EXHIBIT 99



AAROHI COMMUNICATIONS, INC.

AND
SUBSIDIARY

(A Development Stage Enterprise)



Consolidated Financial Statements



December 31, 2003



(With Independent Auditors Report Thereon)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Table of Contents



|                                                                        |  |     
|----------------------------------------------------------------------- |  | ----
|                                                                        |  | Page
|                                                                        | 
|Independent Auditors Report                                            |  | 1   
|                                                                        | 
|Consolidated Balance Sheet                                              |  | 2   
|                                                                        | 
|Consolidated Statements of Operations                                   |  | 3   
|                                                                        | 
|Consolidated Statements of Shareholders Deficit and Comprehensive Loss |  | 4   
|                                                                        | 
|Consolidated Statements of Cash Flows                                   |  | 5   
|                                                                        | 
|Notes to Consolidated Financial Statements                              |  | 6   





---

Independent Auditors Report



The Board of Directors

Aarohi Communications, Inc.:



We have audited the accompanying consolidated balance sheet of Aarohi Communications, Inc. and subsidiary (the Company), a development stage enterprise, as of December
31, 2003, and the related consolidated statements of operations, shareholders deficit and comprehensive loss, and cash flows for the year ended December 31, 2003 and the cumulative period from September 20, 2000 (inception) to December 31,
2003, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.



We conducted our audits
in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aarohi Communications, Inc.
and subsidiary as of December 31, 2003, and the results of their operations and their cash flows for the year ended December 31, 2003 and the cumulative period from September 20, 2000 (inception) to December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.



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 consolidated financial statements, the Company has suffered recurring losses from operations
and is subject to the risks associated with companies in the development stage that raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also discussed in note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



/s/ KPMG LLP



Mountain View, California

March 5, 2004



1



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AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)

Consolidated Balance Sheet

December 31, 2003

(In thousands, except share data)



|                                                                                                                                                  |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Assets                                                                                                                                            |  |   |         |  
|Current assets:                                                                                                                                   |  |   |         |  
|Cash and cash equivalents                                                                                                                         |  | $ | 14,282  |  
|Inventory                                                                                                                                         |  |   | 14      |  
|Accounts receivable                                                                                                                               |  |   | 33      |  
|Deposits                                                                                                                                          |  |   | 37      |  
|Prepaid expenses                                                                                                                                  |  |   | 132     |  
|Employee advances                                                                                                                                 |  |   | 26      |  
|                                                                                                                                                  |  |   |         |  
|Total current assets                                                                                                                              |  |   | 14,524  |  
|                                                                                                                                                  | 
|Property and equipment, net                                                                                                                       |  |   | 1,581   |  
|                                                                                                                                                  |  |   |         |  
|Total assets                                                                                                                                      |  | $ | 16,105  |  
|                                                                                                                                                  |  |   |         |  
|Liabilities, Redeemable Convertible Preferred Stock, and Shareholders Deficit                                                                    |  |   |         |  
|Current liabilities:                                                                                                                              |  |   |         |  
|Accounts payable                                                                                                                                  |  | $ | 409     |  
|Other accrued expenses                                                                                                                            |  |   | 556     |  
|Deferred revenue                                                                                                                                  |  |   | 60      |  
|Extended payment obligations, current portion                                                                                                     |  |   | 228     |  
|                                                                                                                                                  |  |   |         |  
|Total current liabilities                                                                                                                         |  |   | 1,253   |  
|                                                                                                                                                  | 
|Extended payment obligations, net of current portion                                                                                              |  |   | 20      |  
|Convertible note payable                                                                                                                          |  |   | 2,000   |  
|                                                                                                                                                  |  |   |         |  
|Total liabilities                                                                                                                                 |  |   | 3,273   |  
|                                                                                                                                                  |  |   |         |  
|Commitments and contingencies                                                                                                                     |  |   |         |  
|                                                                                                                                                  | 
|Redeemable convertible preferred stock:                                                                                                           |  |   |         |  
|Series A, $0.001 par value. Authorized, issued, and outstanding 23,438,916 shares; liquidation preference of $0.65 per share                      |  |   | 14,906  |  
|Series B, $0.001 par value. Authorized 14,545,457 shares; issued and outstanding 10,909,093 shares; liquidation preference of $0.55 per
share     |  |   | 5,903   |  
|Series B-1, $0.001 par value. Authorized 33,944,332 shares; issued and outstanding 30,549,899 shares; liquidation preference of $0.4419 per
share |  |   |         |  
|                                                                                                                                                  |  |   | 13,440  |  
|                                                                                                                                                  |  |   |         |  
|Total redeemable convertible preferred stock                                                                                                      |  |   | 34,249  |  
|                                                                                                                                                  |  |   |         |  
|Shareholders deficit:                                                                                                                            |  |   |         |  
|Common stock, $0.001 par value. Authorized 140,000,000 shares; issued and outstanding 12,492,470 shares                                           |  |   | 13      |  
|Additional paid-in capital                                                                                                                        |  |   | 196     |  
|Accumulated other comprehensive income                                                                                                            |  |   | 4       |  
|Deficit accumulated during the development stage                                                                                                  |  |   | (21,630 | )
|                                                                                                                                                  |  |   |         |  
|Total shareholders deficit                                                                                                                       |  |   | (21,417 | )
|                                                                                                                                                  |  |   |         |  
|Total liabilities, redeemable convertible preferred stock, and shareholders deficit                                                              |  | $ | 16,105  |  
|                                                                                                                                                  |  |   |         |  



See
accompanying notes to consolidated financial statements.



2



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)

Consolidated Statements of Operations

(In
thousands)



|                                                                                       |  |                            |         |   |                                                                      |         |  
|-------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------------------------------------------------- | ------- | -
|                                                                                       |  | Year endedDecember 31,2003 |         |   | Cumulativeperiod fromSeptember 20,2000(inception) toDecember 31,2003 |        
|Revenue                                                                                |  | $                          | 126     |   |                                                                      | 126     |  
|Cost of sales                                                                          |  |                            | 78      |   |                                                                      | 78      |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Gross margin                                                                           |  |                            | 48      |   |                                                                      | 48      |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Operating expenses:                                                                    |  |                            |         |   |                                                                      |         |  
|General and administrative                                                             |  |                            | 1,130   |   |                                                                      | 3,610   |  
|Sales and marketing                                                                    |  |                            | 1,144   |   |                                                                      | 1,973   |  
|Research and development                                                               |  |                            | 8,005   |   |                                                                      | 16,628  |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Total operating expenses                                                               |  |                            | 10,279  |   |                                                                      | 22,211  |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Loss from operations                                                                   |  |                            | (10,231 | ) |                                                                      | (22,163 | )
|Noncash interest expense                                                               |  |                            |        |   |                                                                      | (45     | )
|Interest expense                                                                       |  |                            | (70     | ) |                                                                      | (71     | )
|Other income, net                                                                      |  |                            | 393     |   |                                                                      | 649     |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Net loss                                                                               |  |                            | (9,908  | ) |                                                                      | (21,630 | )
|                                                                                       |  |                           
|Beneficial conversion feature on Series A and B redeemable convertible preferred stock |  |                            | (4,869  | ) |                                                                      |        |  
|                                                                                       |  |                            |         |   |                                                                      |         |  
|Loss applicable to common shareholders                                                 |  | $                          | (14,777 | ) |                                                                      | (21,630 | )
|                                                                                       |  |                            |         |   |                                                                      |         |  



See
accompanying notes to consolidated financial statements.



3



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)

Consolidated Statements of Shareholders Deficit and Comprehensive Loss

Cumulative period from September 20, 2000 (inception) to December 31, 2003

(in thousands)



|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------ | - |  | ------------------------ | -- | - | ---------------------------------- | - | ------ | ------------------------------------------ |  | - | -------------------------------------------- | - |  | ------------------------- | -- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                       |  | Common stock |   |  | Additionalpaid-incapital |    |   | Notesreceivable(includinginterest) |   |        | Accumulatedothercomprehensiveincome (loss) |  |   | Deficitaccumulatedduring thedevelopmentstage |   |  | Totalshareholdersdeficit |   
|                                                                                                       |  | Shares       |   |  | Amount                   |    |   |                                    |   |        |                                           
|Issuance of common stock to founders on December 15, 2000                                              |  | 2,500        |   |  | $                        | 3  |   |                                    | $ |       |                                            |  | $ |                                             |   |  | $                         |   |   |  | $ |        |   |  | $ | 3       |  
|Net loss                                                                                               |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   | (153    | ) |  |   | (153    | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Balances as of December 31, 2000                                                                       |  | 2,500        |   |  |                          | 3  |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   | (153    | ) |  |   | (150    | )
|Issuance of common stock to founders on April 15, 2001                                                 |  | 9,500        |   |  |                          | 9  |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 9       |  
|Noncash beneficial conversion associated with bridge loans                                             |  |             |   |  |                          |   |   |                                    |   | 45     |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 45      |  
|Exercise of common stock options for cash and note                                                     |  | 1,170        |   |  |                          | 1  |   |                                    |   | 80     |                                            |  |   | (60                                          | ) |  |                           |   |   |  |   |        |   |  |   | 21      |  
|Issuance of common stock for cash on July 26, 2001                                                     |  | 10           |   |  |                          | 1  |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 1       |  
|Issuance and exercise of warrants for legal services                                                   |  | 200          |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   |        |  
|Comprehensive loss:                                                                                    |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Translation loss                                                                                       |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           | (1 | ) |  |   |        |   |  |   | (1      | )
|Net loss                                                                                               |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   | (2,417  | ) |  |   | (2,417  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                               |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   | (2,418  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Balances as of December 31, 2001                                                                       |  | 13,380       |   |  |                          | 14 |   |                                    |   | 125    |                                            |  |   | (60                                          | ) |  |                           | (1 | ) |  |   | (2,570  | ) |  |   | (2,492  | )
|Issuance of common stock to employee on August 30, 2002                                                |  | 150          |   |  |                          |   |   |                                    |   | 10     |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 10      |  
|Issuance of Series B convertible preferred stock on December 2, 2002, net of issuance costs of $97,000 |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   |        |  
|Exercise of common stock options for cash                                                              |  | 238          |   |  |                          |   |   |                                    |   | 10     |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 10      |  
|Repurchase of common stock                                                                             |  | (534         | ) |  |                          | (1 | ) |                                    |   | (36    | )                                          |  |   | 41                                           |   |  |                           |   |   |  |   |        |   |  |   | 4       |  
|Note receivable from shareholder                                                                       |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   | (25                                          | ) |  |                           |   |   |  |   |        |   |  |   | (25     | )
|Interest receivable on notes                                                                           |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   | (3                                           | ) |  |                           |   |   |  |   |        |   |  |   | (3      | )
|Comprehensive loss:                                                                                    |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Translation gain                                                                                       |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           | 5  |   |  |   |        |   |  |   | 5       |  
|Net loss                                                                                               |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   | (9,152  | ) |  |   | (9,152  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                               |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   | (9,147  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Balances as of December 31, 2002                                                                       |  | 13,234       |   |  |                          | 13 |   |                                    |   | 109    |                                            |  |   | (47                                          | ) |  |                           | 4  |   |  |   | (11,722 | ) |  |   | (11,643 | )
|Exercise of common stock options for cash                                                              |  | 237          |   |  |                          | 2  |   |                                    |   | 14     |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 16      |  
|Repurchase of common stock                                                                             |  | (978         | ) |  |                          | (2 | ) |                                    |   | (5     | )                                          |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | (7      | )
|Repayment of note receivable from shareholder                                                          |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   | 47                                           |   |  |                           |   |   |  |   |        |   |  |   | 47      |  
|Issuance of common stock options to nonemployees for services rendered                                 |  |             |   |  |                          |   |   |                                    |   | 77     |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 77      |  
|Deemed preferred stock dividend                                                                        |  |             |   |  |                          |   |   |                                    |   | (4,869 | )                                          |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | (4,869  | )
|Beneficial conversion feature                                                                          |  |             |   |  |                          |   |   |                                    |   | 4,869  |                                            |  |   |                                             |   |  |                           |   |   |  |   |        |   |  |   | 4,869   |  
|Net loss                                                                                               |  |             |   |  |                          |   |   |                                    |   |       |                                            |  |   |                                             |   |  |                           |   |   |  |   | (9,908  | ) |  |   | (9,908  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                                               |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   | (9,908  | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  
|Balances as of December 31, 2003                                                                       |  | 12,493       |   |  | $                        | 13 |   |                                    | $ | 196    |                                            |  | $ |                                             |   |  | $                         | 4  |   |  | $ | (21,630 | ) |  | $ | (21,417 | )
|                                                                                                       |  |              |   |  |                          |    |   |                                    |   |        |                                            |  |   |                                              |   |  |                           |    |   |  |   |         |   |  |   |         |  



See
accompanying notes to consolidated financial statements.



4



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)

Consolidated Statements of Cash Flows

(In
thousands)



|                                                                            |  |                            |        |   |                                                                      |         |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------ | - | -------------------------------------------------------------------- | ------- | -
|                                                                            |  | Year endedDecember 31,2003 |        |   | Cumulativeperiod fromSeptember 20,2000(inception) toDecember 31,2003 |        
|Cash flows from operating activities:                                       |  |                            |        |   |                                                                      |         |  
|Net loss                                                                    |  | $                          | (9,908 | ) |                                                                      | (21,630 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                            |        |   |                                                                      |         |  
|Depreciation and amortization                                               |  |                            | 1,485  |   |                                                                      | 1,818   |  
|Stock-based compensation                                                    |  |                            |       |   |                                                                      | 1       |  
|Noncash interest expense                                                    |  |                            |       |   |                                                                      | 45      |  
|Gain on termination of long-term financing arrangement                      |  |                            | (297   | ) |                                                                      | (297    | )
|Changes in operating assets and liabilities:                                |  |                            |        |   |                                                                      |         |  
|Inventory                                                                   |  |                            | (14    | ) |                                                                      | (14     | )
|Accounts receivable                                                         |  |                            | (33    | ) |                                                                      | (33     | )
|Deposits                                                                    |  |                            | 111    |   |                                                                      | (37     | )
|Prepaid expenses                                                            |  |                            | (33    | ) |                                                                      | (132    | )
|Employee advances                                                           |  |                            | (5     | ) |                                                                      | 29      |  
|Accounts payable                                                            |  |                            | (4     | ) |                                                                      | 409     |  
|Other accrued expenses                                                      |  |                            | 164    |   |                                                                      | 556     |  
|Deferred revenue                                                            |  |                            | 60     |   |                                                                      | 60      |  
|                                                                            |  |                            |        |   |                                                                      |         |  
|Net cash used in operating activities                                       |  |                            | (8,474 | ) |                                                                      | (19,225 | )
|                                                                            |  |                            |        |   |                                                                      |         |  
|Cash flows used in investing activities:                                    |  |                            |        |   |                                                                      |         |  
|Capital expenditures                                                        |  |                            | (267   | ) |                                                                      | (2,117  | )
|                                                                            |  |                            |        |   |                                                                      |         |  
|Cash flows from financing activities:                                       |  |                            |        |   |                                                                      |         |  
|Proceeds from issuance of bridge loan                                       |  |                            |       |   |                                                                      | 1,600   |  
|Payment on long-term financing arrangements                                 |  |                            | (728   | ) |                                                                      | (728    | )
|Proceeds from exercise of common stock                                      |  |                            | 14     |   |                                                                      | 14      |  
|Notes receivable from shareholder                                           |  |                            | 47     |   |                                                                      | 47      |  
|Issuance of common stock (repurchase)                                       |  |                            | 73     |   |                                                                      | 46      |  
|Net proceeds from issuance of preferred stock                               |  |                            | 13,440 |   |                                                                      | 34,649  |  
|                                                                            |  |                            |        |   |                                                                      |         |  
|Net cash provided by financing activities                                   |  |                            | 12,846 |   |                                                                      | 35,628  |  
|                                                                            |  |                            |        |   |                                                                      |         |  
|Effect of exchange rate changes on cash                                     |  |                            |       |   |                                                                      | (4      | )
|                                                                            |  |                            |        |   |                                                                      |         |  
|Net increase in cash and cash equivalents                                   |  |                            | 4,105  |   |                                                                      | 14,282  |  
|Cash and cash equivalents at beginning of period                            |  |                            | 10,177 |   |                                                                      |        |  
|                                                                            |  |                            |        |   |                                                                      |         |  
|Cash and cash equivalents at end of period                                  |  | $                          | 14,282 |   |                                                                      | 14,282  |  
|                                                                            |  |                            |        |   |                                                                      |         |  
|Supplemental disclosures of cash flow information:                          |  |                            |        |   |                                                                      |         |  
|Noncash investing and financing activities:                                 |  |                            |        |   |                                                                      |         |  
|Convertible note issued in exchange for preferred stock                     |  | $                          | 2,000  |   |                                                                      | 2,000   |  
|Stock issued for notes receivable                                           |  |                            |       |   |                                                                      | 47      |  
|Conversion of bridge loan for Series A preferred stock                      |  |                            |       |   |                                                                      | 1,600   |  
|Software purchased under long-term financing arrangements                   |  |                            | 654    |   |                                                                      | 970     |  
|Beneficial conversion feature                                               |  |                            | 4,869  |   |                                                                      | 4,869   |  



See
accompanying notes to consolidated financial statements.



5



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



|(1) | The Company and Basis of Presentation
|--- | -------------------------------------



Aarohi Communications, Inc. (the Company) is a California corporation with headquarters in San Jose, California and a wholly owned subsidiary in India.
The Company builds storage processors designed to increase storage intelligence in networks, enable storage resource management, and enhance network performance and scalability.



The Company is classified for financial reporting purposes as a development stage enterprise. Operations to date have been
devoted primarily to raising capital, obtaining financing, product development, acquiring operating assets, and administrative functions.



The accompanying consolidated financial statements have been prepared assuming the Company will continue in existence as a going concern. Because the
Company is in the development stage, it is subject to the risks associated with such companies including dependence on key individuals, competition from other products and from larger companies, the need to obtain financing, and the successful
development and marketing of its products. The Company has incurred losses from inception of $21,630,000. These factors raise substantial doubt about the Companys ability to continue as a going concern. The Company believes it has sufficient
capital to fund its operations through December 31, 2004 and beyond; however, the continued implementation of the Companys business plan may be dependent on obtaining additional financing. Management plans on raising additional financing to
successfully launch and market its products. There can be no assurance that additional financing will be available to the Company, that additional funding will be available on acceptable terms, or that it will not dilute existing shareholders.



|(2) | Summary of Significant Accounting Policies
|--- | ------------------------------------------



| | (a) | Principles of Consolidation
| | --- | ---------------------------



The accompanying consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.



| | (b) | Cash Equivalents
| | --- | ----------------



The Company considers all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value. As of December 31, 2003, cash equivalents consist of money market funds in the amount of $8,867,655.



| | (c) | Business and Credit Concentration
| | --- | ---------------------------------



Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company places its
cash and cash equivalents with high-quality financial institutions. At times, cash deposits are in excess of federally insured limits or in foreign banks that are not subject to federal insurance.



| |  |   |  |            
| |  | - |  | -----------
| |  | 6 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



| | (d) | Property and Equipment
| | --- | ----------------------



Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful
life of the asset, which is generally three years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.



| | (e) | Software Development Costs and Purchased Software Costs
| | --- | -------------------------------------------------------



Software development costs for products to be sold are expensed as incurred until technological feasibility of the underlying software product is
achieved. To date, technological feasibility has not been achieved and all software development costs have been expensed as incurred.



Purchased software costs for products to be sold are expensed as incurred until technological feasibility of the underlying software product is achieved
or if there are no alternative future uses for the purchased software. To date, certain purchased software has been determined to have alternative future uses and has been included in capitalized software (see note 3) in the accompanying
consolidated financial statements.



| | (f) | Income Taxes
| | --- | ------------



Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Where a deferred tax asset
has been recognized, a valuation allowance is established if, based on available evidence, it is more likely than not that the deferred tax asset will not be realized.



| | (g) | Accounting for Stock-Based Compensation
| | --- | ---------------------------------------



The Company grants stock options and stock purchase rights for a fixed number of shares to employees with an exercise price equal to the estimated fair
value of the shares at the date of grant. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, permits the use of either a fair-value-based method or the method defined in Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock-based compensation arrangements. Companies that elect to employ the valuation method provided in APB No. 25 are required to disclose the pro forma net
income (loss) that would have resulted from the use of the fair-value-based method.



| |  |   |  |            
| |  | - |  | -----------
| |  | 7 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, an Amendment of FASB Statement No. 123. This statement amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amended the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reporting results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002.



The Company has elected to continue to determine the value of stock-based
compensation arrangements under the provisions of APB Opinion No. 25 and, accordingly, it has included the pro forma disclosures required under SFAS No. 123, as amended by SFAS No. 148 as follows:



|                                                                                        |  |                  |            |   |                                                                      |             |  
|--------------------------------------------------------------------------------------- |  | ---------------- | ---------- | - | -------------------------------------------------------------------- | ----------- | -
|                                                                                        |  | December 31,2003 |            |   | Cumulativeperiod fromSeptember 20,2000(inception) toDecember 31,2003 |            
|Net loss, as reported                                                                   |  | $                | (9,908,000 | ) |                                                                      | (21,630,000 | )
|Deduct stock-based employee compensation expense determined under the fair-value method |  |                  | (1,535     | ) |                                                                      | (17,003     | )
|                                                                                        |  |                  |            |   |                                                                      |             |  
|Pro forma net loss                                                                      |  | $                | (9,909,535 | ) |                                                                      | (21,647,003 | )
|                                                                                        |  |                  |            |   |                                                                      |             |  



The weighted average
estimated fair value of employee stock options granted during the year ended December 31, 2003 and for the cumulative period from September 20, 2000 (inception) to December 31, 2003 was $0.07 per share. The fair-value of each option was estimated on
the date of grant using the minimum-value method of the Black-Scholes option-pricing model for the year ended December 31, 2003 with the following weighted average assumptions: no dividends; risk-free interest rate of 2.63%; and expected average
life of four years.



The value of options, stock purchase
rights, and stock exchanged for services rendered or assets acquired is valued using the Black-Scholes option-pricing model. To calculate the expense or asset value, the Company uses either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable. Unvested shares held by nonemployees have been and will be marked-to-market using the estimate of fair value at the end of each accounting period pursuant to the
Financial Accounting Standards Boards (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services.
The Company records compensation expense for nonemployee option grants which vest ratably over the service period using the allocation method as described Financial Interpretation Number (FIN) No. 28.



| |  |   |  |            
| |  | - |  | -----------
| |  | 8 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



| | (h) | Use of Estimates
| | --- | ----------------



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from such estimates.



| | (i) | Foreign Operations
| | --- | ------------------



Assets and liabilities of the Companys India subsidiary where the local currency is the functional currency are translated at year-end exchange
rates. The effects of the translation adjustments are reported as a separate component of comprehensive loss and are included in accumulated other comprehensive loss in the consolidated statements of shareholders deficit and comprehensive
loss.



| | (j) | Impairment of Long-Lived Assets
| | --- | -------------------------------



The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.



| | (k) | Revenue Recognition
| | --- | -------------------



The Company recognizes revenue for design services when all of the following criteria are met:



Order documentation is executed (where required) by both the customer and
the Company by the end of the accounting period in which revenue is to be recognized, delivery has occurred, payment amounts are fixed or determinable (fixed or determinable generally means that the timing and amount of the payments are not based on
any future event, and there are no other factors or contingencies affecting the Companys ability to recognize revenue relating to these payments), and collectibility is probable.



The Company recognizes revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition, as
amended. SOP 97-2 specifies that in order to recognize revenue on sales of software licenses, evidence of the sales arrangement must exist, delivery of the element must have occurred, the fee must be fixed or determinable, and collection is
probable. SOP 97-2 requires revenue earned on software arrangements involving multiple elements be allocated to each element based on vendor-specific objective evidence (VSOE) of the fair value of the individual element. If VSOE does not exist for
all undelivered elements, then in accordance with SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition,with Respect to Certain Transactions,revenue is deferred until sufficient evidence exists or all elements for which
VSOE does not exist have been delivered.



In November 2002,
the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 provides guidance on



| |  |   |  |            
| |  | - |  | -----------
| |  | 9 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



how to account for arrangements that involve the delivery or performance of multiple products,
services, and/or rights to use assets. The provisions of EITF No. 00-21 apply to revenue arrangements entered into for fiscal periods beginning after June 13, 2003. The Company adopted the provisions of EITF No. 00-21 for the fiscal year ended
December 31, 2003.



| | (l) | Research and Development Costs
| | --- | ------------------------------



Research and development costs are expensed as incurred and consist primarily of salaries, contract services, and other direct expenses.



|(3) | Property and Equipment
|--- | ----------------------



Property and equipment as of December 31, 2003 consisted of the following:



|                                               |  |   |          
|---------------------------------------------- |  | - | ---------
|Computer hardware                              |  | $ | 912,193  
|Software                                       |  |   | 2,316,998
|Leasehold improvements                         |  |   | 61,479   
|Furniture and fixtures                         |  |   | 107,972  
|                                               |  |   |          
|                                               |  |   | 3,398,642
|Less accumulated depreciation and amortization |  |   | 1,817,794
|                                               |  |   |          
|Total                                          |  | $ | 1,580,848
|                                               |  |   |          



Depreciation and
amortization expense for the year ended December 31, 2003 and the cumulative period from September 20, 2000 (inception) to December 31, 2003 was $1,484,872 and $1,817,794, respectively.



|(4) | Other Accrued Expenses
|--- | ----------------------



Other accrued expenses as of December 31, 2003 consisted of the following:



|                          |  |   |        
|------------------------- |  | - | -------
|Accrued vacation          |  | $ | 217,037
|Professional service fees |  |   | 176,000
|Other accrued             |  |   | 162,595
|                          |  |   |        
|Total                     |  | $ | 555,632
|                          |  |   |        



|(5) | Commitments
|--- | -----------



The Company has entered into operating leases for equipment and extended payment arrangements for purchased software with expiration/maturity dates
varying from 2004 to 2005. The Company subleases its principal operating facility under a noncancelable operating lease. In January 2003, the Company amended and extended the operating lease until July 31, 2004. Under the amended lease agreement,
the Company received a $40,000 reduction in its security deposit and a reduction of approximately $5,000 in its monthly rent. In January 2004, the Company amended and extended the operating lease until July 31, 2005. Under the amended lease
agreement, the Company leased additional space and the monthly rent was reduced to $22,801 for the remainder of the lease term.



Rent expense was $279,524 and $781,938 for the year ended December 31, 2003 and the cumulative period from September 20, 2000 (inception) to December 31,
2003, respectively.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 10 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



Future minimum lease payments under noncancelable operating leases and extended payment obligation as
of December 31, 2003 are as follows:



|                                                   |  |                |         |                 |   |        
|-------------------------------------------------- |  | -------------- | ------- | --------------- | - | -------
|                                                   |  | Operatinglease |         | Extendedpayment
|Years ending December 31:                          |  |                |         |                 |   |        
|2004                                               |  | $              | 273,618 |                 |   | 228,082
|2005                                               |  |                | 159,611 |                 |   | 19,635 
|                                                   |  |                |         |                 |   |        
|Total minimum other liabilities and lease payments |  | $              | 433,229 |                 |   | 247,717
|                                                   |  |                |         |                 |   |        
|Less current portion                               |  |                |         |                 |   | 228,082
|                                                   |  |                |         |                 |   |        
|Long-term other liabilities                        |  |                |         |                 | $ | 19,635 
|                                                   |  |                |         |                 |   |        



The Company is
involved in litigation arising in the ordinary course of business. In the opinion of management, such matters will be resolved without a material adverse effect on the Company.



|(6) | Restricted Common Stock Agreement
|--- | ---------------------------------



On June 20, 2002, pursuant to a Restricted Stock Purchase Agreement (the Agreement), the Company issued 150,000 shares of its common stock subject to
certain restrictions, to a member of the board of directors for $0.07 per share. Under the terms of the Agreement, the Company has the right to repurchase the shares of common stock, in the event the board member ceases to provide services to the
Company. The shares vest monthly over a two-year period. A Company IPO (Initial Public Offering) would trigger an acceleration of the vesting. As of December 31, 2003, approximately 37,500 shares of common stock were subject to the repurchase rights
of the Company under the Agreement.



|(7) | Redeemable Convertible Preferred Stock
|--- | --------------------------------------



In July and August 2001, the Company closed its Series A convertible preferred stock round of financing. In total, the Company sold 23,438,916 shares of
Series A convertible preferred stock for $13,306,000 and conversion of bridge loans of $1,600,000.



In December 2002, the Company closed its Series B convertible preferred stock round of financing. In total, the Company sold 14,545,547 shares of Series B
convertible preferred stock in exchange for cash of $8,000,000. The Company subsequently repurchased 3,636,636 shares of Series B convertible preferred shares in exchange for a convertible note (see note 7(f)).



In August 2003, the Company closed its initial Series B-1 convertible
preferred stock round of financing, and in November 2003, the Company closed its second Series B-1 convertible preferred stock round of financing. In total, the Company sold 30,549,899 shares of Series B-1 convertible preferred stock in exchange of
cash for $13,500,000.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 11 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



Convertible preferred stock as of December 31, 2003 consisted of the following:



|           |  |                       |         |                           |            |                                       |            |                    |   |                           |  |                       |  |   |           
|---------- |  | --------------------- | ------- | ------------------------- | ---------- | ------------------------------------- | ---------- | ------------------ | - | ------------------------- |  | --------------------- |  | - | ----------
|           |  | Originalissuanceprice |         | Number ofsharesauthorized |            | Number ofshares issued andoutstanding |            | Dividendsper share |   | Liquidationvalue pershare |  | Totalliquidationvalue
|Series A   |  | $                     | 0.63595 |                           | 23,438,916 |                                       | 23,438,916 |                    | $ | 0.044                     |  | 0.65                  |  |   | 15,235,295
|Series B   |  |                       | 0.55000 |                           | 14,545,457 |                                       | 10,909,093 |                    |   | 0.044                     |  | 0.55                  |  |   | 6,000,001 
|Series B-1 |  |                       | 0.44190 |                           | 33,944,332 |                                       | 30,549,898 |                    |   | 0.035352                  |  | 0.4419                |  |   | 13,499,999
|           |  |                       |         |                           |            |                                       |            |                    |   |                           |  |                       |  |   |           
|           |  |                       |         |                           | 71,928,705 |                                       | 64,897,907 |                    |   |                           |  |                       |  | $ | 34,735,295
|           |  |                       |         |                           |            |                                       |            |                    |   |                           |  |                       |  |   |           



The rights,
preferences, and privileges of the Series A, B, and B-1 preferred stock are as follows:



| | (a) | Voting Rights
| | --- | -------------



The holders of shares of Series A, B and B-1 preferred stock are entitled to the number of votes equal to the number of shares of common stock into which
the preferred shares could be converted as of the record date for a vote of Company shareholders.



| | (b) | Dividends and Distributions
| | --- | ---------------------------



The holders of shares of Series A, B, and B-1 preferred stock are entitled to receive, when and if declared by the board of directors, a noncumulative
dividend at an annual rate of $0.044, $0.044, and $0.035352 per share, respectively. No dividends have been declared to date.



| | (c) | Conversion Rights
| | --- | -----------------



Each share of Series A, B, and B-1 preferred stock was initially convertible into one share of common stock. On November 27, 2002, the Company entered
into a side letter agreement with the purchasers of Series B preferred stock. In the event: (a) that the Company failed to receive a signed term sheet on or before February 28, 2003 from one or more qualified investors committing to invest at least
$1,999,995 in gross proceeds to purchase additional Series B preferred stock or (b) if the Company failed to close such transaction on or before March 31, 2003 (including, without limitation, receipt of the cash funding), then the conversion prices
of Series A and B preferred stock would each be amended such that each share of Series A and B preferred stock would be convertible into 1.2 and 1.6 shares of common stock, respectively. The Company did not complete the transaction to raise gross
proceeds of a least $1,999,995 in additional shares of Series B preferred stock in March 2003, and as a result, the conversion prices of Series A and B preferred stock have been adjusted from $0.65 per share to $0.55 per share, respectively, to
$0.54 per share and $0.34 per share, respectively. The Company has accounted for the intrinsic-value of the embedded beneficial conversion feature as the difference between the conversion price and the fair value of the common stock into which the
security is convertible, as of the commitment date, multiplied by the number of shares into which the security is convertible for a total amount of $4,869,191.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 12 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



The conversion price of Series A, B, and B-1 preferred stock is subject to adjustment if the
consideration per share for an additional share of common stock issued or deemed to be issued by the Company is less than the Series A, B, and B-1 preferred stock conversion price prior to such conversion. Additional shares of common stock issued or
deemed to be issued by the Company excludes shares issued to officers, directors, or employees pursuant to a warrant, stock grant, option agreement; shares or warrants issued to lease companies, vendors, or customers; and shares issued to acquire
another business entity, etc. on or after the preferred original issue date.



Each share of Series A, B, and B-1 preferred stock automatically converts into shares of common stock immediately upon the Companys sale of its common stock in a firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act of 1933, as amended, with a public offering price which is not less than $2.75, $2.75, and $1.33 per share respectively (appropriately adjusted for recapitalization), and which results in
aggregate cash proceeds to the Company of at least $30,000,000 (net of underwriting discounts and commissions).



| | (d) | Liquidation Rights
| | --- | ------------------



The holders of Series B-1 preferred stock will be entitled to receive $0.4419 per share plus any declared and unpaid dividends in preference to the
holders of Series A and B preferred stock and common stock.



The holders of Series B preferred stock will be entitled to receive $0.55 per share plus any declared and unpaid dividends in preference to the holders of Series A preferred stock and common stock, whereas the holders of Series A preferred
stock will be entitled to receive $0.65 per share plus any declared and unpaid dividends in preference to the holders of common stock. After payment of the full liquidation preference, the remaining assets of the Company available for distribution
to shareholders will be distributed pari pasu among the holders of preferred stock and common stock on a pro rata, as-if-converted basis (assuming conversion of all such Series A, B, and B-1 preferred stock), until Series B-1
holders receive $0.8838 per share, Series B holders receive $2.20 per share, and Series A holders receive $2.60 per share and after that, ratably among holders of common stock.



| | (e) | Redemption Rights
| | --- | -----------------



Each share of Series A, B, and B-1 preferred stock will be liquidated in the event of a sale, lease, or other disposition of all or substantially all of
the assets of the Company or a merger of the Company with or into any other companies in which the shareholder of the Company owns less than 50% of the Companys voting power immediately after the merger. Since there are conditions for the
liquidation which are not solely within the control of the Company, the shares of Series A, B, and B-1 preferred stock are considered mandatorily redeemable, and have been recorded outside of permanent equity in the accompanying consolidated balance
sheet.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 13 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



| | (f) | Convertible Note
| | --- | ----------------



In August 2003, the Company entered into a convertible note purchase agreement with one of the preferred Series B shareholders. Under the convertible note
purchase agreement, the shareholder converted all of its Series B preferred stock into a $2 million convertible note. The $2 million convertible note accrues interest at 8% per annum with a maturity date of August 8, 2005, unless the holders of
Series B preferred stock agree to convert the note into the Companys additional Series B preferred stock at a price of $0.55 per share (provided the closing occurred before July 31, 2003) or Series C preferred stock or equivalent equity
securities. If the note is converted into the Companys preferred stock, then the holders of Series B preferred stock will not be entitled to any interest on the principal amount of the note and the conversion price will be the aggregate amount
of principal then outstanding divided by the price per share of the stock issued.



| | (g) | Warrants to Purchase Common Stock
| | --- | ---------------------------------



In November 2002, the Company entered into a common stock purchase warrant agreement with one of the Series B investors. Pursuant to the terms of the
agreement, the investor could purchase up to 850,000 shares of the Companys common stock at $0.01 per share on or before specified dates, subject to the achievement of certain milestones, as defined. The term of the warrant agreement is five
years.



In August 2003, the Company and the holder of the
warrant amended the warrant to exclude the achievement of milestones as a condition for exercise of the warrants. The warrants are immediately exercisable and expire four years from the date of issuance. The fair value of the warrant totaling
$53,796 was calculated using the Black-Scholes option-pricing model with the following assumptions: expected remaining life of four years; volatility of 80%; dividend yield of 0%; and risk-free rate of 2.63%. As of December 31, 2003, none of the
common stock warrants were exercised.



|(8) | 2001 Stock Option Plan
|--- | ----------------------



The board of directors may issue incentive or nonqualified stock options to officers and key employees under the 2001 Stock Option Plan (the Plan). The
Plan was amended in 2003 and authorizes grants of options to purchase up to 11,890,476 shares of the Companys common stock. Options that expire unexercised become available again for grants under the Plan.



Incentive and nonqualified stock options to purchase shares of common stock
are granted at not less than 100% and 85%, respectively, of the fair value of shares at the date of grant, as determined by the board of directors. Options that are granted to optionees who own more than 10% of the total combined voting power of all
classes of stock of the Company or any affiliate are granted at not less than 110% of the fair value of shares at the date of grant, as determined by the board of directors. The options include a provision whereby the option holder may elect at any
time to exercise the option prior to the full vesting of the option.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 14 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



Unvested shares so purchased are subject to a repurchase provision which grants the Company the right
of first refusal to repurchase such shares at the original purchase price. Such right shall lapse at a rate equivalent to the vesting period of the original option. The total number of shares of common stock, excluding common stock issued to
founders, that were subject to repurchase as of December 31, 2003 was 516,793. The Plan will continue in effect until April 18, 2011 unless terminated earlier in accordance with the terms of the Plan.



Shares issued to founders pursuant to the exercise of options are subject to
a repurchase provision which lapses ratably over 48 months. The total number of shares of founders stock subject to repurchase as of December 31, 2003 was 2,758,509. The following is a summary of option activity:



|                                 |  |                             |   |  |                              |       
|-------------------------------- |  | --------------------------- | - |  | ---------------------------- | ------
|                                 |  | Number ofoptionsoutstanding |   |  | Weightedaverageexerciseprice
|Balances as of December 31, 2000 |  |                            |   |  | $                            |      
|Options granted                  |  | 3,933,000                   |   |  |                              | 0.0685
|Options exercised                |  | (1,170,000                  | ) |  |                              | 0.0700
|Options canceled                 |  | (120,000                    | ) |  |                              | 0.0700
|                                 |  |                             |   |  |                              |       
|Balances as of December 31, 2001 |  | 2,643,000                   |   |  |                              | 0.0684
|Options granted                  |  | 3,185,433                   |   |  |                              | 0.0700
|Options exercised                |  | (237,500                    | ) |  |                              | 0.0700
|Options canceled                 |  | (478,428                    | ) |  |                              | 0.0700
|                                 |  |                             |   |  |                              |       
|Balances as of December 31, 2002 |  | 5,112,505                   |   |  |                              | 0.0700
|Options granted                  |  | 4,107,500                   |   |  |                              | 0.0700
|Options exercised                |  | (237,339                    | ) |  |                              | 0.0700
|Options canceled                 |  | (490,963                    | ) |  |                              | 0.070 
|                                 |  |                             |   |  |                              |       
|Balances as of December 31, 2003 |  | 8,491,703                   |   |  |                              | 0.070 
|                                 |  |                             |   |  |                              |       
|Exercisable, end of year         |  | 8,327,526                   |   |  |                              | 0.070 
|                                 |  |                             |   |  |                              |       





| |  |    |  |            
| |  | -- |  | -----------
| |  | 15 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



Additional information regarding options outstanding as of December 31, 2003 is as follows:



|               |  |                    |  |                                             |  |                    
|-------------- |  | ------------------ |  | ------------------------------------------- |  | -------------------
|Exercise price |  | Shares outstanding |  | Weighted average remaining contractual life |  | Options exercisable
|$0.01          |  | 50,000             |  | 7.5                                         |  | 50,000             
|$0.07          |  | 8,441,703          |  | 8.94                                        |  | 8,277,526          
|               |  |                    |  |                                             |  |                    
|               |  | 8,491,703          |  |                                             |  | 8,327,526          
|               |  |                    |  |                                             |  |                    



Common Stock
Reserved for Future Issuance



As of December 31, 2003,
the Company has reserved the following shares of common stock for issuance in connection with:



|                                          |  |           
|----------------------------------------- |  | ----------
|Conversion of convertible preferred stock |  | 77,895,061
|Common stock options outstanding          |  | 8,491,703 
|Stock options available for issuance      |  | 3,322,520 
|Warrants for common stock                 |  | 950,000   
|                                          |  |           
|                                          |  | 90,659,284
|                                          |  |           



|(9) | 401(k) Plan
|--- | -----------



In January 2001, the Company adopted a 401(k) plan (the 401(k)). Participation in the 401(k) is available to all employees. All eligible employees can
participate in the 401(k) at any time beginning with their first day of employment. Each participant may elect to have his or her compensation reduced up to the maximum percentage allowable, not to exceed the statutory limit as prescribed by the
Internal Revenue Code. The Company may make Qualified Nonelective contributions to the 401(k). To date, no contributions have been made by the Company.



| |  |    |  |            
| |  | -- |  | -----------
| |  | 16 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



|(10) | Income Taxes
|---- | ------------



Income tax expense consisted of the following for the year ended December 31, 2003 and the cumulative period from September 20, 2000 (inception) to
December 31, 2003:



|        |  |                            |       |                                                                      |       
|------- |  | -------------------------- | ----- | -------------------------------------------------------------------- | ------
|        |  | Year endedDecember 31,2003 |       | Cumulativeperiod fromSeptember 20,2000(inception) toDecember 31,2003
|Foreign |  | $                          | 2,000 |                                                                      | 9,700 
|State   |  |                            | 800   |                                                                      | 2,400 
|        |  |                            |       |                                                                      |       
|        |  | $                          | 2,800 |                                                                      | 12,100
|        |  |                            |       |                                                                      |       



The 2003 and the
cumulative actual income tax expense from September 30, 2000 to December 31, 2003 differs from the expected income tax benefit (computed by applying the U.S. federal corporate tax rate of 34% to income before income taxes) as follows:



|                                                                                                   |  |                            |            |   |                                                                      |            |  
|-------------------------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | -------------------------------------------------------------------- | ---------- | -
|                                                                                                   |  | Year endedDecember 31,2003 |            |   | Cumulativeperiod fromSeptember 20,2000(inception) toDecember 31,2003 |           
|Computed expected tax benefit                                                                    |  | $                          | (3,369,000 | ) |                                                                      | (7,859,100 | )
|Foreign tax                                                                                        |  |                            | 2,000      |   |                                                                      | 9,700      |  
|State taxes, net of federal tax                                                                    |  |                            | 800        |   |                                                                      | 2,400      |  
|Current year net operating losses and temporary differences for which no tax benefit is recongized |  |                            | 3,283,600  |   |                                                                      | 7,563,700  |  
|Other                                                                                              |  |                            | 85,400     |   |                                                                      | 295,400    |  
|                                                                                                   |  |                            |            |   |                                                                      |            |  
|                                                                                                   |  | $                          | 2,800      |   |                                                                      | 12,100     |  
|                                                                                                   |  |                            |            |   |                                                                      |            |  





| |  |    |  |            
| |  | -- |  | -----------
| |  | 17 |  | (Continued)



---

AAROHI COMMUNICATIONS, INC.

AND SUBSIDIARY

(A Development Stage Enterprise)



Notes to Consolidated Financial Statements



December 31, 2003



The differences between the income tax benefit computed at the federal statutory rate and the
Companys income tax expense for all periods presented primarily relates to net operating losses and start-up expenditures for which no benefit has been recognized. The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities as of December 31, 2003 are presented below:



|                                      |  |   |            |  
|------------------------------------- |  | - | ---------- | -
|Deferred tax assets:                  |  |   |            |  
|Research credits carryforwards        |  | $ | 1,584,000  |  
|Accruals                              |  |   | 172,000    |  
|Plant and equipment                   |  |   | 50,000     |  
|Net operating loss carryforwards      |  |   | 6,781,000  |  
|Start-up costs                        |  |   | 1,052,000  |  
|                                      |  |   |            |  
|Total gross deferred tax assets       |  |   | 9,639,000  |  
|Deferred tax liabilities:             |  |   |            |  
|Fixed assets                          |  |   |           |  
|                                      |  |   |            |  
|                                      |  |   | 9,639,000  |  
|Valuation allowance                   |  |   | (9,639,000 | )
|                                      |  |   |            |  
|Net deferred tax assets (liabilities) |  | $ |           |  
|                                      |  |   |            |  



As a result of the
Companys ongoing history of operating losses, management has provided a valuation allowance for all of its deferred tax assets. The net change in the total valuation allowance for year ended December 31, 2002 to December 31, 2003 was an
increase of $4,513,000.



As of December 31, 2003, the Company
has operating loss carryforwards of $17,606,000 for federal income tax purposes. The federal net operating loss carryforwards will expire if not utilized beginning in 2020. The Company has available net operating loss carryforwards for state income
tax purposes of approximately $13,629,000. The state net operating loss carryforwards will expire beginning in 2012 if not utilized.



The Company also has research credit carryforwards for federal and California income tax purposes of approximately $873,000 and $844,000, respectively,
available to reduce future federal and California income taxes. The federal research credit carryforwards expire if not utilized beginning in 2021. The Californian research credit carries forward indefinitely.



Federal and state tax laws impose restrictions on the utilization of net
operating loss and tax credit carryforwards in the event of an ownership change, as defined in Internal Revenue Code Section 382. If the Company has such an ownership change, the Companys ability to use its net operating loss and
tax credit carryforwards may be subject to restrictions pursuant to the provisions.



|(11) | Related Party Transactions
|---- | --------------------------



Certain Company officers hold minority interests in entities who are Investors in the Company.



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| |  | -- |  | -----------
| |  | 18 |  | (Continued)