), (the "Boundless Acquisition"). ADDS, renamed in 1996 to Boundless Technologies, Inc. had been a supplier of general purpose desktop display terminals worldwide under either the customer's or ADDS(R) trademark. Simultaneously, with the Company's acquisition of ADDS, the Company acquired all of the assets and business of SunRiver Group, Inc. (the "SunRiver Group Acquisition"). Prior thereto, SunRiver Group, Inc. ("SunRiver Group") had been engaged, for more than nine years, in the development and manufacture of software and hardware for MultiConsole Terminals. SunRiver Group, subsequently renamed Morgan Kent Group, Inc. ("Morgan Kent Group") was a pioneer in the development of high-speed MultiConsole Terminals for open system, multi-user platforms. In October 1995, Boundless acquired (the "Digital Acquisition") assets relating to the General Display Terminal products of Digital Equipment Corporation ("Digital") sold under the "VT" and "Dorio" brands (excluding the VT 400 Series). Boundless Manufacturing Services, Inc. ("Boundless Manufacturing"), which commenced operations in 2000, is pursuing opportunities in the electronic manufacturing services ("EMS") marketplace. As of December 31, 2001, the Company owned approximately 55% of the shares of common stock of this subsidiary. Boundless Manufacturing is utilizing the Company's state-of-the-art ISO 9002 certified manufacturing facility in Hauppauge and may acquire additional manufacturing facilities as the business expands. Services include supply chain optimization, global supply base management, systems assembly and test, distribution and logistics, repair centers and end-of-life management. Boundless Manufacturing also offers in-house engineering expertise- product design, test development, product development- to significantly reduce time-to-market for original equipment manufacturers ("OEM") customers. Boundless Manufacturing provides a complete supply chain that is designed and built to each customer's specifications. Boundless Manufacturing also has post-manufacturing support capability in Chicago, Atlanta, Los Angeles and The Netherlands. Merinta Inc. ("Merinta"), which commenced operations in 2000, created the software and infrastructure for a more enjoyable Internet experience. Through tightly integrated Remote Device Management and Services, professional services and Information Appliance ("IA") Client Software solutions, Merinta offered OEM and Vertical Channel customers a completely customizable user-experience, which enabled their customers to differentiate themselves in the market and deliver tailored applications and services to the customer. Merinta's client solution, built upon the Linux operating system, in combination with server based Remote Device Management and Services products, supported a wide range of IAs, including Web Terminals and Tablets, Set-Top Boxes, Residential Gateways and Wireless Handheld Devices. As of December 31, 2001, the Company owned approximately 84% of the common stock of Merinta, and had the right to vote approximately 70% of the voting securities of Merinta. On a fully-diluted basis, assuming conversion of the preferred stock, warrants and options to purchase the common stock of Merinta, the Company owns approximately 58% of the common stock of Merinta. On May 11, 2001, management decided to discontinue Merinta. Merinta's results are presented as discontinued operations in the accompanying consolidated financial statements (See Note 17). 2. Going Concern Considerations and Management's Plans The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. F-34 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has incurred significant losses from operations, has a working capital deficit totaling approximately $16 million, resulting primarily from the classification of debt under the Company's loan and mortgage agreements to current liabilities as a result of loan covenant violations and it requires new financing to meet its current cash requirements. These factors raise substantial doubt about the Company's ability to continue as a going concern, unless management's plans are effected in a timely manner. Management believes that the following actions, in addition to the continued profitable growth of the Company's operating subsidiaries, will afford the Company the ability to fund its daily operations and service its remaining debt obligations. No adjustments have been made to the carrying value of assets or liabilities as a result of the uncertainty about obtaining cash required to pay obligations as they become due. o Management plans to re-negotiate with current vendors and holders of the existing subordinated debt, totaling approximately $13 million, terms and conditions which the Company can better meet in the future. Management is in discussions with the vendors and debt holders attempting to secure more favorable terms. o Management is working with its secured lender on a restructuring of the terms of the debt they hold to allow for the raising of additional capital. While management is hopeful an arrangement can be achieved, it can give no assurance an agreement will be reached. o Management entered into negotiations to secure equity financing of $3-5 million under terms and conditions to be agreed upon. o Management entered into negotiations to secure an asset-based revolving line of credit to replace the Chase Credit Line. o The Company is currently negotiating material contracts for the sale of its manufacturing services to customers which management believes will provide additional liquidity for operations. There can be no assurances these contracts will ultimately materialize. There are no assurances that management will be successful in negotiating with its remaining creditors or raising sufficient capital to continue as a going concern. 3. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company, after elimination of intercompany accounts and transactions. As of December 31, 2001 the Company owned 100%, 84%, and 55% of the outstanding common stock of Boundless Technologies, Merinta and Boundless Manufacturing, respectively. Certain reclassifications have been made to prior years' financial statements to conform to the current year's presentation. Cash and Cash Equivalents All highly liquid investments with original maturities at purchase of three months or less are considered cash equivalents. F-35 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property and Equipment Property and equipment are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over a 25-year period, and machinery and equipment are depreciated over periods ranging from 2 to 15 years. Expenditures that increase the value or extend the life of an asset are capitalized, while costs of maintenance and repairs are expensed as incurred. Gains or losses upon disposal of assets are recognized in the statements of operations. Long-Lived Assets In accordance with 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," management reviews long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. As part of the assessment, management considers undiscounted cash flows for each product that has significant long-lived or intangible asset values associated with it. When impairments are identified, the related assets are written down to fair value using discounted cash flows or other measures of fair value. No impairments occurred in 2001. On September 30, 1999, the Company sold the entirety of its interest in the General Automation Inc. ("GAI") Partnership to General Automation ("GA") for a combination of cash, restricted securities of GA, convertible notes, and warrants. The value of debt and equity securities, reported as a long-term asset was $824 in 1999. During the fourth quarter of 2000, the Company wrote off 100% of the common stock and convertible debt which it had received in consideration for the sale of its interest in the GAI Partnership to GA in 1999. The write-off was recorded as a result of the deterioration in GA's economic position, its reporting of significant continuing losses and its announcement during the first quarter of 2001 that it had sold its hardware and services business and would restructure the company. Goodwill Goodwill represents the excess of the purchase price and related direct costs over the fair value of net assets acquired as of the date of the acquisition. Goodwill is amortized on a straight-line basis over 10 years. During 2000, in view of a declining market in the text terminals business, with which the Company's goodwill is associated, management reassessed its useful life. It was determined that the useful life of goodwill should be shortened to be more reflective of the rate of decline in this segment of the business. Accordingly, management changed the remaining useful life of 5 years to a remaining useful life of 3 years, commencing in the fourth quarter of 2000. This change in accounting estimate increased amortization expense in 2000 by approximately $185. The Company did not record any impairment charges in 2001. Amortization of goodwill amounted to $1,822 for the year ended December 31, 2001 and $1,263 for the year ended December 31, 2000. Accumulated amortization of goodwill as of December 31, 2001 was $7,604. The Company's previous business combinations were accounted for using the purchase method. Currently, the Company is assessing, but has not yet determined how the adoption of SFAS 142 will impact its financial position and results of operations. See New Accounting Standards. Minority Interest In the absence of a commitment by minority shareholders to fund losses in excess of their equity, such losses have been attributed to the Company. F-36 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents and long-term debt reported on the balance sheets approximate their fair value. The Company estimated the fair value of long-term debt by comparing the carrying amount to the future cash flows of the instrument, discounted using the Company's incremental rate of borrowing for a similar instrument. Revenue Recognition The Company recognizes revenue from product sales upon shipment to the customer or passage of title and assumption of risk. The Company monitors product returns, generally which are for stock rotation with a coinciding replacement order, and records provisions for estimated future returns and potential warranty liability at the time revenue is recorded. The Company recorded an allowance for doubtful accounts of $1,348 and $ 723 as of December 31, 2001 and 2000, respectively. Service revenue is recognized when services are performed and billable. Revenue from maintenance and extended warranty agreements is deferred and recognized ratably over the term of the agreement. Software revenue is recognized upon delivery of the software to the customer and there is reasonable assurance of collection of the receivable. The Company had two customers representing 24% and 11% of revenues respectively in 2001. No single customer represented more than 10% of revenue in 2000. As of December 31, 2001, the balance due from one single customer amounted to 26% of net trade accounts receivable, for which the Company has negotiated a pay down schedule to eliminate the past due amount by May 2002. Concentration of Credit Risk The Company is required by SFAS No. 105, "Disclosure of Information about Financial Instruments with Concentrations of Credit Risk," to disclose concentrations of credit risk regardless of the degree of such risk. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company's cash policy limits credit exposure; however, for limited periods of time during the year bank balances may exceed the FDIC insurance coverage. The Company routinely assesses the financial strength of its customers and as a consequence, believes that its accounts receivable credit risk exposure is limited. No collateral is required. The Company extends credit in the normal course of business to a number of distributors and value-added resellers in the computer industry. Shipping and Handling The Company records as revenue all amounts billed to customers for shipping and handling. All costs associated with shipping and handling are included in cost of revenue. Advertising Advertising costs are expensed as incurred. The amount charged to advertising expense was $920 and $2,183 for the years ended December 31, 2001 and 2000. Net Loss Per Common Share SFAS No. 128, "Earnings Per Share," requires a reconciliation of the numerator and denominator of the basic net loss per share computation to the numerator and denominator of the diluted net loss per share computation. There were no dilutive instruments for 2001 and 2000. Options to purchase 2,206,957 shares of common stock at a weighted average price of $4.20 per share were not included in the computation of diluted net loss per share in 2001 because the options' exercise price was either greater than the average market price of the common shares or the effect of exercise would be antidilutive. F-37 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pervasiveness of Estimates 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. Income Taxes As more fully discussed in Note 7, income taxes are provided in accordance with the liability method of accounting for income taxes pursuant to SFAS No. 109. Accordingly, deferred income taxes are recorded to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their financial amounts at year-end. Deferred tax assets are reduced by an estimated valuation allowance. Stock Based Compensation The Company accounts for stock options and warrants issued to employees in accordance with APB 25 "Accounting for Stock Issued to Employees." The Company follows SFAS No. 123 "Accounting for Stock Based Compensation" for financial statement disclosure purposes and issuances of options and warrants to non-employees for services rendered. Comprehensive Loss The adoption of FAS 133, "Accounting for Derivative Instruments and Hedging Activities," at January 1, 2001, resulted in recording $30 in accumulated other comprehensive loss for the cumulative effect of the accounting change. As of December 31, 2001, the Company had interest rate swap contracts to pay fixed rates of interest (ranging from 7.59% to 8.76%) and receive variable rates of interest based on LIBOR on an aggregate of $5,528 notional amount of indebtedness with maturity dates ranging from March 2002 through March 2003. The aggregate fair market value of all interest rate swap contracts was ($141) on December 31, 2001 and is included in accrued expenses and other current liabilities on the Consolidated Balance Sheet. New Accounting Standards In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. The FASB also issued SFAS No. 143, "Accounting for Obligations Associated with the Retirement of Long-Lived Assets" in August 2001 and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" in October 2001. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead, test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of December 31, 2001, the net carrying amount of goodwill is $3,187. Currently, the Company is assessing, but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. F-38 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SFAS 143 establishes standards for the reporting of obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. SFAS 143 is effective for fiscal years beginning after June 15, 2002 with early adoption permitted. The Company expects that the provisions of SFAS 143 will not have a material effect on its consolidated results of operations. SFAS 144 establishes a single accounting model for the impairment or disposal of long-lived assets and new standards for reporting discontinued operations. The provisions of SFAS 144 are effective in fiscal years beginning after December 15, 2001 and in general, are to be applied prospectively. 4. GAI Partnership On September 30, 1999, the Company sold the entirety of its interest in the GAI Partnership to GA for a combination of cash, restricted securities of GA, convertible notes, and warrants. GA was in default of material obligations under the partnership agreement, including payment of past due royalties and other fees, which totaled $2,468 as of December 31, 1998. The Company reserved against all outstanding receivables during 1997, and, since that time, has recorded revenue attributable to the partnership on a cash basis only. The Company recorded income of $2,324 relating to the sale after having received a third-party valuation assessment of the value of the securities and convertible debt components of the settlement. During the fourth quarter of 2000 the Company reserved 100% of the common stock and convertible debt which it had received in consideration for the sale of its interest in the GAI Partnership to GA in 1999. The reserve was recorded as a result of the deterioration in GA's economic position, its reporting of significant continuing losses and its announcement during the first quarter of 2001 that it had sold its hardware and services business and would restructure the company. 5. Inventories Inventories are stated at the lower of cost or market with costs determined on a first-in first-out basis. On a quarterly basis the Company reviews quantities on hand and on order and records a provision for excess and obsolete inventory based on forecasted demand. For the year ended December 31, 2001 and 2000, the Company recorded provisions of $1,055 and $844 for excess and obsolete inventory. The major components of inventories are as follows: December 31, ------------ 2001 -------- Raw materials and purchased components $ 6,329 Finished goods 952 Service parts 792 -------- $ 8,073 ======== 6. Property and Equipment Property and equipment consists of the following: December 31, ------------ 2001 -------- Land $ 2,502 Buildings and improvements 6,503 Machinery and equipment 9,856 -------- 18,861 Less accumulated depreciation and amortization 7,868 -------- $ 10,993 ======== F-39 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes The provision for income taxes consisted of the following for the years ended December 31: 2001 2000 -------- -------- Current: Federal $ (898) $ (303) State -- -- -------- -------- (898) (303) -------- -------- Deferred: Federal 2,281 14 State -- -- -------- -------- 2,281 14 -------- -------- $ 1,383 $ (289) ======== ======== The provision for income taxes differs from the amount of income tax determined by applying the statutory federal income tax rate to continuing operations before income taxes as a result of the following: 2001 2000 -------- -------- Federal income tax at statutory rate $ (2,519) $ (1,205) Utilization of prior year net operating loss carryforwards (195) -- Reversal of prior year overaccruals (898) -- Other, net 38 (273) Change in valuation allowance on deferred tax assets 4,957 1,189 -------- -------- Income tax expense (benefit) $ 1,383 $ (289) ======== ======== F-40 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the net deferred tax assets and liabilities were as follows: December 31, ------------ 2001 -------- Current deferred tax assets: Inventory $ 1,666 Accounts receivable 538 Warranties 363 Other 1,003 Less valuation allowance (3,570) -------- Total current deferred tax assets $ -- ======== Noncurrent deferred tax assets - Goodwill and other $ 1,713 Noncurrent deferred tax liabilities - Property and equipment (783) Net operating loss carryforwards 8,238 Less valuation allowance (9,168) -------- Net noncurrent deferred tax liabilities $ -- ======== The Company, Boundless Manufacturing and Merinta have available Federal net operating loss carryforwards of approximately $2 million, $12 million and $10 million, respectively, at December 31, 2001 which may be carried forward as an offset to taxable income, if any, in future years through their expiration in 2020 to 2021. If certain substantial changes in the Company ownership should occur, there would potentially be an annual limitation on the amount of the carryforwards which can be utilized in a tax year. The Company has provided a valuation allowance against the total amount of the net deferred tax assets due to the uncertainty of future realization. 8. Debt Long-term debt at December 31, 2001 consisted of the following: 2001 -------- Note payable to Independence Community Bank, bearing interest at 7.75% payable monthly, balloon payment of $4,439 due on or before July 1, 2009, collateralized by land and building $ 5,946 Revolving loan 8,507 Capital lease obligations 1,742 -------- 16,195 Less current maturities on long-term debt 15,362 -------- $ 833 ======== a) Notes payable were $8,507 at December 31, 2001, under a $12,000 revolving credit agreement with a bank syndicate for loans and letters of credit. The revolving credit agreement expires April 14, 2003. There was a letter of credit outstanding totaling $18 at December 31, 2001. Borrowing under the Revolving Loan is based on a borrowing base formula of up to 75% of eligible receivables, F-41 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS plus 50% of delineated eligible inventory, plus 30% of non-delineated eligible inventory. On April 17, 2001, the revolving line of credit was reduced from a maximum amount of $15,000 to $12,000. The maximum amount of additional credit available under the revolving loan at December 31, 2001 was $1,570. The commitment fee is 0.5% per year on the average daily unused principal balance of the revolving loan and the outstanding letters of credit. The weighted average interest rate on short-term borrowings was 9.2% for the year ended December 31, 2001. As of December 31, 2001, the Company was in violation of certain covenants of the Chase Credit Line. As of March 25, 2002, the covenant violations had not been waived by the participating banks. Additionally, during the first quarter of 2002, certain collateral against which the Company had secured borrowings was declared ineligible by Chase. The elimination of the collateral from the borrowing base formula caused the Company to be in an over-advanced position with respect to the Chase Credit Line. Under the terms of the Chase Credit Line, the Company is allowed an over-advance amount of only $750 and for no more than a 30-day period. The Company has initiated actions to eliminate the over-advance position prior to March 27, 2002, the deadline instituted by Chase, but was not successful. As a result of the inability to eliminate the over-advance position, on March 27, 2002, the Company signed an amendment to the Chase Credit Line wherein the Company agreed to limit the amount of the over-advance to $500 by April 5, 2002 and to $400 by April 12, 2002. As part of the agreement the Company also agreed to a reduction in the overall amount to the line from $12,000 to $6,500. As of March 27, 2002, the Company had $5,720 outstanding under the Chase Credit Line. The Company believes it will be successful in limiting the amount of the over-advance to the prescribed amounts in the timeframe allotted. However, there can be no assurance the Company will be successful in limiting the over-advance to these amounts in the time prescribed. Should the Company be unsuccessful, Chase may rely on remedies defined in the Chase Credit Line, including calling the loan for immediate repayment. Due to cross-default provisions within the mortgage agreement, the Company is also in default with respect to the note payable with Independence Community Bank. Accordingly, as the lender has the right to demand immediate payment, the note has been reclassified to current liabilities. The Company has met its payment obligations under this note for the three months subsequent to December 31, 2001. b) In October of 2001, the Company paid off the remainder of its outstanding term loan with Chase Manhattan Bank. With respect to the revolving loan: At the option of the Company, the interest rate is prime plus 1.25% or LIBOR plus 2.5%, the latter of which was the lower rate at 8.8% at December 31, 2000. At December 31, 2001, the Company had in place interest rate swap agreements in the amount of $5,528 at an effective average interest rate of 8.4%. The Company is prohibited from declaring or paying dividends on its stock, or redeeming or otherwise acquiring any class of capital stock during the term of the agreements without obtaining bank approval. With the exception of the Company's manufacturing facility in Hauppauge, NY, which is pledged as collateral against the note payable to Independence Community Bank, substantially all other assets of the Company are pledged as collateral against the revolving and term loans, including the common stock of Merinta held by the Company. Aggregate debt scheduled maturities at December 31, 2001 were as follows: 2002 $ 1,105 2003 9,164 2004 368 2005 314 2006 213 2007-2009 5,031 ------- $16,195 ======= F-42 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Equity At December 31, 2001, stockholders' deficit consisted of the following: December 31, ------------ 2001 -------- Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued $ -- Common stock, $0.01 par value, 25,000,000 shares authorized,5,688,037 and 4,630,160 shares issued 57 Additional paid-in capital 35,280 Accumulated deficit (39,339) Accumulated other comprehensive loss (141) -------- Total stockholders' deficit $ (4,143) ======== 10. Options and Warrants On March 6, 1998, the Company filed an Information Statement on Schedule 14C with the Securities and Exchange Commission in connection with, amongst other items, the Board of Directors of the Company approving the Company's 1997 Incentive Plan permitting the grant of stock options, stock appreciation rights, performance shares, stock awards, stock units and incentive awards to employees, directors and others. The Company had previously adopted its 1995 Incentive Plan which permitted up to 600,000 shares of Common Stock to be issued thereunder. As additional shares were no longer available to be issued under the 1995 Incentive Plan, the Board adopted the 1997 Incentive Plan. The maximum number of shares to be issued under the 1997 Incentive Plan is not to exceed 1,000,000. The exercise price of each option granted is to be equal to or greater than the market price of the Company's stock on the date of grant. The terms of the options are generally over five years with vesting occurring in 25% increments beginning one year after the grant date. In December 2000 the Board created the 2000 Incentive Plan that covers up to 1,000,000 shares of Common Stock. The number of shares granted on a calendar year basis under the 2000 Incentive Plan is limited to 5% of the total number of shares of Common Stock outstanding, or 10% in any five-year period. Prior to the 1995 Plan, the Company had adopted the 1991 Employee and Director Stock Option Plan (the "1991 Plan"). After the adoption of the 1995 Plan, the Company amended the 1991 Plan, eliminating any further grants of options under the 1991 Plan. As of December 31, 2001 there were 95,250 fully vested options under the 1991 Plan outstanding, expiring in June 2002. The Company has elected to continue to account for stock options issued to employees in accordance with APB 25, "Accounting for Stock Issued to Employees". During the years ended December 31, 2001 and 2000, all options issued to officers and employees were granted at an exercise price which equaled or exceeded the market price per share at the date of grant and accordingly, no compensation was recorded. The Company follows the disclosure requirements of FASB Statement 123, "Accounting for Stock-Based Compensation". This statement requires the Company to provide pro forma information regarding net income applicable to common stockholders and net income per share as if compensation cost for the Company's employee stock options granted had been determined in accordance with the fair value based method prescribed in SFAS No. 123. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2001 and 2000 as follows: 1. Dividend yield of 0% for all years F-43 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. Expected volatility of 137% in 2001, and 50% in 2000 3. Risk-free interest rates ranging from 4.7% in 2001, and 5.07% to 5.48% in 2000 4. Expected term of 3 years in 2001, and 3 years in 2000 Under the accounting provisions of SFAS No. 123, the Company's net loss and net loss per share would have been equal to the pro forma amounts indicated below: 2001 2000 --------- --------- Net loss As reported $ (10,942) $ (17,259) Under SFAS No. 123 (11,236) (18,005) Net loss per share As reported - basic $ (2.17) $ (3.81) As reported - diluted (2.17) (3.81) Under SFAS No. 123 - basic (2.23) (3.97) Under SFAS No. 123 - diluted (2.23) (3.97) A summary of the status of the Company's stock options and warrants as of December 31, 2001and 2000 and changes during the years ending on those dates is as follows:

F-44 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information about fixed stock options and warrants outstanding at December 31, 2001:

F-45 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In accordance with SFAS No. 123, the Company is required to account for options issued to non-employees for services rendered using the fair value method over their vesting period. In January 2000, the Company granted 60,000 options to purchase shares of Merinta's Common Stock to 3 financial advisors for services rendered and the Company recorded an expense of $1 for the grant. In May 2000, the Company granted a warrant to purchase 50,000 shares of Common Stock at $6.88 per share to Chase Manhattan Bank for bank fees and the Company recorded an expense of $ 137 for the grant. In June 2000, the Company granted a warrant to purchase 20,000 shares of Common Stock at $7.97 per share to Stern Stewart, a consulting services firm and the Company recorded an expense of $ 47 for the grant. In October 2000, the Company granted 20,000 options to purchase shares of Merinta's Common Stock to 2 financial advisors for services rendered and the Company recorded an expense of $5 for the grant. In October 2000, the Company granted 25,000 options to purchase shares of Merinta's Common Stock to outside legal counsel for services rendered and the Company recorded an expense of $6 for the grant. On February 23, 2001, the Company sold 110,000 shares of its Common Stock to three individuals for total proceeds of $225,200. In connection with the sale, the Company issued warrants to purchase 27,500 shares of its Common Stock at an exercise price of $2.40 per share of Common Stock. The warrants expire four years from the date of grant. Mr. Joseph V. Joy, Jr. and Mr. Jack Ryan, then the President and Vice President, Supply Chain Services, of Boundless Manufacturing, respectively, participated in this offering. Mr. Frank Stephens, currently a member of the Company's Board of Directors, but who was not associated with the Company at the time of the sale, also participated in the offering. Proceeds from this sale were used for general working capital purposes. From May 29, 2001, through June 29, 2001, the Company sold 947,877 shares of its Common Stock in a private placement offering, raising gross proceeds of $963,500. In connection with this sale, the Company issued warrants to purchase 142,190 shares of its Common Stock at exercise prices ranging from $1.10 to $1.36 per share of Common Stock. The warrants expire five years following the date of grant. Fourteen individuals or legal entities participated in the private placement, including four executive officers of the Company and a member of the Company's Board of Directors. The shares of Common Stock sold in the private placement, and the shares of Common Stock underlying the warrants, are required by the Company to be registered for sale in accordance with the Securities Act of 1933. The Company is currently preparing an amended registration statement on Form S-3 and anticipates filing such registration statement in April 2002. The warrants issued to non-employees were recorded based on the fair values of the warrants on the grant date, using the Black-Scholes option-pricing model. 11 Related Party Transactions During 1999, Boundless Manufacturing issued shares of its common stock as follows: 400 shares (12.5% of the outstanding) to each of Joseph Joy and Anthony Giovaniello for $5.00 per share, 320 shares (10% of the outstanding) to each of J. Gerald Combs and Jeffrey Moore upon their exercise of employee stock options at an exercise price of $5.50 per share, and 1,760 shares (55% of the outstanding) to the Company. Pursuant to their employment agreements, Mr. Joy and Mr. Giovaniello will have the option, upon attainment of certain defined performance standards, to convert their shares of Boundless Manufacturing into up to an aggregate of 300,000 shares of the Company's Common Stock. The Company has allocated 160 shares of its Boundless Manufacturing common stock for future issuance under Boundless Manufacturing's incentive plan. Under terms of their respective separation agreements, as described in Note 12, Mr. Combs and Mr. J. Moore each agreed to transfer to the Company his 2,000,000 shares of common stock to Boundless Manufacturing. During 1999, Merinta adopted an incentive plan and reserved 30% of its common stock for issuance under the plan. Each of Mr. Combs and Mr. J. Moore in 1999 exercised Merinta employee stock options previously issued to him and, as a result, each was issued F-46 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS shares representing 6.5% of Merinta's common stock. Boundless Manufacturing and Merinta received third party fairness opinions before granting options to Messrs. Combs and Moore. In June 2000 the Company retained Cross Roads for the purpose of providing investor relations services. The agreement, which terminated December 31, 2000, called for fees of $150 plus expenses. The Company paid to Cross Roads $133 in 2000 under the investor relations services agreement. 12 Commitments Leases The Company leases certain manufacturing, sales and administrative facilities and office equipment under operating lease agreements, which expire at various times through May 2006. The most significant lease is for the Company's facility in Boca Raton, Florida which expires in September 2005 with a total outstanding commitment of $1,894. Total rent expense was $1,377 and $935 in 2001and 2000, respectively. Future minimum rental commitments as of December 31, 2001 were as follows: 2002 $ 819 2003 788 2004 780 2005 448 2006 53 ------- $ 2,888 ======= Other Commitments In December 2001, the Company reached agreement on the substantive details of a Separation Agreement and General Release (the "Separation Agreement") with each of J. Gerald Combs, its Chairman and Chief Executive Officer, and Jeffrey K. Moore, its Vice President of Corporate Development and issued a 6% Convertible Promissory Note (the "Note") to each of them, with a principal amount of $475 for Mr. Combs and $382 for Mr. Moore, representing the separation payments. The separation payments include a bonus from the Company for the year 2000 ($75 for Mr. Combs and $25 for Mr. Moore). Simultaneously, the Company entered into a Consulting Agreement with Mr. Combs and an Employment and Consulting Agreement with Mr. Moore (together, the "Consulting Agreements"). Mr. Combs is to serve as a consultant to the Company until March 31, 2003, and Mr. Moore is to remain as an employee of the Company at a reduced salary and in a non-officer capacity until March 31, 2002 and thereafter serve as a consultant to the Company until February 27, 2003. Under the Consulting Agreements the Company agreed to pay a total of $241 to Mr. Combs and $137 to Mr. Moore. The Company agreed that, to the extent not already vested, all stock options held by Mr. Combs (480,000) and Mr. Moore (205,000) would be fully vested immediately and such options would be exercisable for five years from January 1, 2002. The exercise prices of such stock options were not changed. The Company (including its subsidiaries) granted releases to Mr. Combs and Mr. Moore, each of whom granted reciprocal releases to the Company (and its subsidiaries). Each Note is payable on February 27, 2003 and entitles the holder to convert it at the price of $1.25 per share into restricted shares of the Company's common stock at any time prior to such maturity date. However, if the Notes are not converted and the Company has not raised equity financing of at least $2,500 prior to such maturity date, the Company has the option to extend the Notes for two years and to pay the Notes in 24 monthly installments. The Company's obligations to make payments under the Notes are subordinated to its current or future obligations to repay all other indebtedness for borrowed money. The shares into which the Notes may be converted are accompanied by "piggyback" registration rights and are being registered under the Company's most recent Registration Statement on Form S-3. During the fourth quarter of 2001, the Company recorded $417 in current accrued liabilities for the consulting services and $857 in long term liabilities for the fair value of the two promissory notes, as substantially all amounts due under the Separation Agreements relate to services provided prior to December 31, 2001. F-47 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13 Contingencies The Company is subject to lawsuits and claims that arose in the normal course of business. Management is of the opinion that all such matters are without merit, or are of such kind, or involve such amounts, as would not have a significant effect on the financial position, results of operations or cash flows of the Company if disposed unfavorably. An action was commenced by Kareem Mangaroo, employed by Boundless Technologies between February 1994 and April 1999 as a material handler ("Plaintiff"), on February 5, 2001, against Boundless Technologies, Boundless Corporation, and four employees of the Company (Joseph Gardner, its CFO, Michelle Flaherty, formerly manager of Human Resources, Thomas Iavarone, director of Logistics, and Anthony San Martin, manager of Shipping), seeking damages for the unlawful termination of Plaintiff's employment in violation of Plaintiff's rights under Title VII of the Civil Rights Act of 1964, as amended; the Equal Protection Clause and Due Process Clause, pursuant to the Civil Rights Act of 1886, as amended, 42 U.S.C. ss. 1981; and for damages as a result of the conspiratory actions of defendants to deprive Plaintiff of his equal protection and due process rights pursuant to 42 U.S.C. ss. 1985 and for violation of Plaintiff's rights under the Employee Retirement Income Security Act 29 U.S. C. ss.1001. Plaintiff further alleges claims under State law for breach of contract. The verified complaint was filed in the United States District Court, Eastern District of New York. Plaintiff seeks (i) compensatory damages of $1 million from each of Boundless Technologies and four employees of the company (jointly and severally), (ii) punitive damages of $2 million from each of Boundless Technologies, the Company, and four employees of the Company (jointly and severally), (iii) $1 million against Boundless Technologies for breach of contract, and (iv) the value of forfeited options, attorney's fees, costs of the action and other relief as the court deems necessary. The Company intends to vigorously defend this suit since it believes that it has meritorious defenses to the action. As of March 5, 2002 a deposition of the Plaintiff had taken place. No depositions of the defendants have occurred and no trial date has been established. An action was commenced by Donald W. Lytle ("Plaintiff") on February 8, 2001, against Boundless Technologies, Inc., GN Netcom, Inc., Portal Connect, Inc., and Wholesale Audio Video, Inc. in the Iowa District Court, Johnson County; Law No. LACU061503 alleging negligence and products defects resulting in injuries to Plaintiff's hearing as a result of the use of the products. Plaintiff is suing for unspecified damages. Document requests have been served on Plaintiff; however, to date, no documents have yet been produced and no other discovery has taken place. 14 Segment Reporting and Geographic Information The Company's manufacturing is conducted at its New York and Florida facilities and its sales force operates from five geographically dispersed locations in the United States and United Kingdom. Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by its decision making group. In line with the formation of its two new subsidiaries, effective in 2000 the Company began managing its operations and reporting its financial results as three business segments. However, due to the decision to discontinue Merinta (see Note 17), only two continuing business segments remain. The results of the reportable segments are derived from the Company's management reporting system. These results are based on the Company's method of internal reporting and are not necessarily in conformity with generally accepted accounting principles. These results are used to evaluate the performance of each segment and determine the appropriate resource allocation mix. Information for the current and prior year by business segment is presented below (in thousands):

Boundless Boundless For the year ended Elimi- Technol- Manufact- December 31, 2001 Total nations ogies/Corp. uring ------------------~~----------------------~~ --------- --------- ----------- --------- Customer Revenue $ 59,581 $ 32,872 $ 26,709 Intercompany Revenue $ (23,392) 23,392 --------- --------- --------- --------- Total Revenue $ 59,581 $ (23,392) $ 32,872 $ 50,101 ========= ========= ========= ========= Gross Margin $ 6,283 $ (1,128) $ 7,963 $ (552) ========= ========= ========= ========= Gross Margin percent 10.5% 24.2% -1.1% ========= ========= ========= Operating income (loss) $ (5,810) $ 902 $ (6,712) ========= ========= ========= Total assets by business segment $ 33,215 $ 10,396 $ 22,819 ========= ======== =~~=======~~ For the year ended Elimi- Technol- Manufact- December 31, 2000 Total nations ogies/Corp. uring ---------------------------------------- --------- --------- ----------- --------- Customer Revenue $ 64,544 $ 55,665 $ 8,879 Intercompany Revenue $ (41,649) 41,649 --------- --------- -------- -------- Total Revenue $ 64,544 $ (41,649) $ 55,665 $ 50,528 ========= ========= ======== ======== Gross Margin $ 15,500 $ 16,183 $ (683) ========= ======== ======== Gross Margin percent 24.0% 29.1% -1.4% ========= ======== ======== Operating income (loss) $ (2,089) $ 3,640 $ (5,729) ========= ======== ======== Total assets by business segment $ 39,604 $ 19,267 $ 20,337 ========= ======== ========

F-48 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the ~~three~~year ~~months~~ ended Elimi- Technol- Manufact- December 31, ~~September~~2000 ~~30,~~Total ~~June~~nations ~~30,~~ogies/Corp. ~~March~~uring ~~31,~~ ------------------~~----------------------------------------------------~~ ~~2001 2001 2001 2001~~ ----------- ---------- ----------- ---------- ~~Net~~Customer ~~revenue~~Revenue $ 1364,~~621~~544 $ 1855,~~074~~665 $ 148,~~897~~879 $Intercompany ~~12,989~~Revenue Cost of product sold and services 12,397 15,605 13,855 11,441 Gross profit 1,224 2,469 1,042 1,548 Income (loss) from continuing operations (4,511) 224 (1,585) (2,920) Income (loss) from discontinued operations -- 316 -- (2,466) Net income (loss) $ (441,~~511~~649) ~~$ 540 $ (1~~41,~~585)~~649 $ (5,386) Per share amounts: Basic net income (loss) per common share $ (0.89) $ 0.10 $ (0.32) $ (1.16) Diluted net income (loss) per common share $ (0.89) $ 0.10 $ (0.32) $ (1.16) For the three months ended December 31, September 30, June 30, March 31, ---------~~-------------------------------------------------------------~~ ~~2000 2000 2000 2000~~ ----------- ---------- ---------- ~~----------~~Total ~~Net~~Revenue ~~revenue~~ $ 1464,~~461~~544 $ 15(41,~~871~~649) $ 1755,~~480~~665 $ 1650,~~732~~528 ~~Cost~~========= of========= ~~product~~========= ~~sold~~========= ~~and services 11,345 11,884 12,986 12,829~~ Gross ~~profit~~Margin ~~3,116~~$ 315,~~987~~500 ~~4,494~~$ 316,~~903~~183 ~~Loss~~$ ~~from continuing operations~~ (~~1,932~~683) ~~(657)~~========= ~~(232)~~========= ~~(434)~~========= ~~Loss~~Gross ~~from~~Margin ~~discontinued~~percent ~~operations~~24.0% (29.1% -1.4~~,396)~~% ~~(3,753)~~========= ~~(3,569)~~========= ~~(2,286)~~========= ~~Net~~Operating ~~loss~~income $ (~~6,328~~loss) $ (42,~~410~~089) $ (3,~~801)~~640 ~~(2,720) Per share amounts: Basic net loss per common share~~ $ (~~1.39~~5,729) $========= ~~(0.97)~~========= $========= ~~(0.84)~~Total $assets ~~(0.61)~~by ~~Diluted~~business ~~net~~segment ~~loss per common share~~ $ ~~(1.~~39),604 $ ~~(0.97)~~19,267 $ ~~(0.84)~~20,337 $========= ~~(0.61)~~========= =========

Foreign sales were approximately $13,047 and $18,157 for 2001 and 2000, respectively. The following table shows the approximate percentage of total revenue attributable to export sales to the regions described for each of the years ended December 31: 2001 2000 ---- ---- United Kingdom 8% 8% Other European countries 11% 13% Other foreign countries 3% 7% --- --- Total 22% 28% === === All significant long-lived assets of the Company are in the United States. 15 Defined Contribution Plan The Company provides a 401(k) retirement savings plan (the "401(k) Plan") for its full-time employees. Under the provisions of the 401(k) Plan, each participant may elect to contribute up to 15% of his or her annual salary. At its discretion, the Company may make contributions to the 401(k) Plan. During the years ended December 31, 2001 and 2000, the Company made contributions of $229 and $173. F-49 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16 Selected Quarterly Financial Data - (unaudited) Provided below is the selected unaudited quarterly financial data from 2001 and 2000. The underlying per share information is calculated from the weighted average shares outstanding each quarter, which may fluctuate. Therefore, the sum of the quarters per share information may not equal the total year amounts. Net loss for the three months ended December 31, 2001 includes $1,274 for settlement of employment contracts with two executives of the Company as well as $2,281 in income tax expense relating to deferred tax asset valuation allowances. Net loss for the three months ended December 31, 2000 reflects a writeoff of $824 against the value of debt and equity securities of General Automation, Inc and amortization of goodwill of $185 related to the change to a 3 year remaining useful life and $2,324 related to reserves and accruals associated with Merinta's transactions with Internet Appliance Network, Inc.

`For ~~December~~the three months ended Dec. 31, Sept. 30, June 30, March 31, ---------------------------- ~~ASSETS 2001 2000~~ -------- -------- ~~Current assets: Cash and cash equivalents $~~ ---- $2001 202001 ~~Accounts~~2001 ~~receivable~~2001 -------- ~~66 Other current assets 50~~ -------- -------- -------- ~~Total~~Net ~~current~~revenue ~~assets~~$ 5013,621 86$ ~~Investments~~18,074 in$ 14,897 $ 12,989 Cost of product sold and ~~advances~~services to12,397 ~~subsidiaries~~15,605 ~~(eliminated~~13,855 in11,441 ~~consolidation~~Gross profit 1,224 2,469 1,042 1,548 Income (loss) from continuing operations (4,~~168~~511) 6224 (1,~~470~~585) ~~Other~~(2,920) ~~assets~~Income --(loss) --from discontinued operations --~~------~~ 316 --~~------~~ (2,466) Net income (loss) $ (4,~~118~~511) $ 6540 $ (1,~~556~~585) ~~========~~$ ~~========~~(5,386) ~~LIABILITIES~~Per ~~AND~~share ~~STOCKHOLDERS'~~amounts: ~~EQUITY~~Basic net income (~~DEFICIT~~loss) ~~Current~~per ~~liabilities:~~common ~~Accounts~~share ~~payable~~$ ~~and~~(0.89) ~~accrued~~$ ~~expenses~~0.10 25$ ~~805~~(0.32) $ (1.16) Diluted net income (loss) per common share $ (0.89) $ 0.10 $ (0.32) $ (1.16) For the three months ended Dec. 31, Sept. 30, June 30, March 31, -------- -------- ~~Total current liabilities 25 805~~ -------- -------- ~~Long~~-~~term liabilities: Other~~ -- ------------- 2000 2000 2000 2000 -------- -------- ~~Total liabilities 25 805~~ -------- -------- ~~Commitments~~Net ~~and~~revenue ~~contingencies~~$ ~~Stockholders'~~14,461 ~~equity~~$ ~~(deficit):~~15,871 ~~Preferred~~$ ~~stock~~17,480 $~~0.01~~ ~~par value~~16,732 ~~1,000,000~~Cost ~~shares~~of ~~authorized,~~product ~~none~~sold ~~issued~~and --services --11,345 ~~Common stock~~11,884 ~~$0.01 par value~~12,986 2512,~~000,000~~829 ~~shares~~Gross ~~authorized~~profit 3,116 53,~~688,037~~987 ~~and~~ 4,~~630~~494 3,~~160~~903 ~~shares~~Loss ~~issued~~from atcontinuing ~~December~~operations 31(1,932) ~~2001~~(657) ~~and~~(232) ~~2000,~~(434) ~~respectively~~Loss 57from 46discontinued ~~Additional~~operations ~~paid-in~~(4,396) ~~capital~~(3,753) 35(3,~~280~~569) 34(2,~~102~~286) ~~Accumulated~~Net ~~deficit~~loss $ (396,~~339~~328) $ (284,~~397~~410) ~~Accumulated~~$ ~~other~~(3,801) ~~comprehensive~~(2,720) Per share amounts: Basic net loss ~~(141)~~per --common ~~--------~~share ~~--------~~$ ~~Total~~(1.39) ~~stockholders'~~$ ~~equity~~(0.97) $ (~~deficit~~0.84) $ (~~4,143~~0.61) ~~5,751~~Diluted ~~--------~~net ~~--------~~loss per common share $ (~~4,118~~1.39) $ ~~6,556~~(0.97) ~~========~~$ ~~========~~(0.84) $ (0.61)

17 Discontinued Operations On May 11, 2001, the Board of Directors of the Company formally approved a plan to discontinue the operations of Merinta. Since November 2000, following an investment by National Semiconductor in Merinta, the Company was prohibited by its lenders from contributing cash to the subsidiary. As a result, Merinta was required to fund its working capital needs from the proceeds of the National Semiconductor investment, cash generated from operations, and proceeds from any additional investments. However, these funds were not sufficient to cover its operating needs and the Company was not successful in raising additional funds from investors. The loss from discontinued operations for the period January 1 through March 31, 2001 was $2,466. In the third quarter of 2001, the Company realized a gain of $316 on the disposal of Merinta, net of operating losses subsequent to March 31, 2001. The consolidated financial statements present Merinta's results for the years ended December 31, 2001 and December 31, 2000 as discontinued operations. F-50 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The net assets of Merinta were zero at December 31, 2001. The reported loss from discontinued operations for the year ended December 31, 2000 was $14,004. The reported loss from discontinued operations for the year ended December 31, 2001 is as follows: December 31, ------------ 2001 ------------ Loss from discontinued operations from January 1, 2001 until the measurement date of March 31, 2001 $ (2,466) -------- Gain on disposal of subsidiary: Loss from operations from April 1, 2001 to date of disposal $ (1,237) Net accounts receivable writeoff (125) Write off of prepaid license fees and other intangible assets (4,011) Net machinery and equipment writeoff (180) Gain on accounts payable settlements 869 Writeoff of minority interest in subsidiary 5,000 -------- Gain on disposal of subsidiary 316 -------- Total loss from discontinued operations $ (2,150) ======== F-51 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE I -CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED BALANCE SHEETS (In thousands, except share and per share data) December 31, ------------ 2001 -------- ASSETS Current assets: Other current assets $ 50 -------- Total current assets 50 Investments in and advances to subsidiaries (eliminated in consolidation) (4,168) -------- $ (4,118) ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses 25 -------- Total current liabilities 25 -------- Commitments and contingencies Stockholders' deficit: Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued -- Common stock, $0.01 par value, 25,000,000 shares authorized, 5,688,037 shares issued 57 Additional paid-in capital 35,280 Accumulated deficit (39,339) Accumulated other comprehensive loss (141) -------- Total stockholders' deficit (4,143) -------- $ (4,118) ======== S-1 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE I -CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENT OF OPERATIONS FOR THE YEARS ENDED (In thousands)

December 31, --------------------------~~-----------~~ 2001 2000 ~~1999~~ -------- --- ----- ------- Sales $ -- $ -- ~~$ --~~ Cost of sales -- -- -- --------- -------- ---~~----~~ Gross margin -- -- -- Expenses: General and administrative $ 150 $ 659 ~~$ 775~~ Interest -- (35) ~~5 Other charges~~ -- -- ~~153~~ -------- -------- ---~~----~~ 150 624 ~~933~~ -------- ---~~-----~~ ------- ~~Loss before income taxes and other items below (150) (624) (933) Income tax credit~~ -- -- ~~317 -------- -------- -------~~ Loss before equity in ~~income (~~loss) of consolidated subsidiaries (150) (624) ~~(616)~~ Equity in ~~income (~~loss) of consolidated subsidiaries, ~~net of preferred stock dividend of $0, $0 and $50 in 2001, 2000 and 1999~~ (10,792) (16,635) ~~3,805~~ -------- --- ----- ------- Net ~~income (~~loss) applicable to common stockholders $ (10,942) $ (17,259) ~~$ 3,189~~ ======== === ===== =======

S-2 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE I -CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) CONDENSED STATEMENT OFCASH FLOWS FOR THE YEARS ENDED (In thousands) December 31, -------------------- 2001 2000 -------- -------- Net cash flows used in operating activities $ (930) $ (234) -------- -------- Cash flows from investing activities: Investment in subsidiaries (279) (1,644) -------- -------- Net cash used in investing activities (279) (1,644) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock 1,189 1,398 -------- -------- Net cash provided by financing activities 1,189 1,398 -------- -------- Net decrease in cash and cash equivalents (20) (480) Cash and cash equivalents at beginning of year 20 500 -------- -------- Cash and cash equivalents at end of year $ -- $ 20 ======== ======== Non-cash transactions: Options, warrants and common stock issued for services $ -- $ 197 S-3 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, (In thousands)

~~December~~Balance ~~31,~~at ~~-------------------------------------------~~Balance ~~2001~~at ~~2000~~Beginning ~~1999~~of ~~-------~~End ~~-------~~of ~~-------~~Description ~~Net~~Period ~~cash~~Additions ~~flows~~Deductions ~~provided~~Period ~~by (used in) operating activities $ (930) $ (234) $ 4,497~~ ------- ------- ------- ~~Cash flows from investing activities: Investment in subsidiaries (279) (1,644) (4,161)~~ ------- ------- ------- ~~Net cash used in investing activities (279) (1,644) (4,161)~~ ------- ------- ------- ~~Cash flows from financing activities: Proceeds from issuance of common stock 1,189 1,398 164~~ -~~------~~ ------- ------- ~~Net cash provided by financing activities 1,189 1,398 164~~ ------- ------- ~~-------~~Allowances: ~~Net~~Doubtful ~~increase~~accounts: ~~(decrease)~~2003 in$ ~~cash~~763 ~~and~~$ ~~cash~~104 ~~equivalents~~$ 244(20A) ~~(480) 500 Cash and cash equivalents at beginning of year 20 500 -- ------- ------- ------- Cash and cash equivalents at end of year~~ $ --623 $2002 201,348 $599 ~~500~~1,184(A) ~~=======~~763 ~~=======~~Manufacturing ~~=======~~inventory ~~Non-cash transactions~~reserves: ~~Options,~~2003 ~~warrants~~789 ~~and~~1,169 ~~common~~716(B) ~~stock~~1,242 ~~issued~~2002 ~~for~~3,451 ~~services~~565 $3,227(B) ~~-- $ 197 $ 504~~789

(A) Includes accounts written off during the period. (B) Includes inventory written off during the period. S-4 BOUNDLESS CORPORATION AND SUBSIDIARIES (DEBTOR AND DEBTORS-IN-POSSESSION) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, (In thousands)

Balance at Balance at Beginning of End of Description Period Additions Deductions ~~Balance at End of~~ Period --------------------------- ------- ------------ -- ---------------~~---~~ --------------~~----~~ -------------~~--------~~ Allowances: Doubtful accounts: 2001 $ 723 $ 993 (C) $ 368 (A) $ 1,348 2000 627 221 125 (A) 723 ~~1999 489 380 242 (A) 627~~ Inventory reserves: 2001 4,308 1,055 1,912 (B) 3,451 2000 2,920 2,012 (C) 624 (B) 4,308 ~~1999 3,273 340 693 (B) 2,920~~

(A) Includes accounts written off during the period. (B) Includes inventory written off during the period. (C) Includes transfers in from other asset reserves for related amounts now included in inventory. S-5

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