<PAGE>

                                                                    EXHIBIT 99.3

SPEEDERA NETWORKS, INC.

FINANCIAL STATEMENTS
AS OF JUNE 30, 2004 AND 2003

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders of
Speedera Networks, Inc.

We have audited the balance sheet of Speedera Networks, Inc. as of June 30,
2004, and the related statements of operations, mandatorily redeemable
convertible preferred stock and stockholders' deficit, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Speedera
Networks, Inc. as of June 30, 2003, were audited by other auditors whose report
dated September 30, 2003, except for Note 12, which is as of November 21, 2003,
expressed an unqualified opinion on those statements.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the 2004 financial statements referred to above present fairly,
in all material respects, the financial position of Speedera Networks, Inc. at
June 30, 2004, and the results of its operations and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

September 29, 2004, except for Note 11,
which is as of October 14, 2004

/s/ BDO Seidman, LLP
<PAGE>

SPEEDERA NETWORKS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         JUNE 30,
                                                                                   --------------------
(in thousands, except per share amounts)                                             2004        2003
<S>                                                                                <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                       $  2,213    $    752
   Accounts receivable, net of allowance for doubtful accounts
     of $213 and $400 in 2004 and 2003, respectively                                  2,575       1,571
   Prepaid expenses and other current assets                                            670         223
                                                                                   --------    --------
        Total current assets                                                          5,458       2,546
Property and equipment, net                                                           3,889       2,983
Other assets                                                                            155         166
                                                                                   --------    --------
        Total assets                                                               $  9,502    $  5,695
                                                                                   ========    ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable                                                                $  2,393    $  2,644
   Accrued liabilities                                                                1,435       1,490
   Deferred revenue                                                                     640         182
   Current portion of notes payable                                                     750           -
                                                                                   --------    --------
        Total current liabilities                                                     5,218       4,316
Notes payable                                                                         1,049           -
Deferred rent                                                                            13          34
                                                                                   --------    --------
        Total liabilities                                                             6,280       4,350
                                                                                   --------    --------

Commitments and contingencies (Note 6)

Mandatorily redeemable convertible preferred stock, $0.001 par value;
   222,823 and 222,823 shares authorized at June 30, 2004 and 2003,
   respectively; 204,489 and 196,757 shares issued and outstanding at June 30,
   2004 and 2003, respectively
   (Aggregate liquidation value of $62,836 at June 30, 2004)                         45,848      40,545
                                                                                   --------    --------
Stockholders' deficit
   Common Stock, $0.001 par value; 400,000 and 400,000 shares authorized at June
     30, 2004 and 2003, respectively; 21,623 and 21,389 shares issued and
     outstanding at June 30, 2004 and 2003, respectively                                 21          21
   Additional paid in capital                                                                         -
   Deferred stock-based compensation                                                      -          (5)
   Accumulated deficit                                                              (42,647)    (39,216)
                                                                                   --------    --------
        Total stockholders' deficit                                                 (42,626)    (39,200)
                                                                                   --------    --------
        Total liabilities, mandatorily redeemable convertible
        preferred stock and stockholders' deficit                                  $  9,502    $  5,695
                                                                                   ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>

SPEEDERA NETWORKS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                          YEAR ENDED JUNE 30,
                                          --------------------
(in thousands)                              2004        2003
<S>                                       <C>         <C>
Revenues                                  $ 22,466    $ 14,044
                                          --------    --------

Costs and operating expenses:
   Cost of revenues                          6,475       5,847
   Engineering and development                 989         765
   Sales and marketing                       5,257       4,301
   General and administrative                6,342       5,048
   Depreciation and amortization             2,222       4,165
   Stock-based compensation                      5          15
                                          --------    --------
     Total costs and operating expenses     21,290      20,141
                                          --------    --------
Income (loss) from operations                1,176      (6,097)
   Gain on debt restructuring                    -       2,410
   Interest expense                            (99)       (170)
   Other income, net                            21           8
                                          --------    --------
Net income (loss) before income taxes        1,098      (3,849)
   Income tax expense                           80           -
                                          --------    --------
Net income (loss)                         $  1,018    $ (3,849)
                                          ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>

SPEEDERA NETWORKS, INC.

STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                MANDATORILY
                                                           REDEEMABLE CONVERTIBLE                   ADDITIONAL
                                                               PREFERRED STOCK       COMMON STOCK    PAID-IN
(in thousands)                                              SHARES        AMOUNT    SHARES  AMOUNT   CAPITAL
<S>                                                         <C>          <C>        <C>     <C>     <C>
BALANCES AT JUNE 30, 2002                                   182,402      $ 35,194   21,386  $   21  $        -

Issuance of Series C mandatorily redeemable
   convertible preferred stock, net of issuance costs        14,355         1,218        -       -           -
Dividend and accretion to redemption value relating to
   Series A, B and C mandatorily redeemable
   convertible preferred stock                                    -         4,133        -       -          (1)
Issuance of common stock upon exercise of stock
   options                                                        -             -        3       -           1
Amortization of deferred stock-based compensation                 -             -        -       -
Net loss                                                          -             -        -       -           -
                                                            -------      --------   ------  ------  ----------
BALANCES AT JUNE 30, 2003                                   196,757        40,545   21,389      21           -

Issuance of Series C mandatorily redeemable
    convertible preferred stock in lieu of cash payment
    to a vendor for services rendered in 2003                 7,732           704        -       -           -
Dividend and accretion to redemption value relating to
   Series A, B and C mandatorily redeemable
   convertible preferred stock, net of issuance costs             -         4,599        -       -        (150)
Issuance of warrants to purchase preferred stock in
   conjunction with notes payable issuance                        -             -        -       -         162
Issuance of common stock upon exercise of stock
   options                                                        -             -      234       1           4
Repurchase of common stock                                        -             -     (420)     (1)        (16)
Amortization of deferred stock-based compensation                 -             -        -       -           -
Net income                                                        -             -        -       -           -
                                                            -------      --------   ------  ------  ----------
BALANCES AT JUNE 30, 2004                                   204,489      $ 45,848   21,203  $   21  $        -
                                                            =======      ========   ======  ======  ==========

<CAPTION>
                                                              DEFERRED                     TOTAL
                                                            STOCK-BASED   ACCUMULATED  STOCKHOLDERS'
(in thousands)                                              COMPENSATION    DEFICIT      DEFICIT
<S>                                                         <C>           <C>          <C>
BALANCES AT JUNE 30, 2002                                   $        (20) $   (31,235) $     (31,234)

Issuance of Series C mandatorily redeemable
   convertible preferred stock, net of issuance costs                  -            -              -
Dividend and accretion to redemption value relating to
   Series A, B and C mandatorily redeemable
   convertible preferred stock                                         -       (4,132)        (4,133)
Issuance of common stock upon exercise of stock
   options                                                             -            -              1
Amortization of deferred stock-based compensation                     15            -             15
Net loss                                                               -       (3,849)        (3,849)
                                                            ------------  -----------  -------------
BALANCES AT JUNE 30, 2003                                             (5)     (39,216)       (39,200)

Issuance of Series C mandatorily redeemable
    convertible preferred stock in lieu of cash payment
    to a vendor for services rendered in 2003                          -            -              -
Dividend and accretion to redemption value relating to
   Series A, B and C mandatorily redeemable
   convertible preferred stock, net of issuance costs                  -       (4,449)        (4,599)
Issuance of warrants to purchase preferred stock in
   conjunction with notes payable issuance                             -            -            162
Issuance of common stock upon exercise of stock
   options                                                             -            -              5
Repurchase of common stock                                             -            -            (17)
Amortization of deferred stock-based compensation                      5            -              5
Net income                                                             -        1,018          1,018
                                                            ------------  -----------  -------------
BALANCES AT JUNE 30, 2004                                   $          -  $   (42,647) $     (42,626)
                                                            ============  ===========  =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>

SPEEDERA NETWORKS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         YEAR ENDED JUNE 30,
                                                                         ------------------
(in thousands)                                                            2004       2003
<S>                                                                      <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                     $ 1,018    $(3,849)
   Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities:
        Gain on debt restructuring                                             -     (2,410)
        Depreciation and amortization                                      2,222      4,165
        Allowance for doubtful accounts                                     (187)       215
        Loss on disposal of fixed assets                                      49         75
        Stock-based compensation expense                                       5         15
        Non-cash interest expense                                             37        142
        Changes in current assets and liabilities:
          Accounts receivable                                               (817)      (427)
          Prepaid expenses and other assets                                 (312)       (78)
          Accounts payable                                                   439      1,038
          Accrued liabilities                                                (42)       553
          Deferred revenue                                                   458        (67)
          Deferred rent                                                      (21)        21
                                                                         -------    -------
             Net cash provided by (used in) operating activities           2,849       (607)
                                                                         -------    -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                     (3,175)    (1,158)
                                                                         -------    -------
             Net cash used in investing activities                        (3,175)    (1,158)
                                                                         -------    -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                             2,000          -
   Principal payments on notes payable                                      (201)      (700)
   Proceeds from credit line borrowings                                    1,620          -
   Principal payments on credit line borrowings                           (1,620)         -
   Proceeds from issuance of Series C mandatorily redeemable
    convertible preferred stock, net of issuance costs                         -      1,000
   Proceeds from exercise of common stock options                              5          1
   Repurchase of restricted common stock                                     (17)         -
                                                                         -------    -------
             Net cash provided by financing activities                     1,787        301
                                                                         -------    -------
Net increase (decrease) in cash and cash equivalents                       1,461     (1,464)
Cash and cash equivalents at beginning of period                             752      2,216
                                                                         -------    -------
Cash and cash equivalents at end of period                               $ 2,213    $   752
                                                                         =======    =======

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for interest                                                $    41    $   110

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Issuance of Series C mandatorily redeemable convertible preferred
    stock for services renderred                                         $   704    $   218
   Issuance of warrants to purchase Series C mandatorily redeemable
     convertible preferred stock for services renderred in conjunction
     with notes payable issuance                                         $   162    $     -
   Dividends and accretion of mandatorily redeemable
     convertible preferred stock                                         $ 4,599    $ 4,133
   Accounts payable related to property and equipment purchases          $     2    $    67
</TABLE>

   The accompanying notes are an integral part of these financial statements.

<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

1.    THE COMPANY

      Speedera Networks, Inc. (the "Company") was incorporated in the state of
      Delaware on October 12, 1999. The Company provides services, powered by a
      next-generation internet content distribution network with global traffic
      management, through a subscription service. The Company's services are
      primarily designed to resolve network congestion by routing internet
      traffic and delivering content and transactions around busy or failed
      network segments.

      The Company has completed several rounds of private equity financing and
      debt financing. Since inception through June 30, 2004, the Company has
      incurred substantial losses and negative cash flows from operations.
      Management expected and has reached operating cash flow breakeven in
      fiscal 2004, however, they cannot guarantee that operating income and
      positive cash flows will continue in the foreseeable future because of
      additional costs and expenses related to marketing and other promotional
      activities, continued expansion of operations, continued development of
      the Company's software, web site and information technology
      infrastructure, expansion of product offerings and development of
      relationships with other businesses. Failure to generate sufficient
      revenues, raise additional capital or reduce certain discretionary
      spending could have a material adverse effect on the Company's ability to
      achieve its intended business objectives.

2.    SIGNIFICANT ACCOUNTING POLICIES

      USE OF ESTIMATES

      The preparation of 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 financial statements and reported amounts
      of revenues and expenses during the reporting period. Actual results could
      differ from those estimates.

      Significant estimates used in these financial statements include, but are
      not limited to, allowance for doubtful accounts, contingencies,
      depreciation and amortization of property, equipment and capitalized
      software and the valuation allowance on deferred tax assets.

      REVENUE RECOGNITION

      The Company recognizes revenue from content delivery and streaming
      services based on the amount of data delivered and stored on its network.
      The service agreements generally commit the customer to a monthly minimum
      commitment plus additional fees for usage above the minimum commitment.
      Revenue is recognized for the greater of the actual usage or the monthly
      minimum commitment when all of the following conditions are met: the
      customer has signed a contract, the service has been delivered, the fee is
      fixed or determinable and collection is reasonably assured. Revenue from
      other services such as load balancing, monitoring and hosting is
      recognized each month, as performed, for the duration of the applicable
      contract provided that the fee is fixed or determinable and

                                       1
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      collection is reasonably assured. The Company records installation and
      set-up fees as deferred revenue and recognizes these fees ratably over the
      life of the customer contract.

      COST OF REVENUE

      Cost of revenue consists primarily of fees paid to network providers for
      bandwidth and housing servers in third-party network data centers. Cost of
      revenue also includes network operation employee costs and cost of
      licenses. The Company enters into bandwidth contracts with third-party
      providers that generally commit the Company to pay minimum monthly fees
      plus additional fees for bandwidth usage above the committed usage.

      RISKS AND UNCERTAINTIES

      The Company is subject to all of the risks inherent to a company
      conducting content distribution services over the Internet. These risks
      include, but are not limited to, a limited operating history, ability to
      generate profitable operations or to obtain additional financing, limited
      management resources, dependence upon consumer acceptance of the Internet
      and the changing nature of the content distribution services industry. The
      Company's operating results may be materially affected by the foregoing
      factors.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      The reported amounts of certain of the Company's financial instruments,
      including cash and cash equivalents, accounts receivable and accounts
      payable, approximate fair value due to their short maturities.

      The carrying amounts of notes payable approximate fair value because the
      contractual interest rates approximate the interest rates the Company
      could obtain on similar financing transactions.

      CASH AND CASH EQUIVALENTS

      The Company considers all highly liquid investments with an original
      maturity of three months or less when purchased to be cash equivalents.

      CONCENTRATIONS OF CREDIT RISK

      Financial instruments that potentially subject the Company to
      concentrations of credit risk consist of cash, cash equivalents and
      accounts receivable.

      The Company's cash and cash equivalents are deposited with two major
      financial institutions in the United States of America. At times, such
      deposits may be in excess of insured limits. Management believes that the
      Company's investments in cash equivalents are financially sound and have
      minimal credit risk.

      The Company's accounts receivable are derived from revenue earned from
      customers located in the U.S., Europe and Asia. The Company performs
      credit evaluations of its customers' financial condition and, generally,
      requires no collateral from its customers. For the years ended June 30,
      2004 and June 30, 2003, no single customer accounted for greater than 10%
      of the Company's total revenues. At June 30, 2004 and June 30, 2003, no
      single customer accounted for greater than 10% of accounts receivable.

                                       2
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      ALLOWANCE FOR DOUBTFUL ACCOUNTS

      The Company's allowance for doubtful accounts is an estimate consisting of
      specifically identified accounts receivable which management believes may
      be partially or wholly un-collectible and a general reserve based on the
      Company's experience in collecting customer accounts receivables.

      PROPERTY AND EQUIPMENT

      Property and equipment is stated at cost less accumulated depreciation and
      amortization. Depreciation and amortization of property and equipment is
      computed using the straight-line method over the estimated useful lives of
      the respective assets as follows:

<TABLE>
<CAPTION>
<S>                                            <C>
Computers, software and other equipment                 1 - 3 years
Furnitures and fixtures                                   5 years
Leasehold improvements                         Shorter of the lease term or the
                                                   estimated useful lives
</TABLE>

      Upon sale or retirement of assets, the cost and related accumulated
      depreciation and amortization are removed from the balance sheet and the
      resulting gain or loss is reflected in other income. Repairs and
      maintenance costs are expensed as incurred.

      ENGINEERING AND DEVELOPMENT EXPENSES

      Engineering and development costs are expensed as incurred, except for
      certain software development costs associated with internal use software.
      These costs are accounted for in accordance with Statement of Position
      ("SOP") 98-1 and Emerging Issues Task Force ("EITF") Issue No. 00 - 02,
      which require these costs to be charged to operations until certain
      capitalization criteria are met. During the years ended June 30, 2004 and
      2003, software development costs of approximately $502,000 and $448,000,
      respectively, were capitalized and included in property and equipment.
      Total amortization of software development costs for the years ended June
      30, 2004 and 2003 was approximately $781,000 and $994,000, respectively.

      ACCOUNTING FOR 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 is measured by comparison of the
      carrying from the asset. There have been no such impairments of long-lived
      assets as of June 30, 2004.

      ADVERTISING COSTS

      Advertising costs are expensed as incurred. Advertising costs for the
      years ended June 30, 2004 and 2003 were approximately $61,000 and $70,000,
      respectively.

      STOCK-BASED COMPENSATION

      The Company follows Statement of Financial Accounting Standards ("SFAS")
      No. 148, Accounting for Stock-Based Compensation, Transition and
      Disclosure. SFAS No. 148 also requires that disclosures of the pro forma
      effect of using the fair value method of

                                       3
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      accounting for stock-based employee compensation be displayed more
      prominently and in a tabular format. During the year ended June 30, 2004,
      there were no stock based awards to non-employees.

      Employee stock awards under the Company's compensation plans are accounted
      for in accordance with Accounting Principles Board Opinion No. 25,
      Accounting for Stock Issued to Employees, and related interpretations,
      including FASB Interpretation ("FIN") No. 44, Accounting for Certain
      Transactions Involving Stock Compensation (an Interpretation of APB
      Opinion No. 25), and related interpretations. The Company also provides
      the disclosures required by SFAS No. 123, Accounting for Stock-Based
      Compensation and related interpretations thereof.

      Had compensation expense for the Company's stock-based compensation plan
      been determined based on the fair value at the grant dates for the awards
      under a method prescribed by SFAS No. 123, the Company's net income (loss)
      for the periods presented would have been increased to the pro forma
      amounts indicated below (in thousands):

<TABLE>
<CAPTION>
                                                            YEAR ENDED JUNE 30,
                                                            -------------------
(in thousands)                                               2004       2003
<S>                                                         <C>        <C>
Net income (loss), as reported                              $ 1,018    $(3,849)
Stock-based compensation included in net income (loss),
   as reported, net of applicable tax effects                     3          9
Fair value of stock-based compensation, net of applicable
   tax effects                                                  (11)       (34)
                                                            -------    -------

Pro forma income (loss)                                     $ 1,010    $(3,874)
                                                            -------    -------
</TABLE>

      These pro forma amounts may not be representative of the effects on pro
      forma net income (loss) for future years as options vest over several
      years and additional awards are generally made each year.

      Stock-based awards to nonemployees are accounted for under the provisions
      of SFAS No. 123 and 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. Compensation expense
      resulting from non-employee options is amortized under the provisions of
      FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and
      Other Variable Stock Option or Award Plans - An Interpretation of APB
      Opinions No. 15 and 25, as amended.

                                       4
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      STOCK OPTION PLAN

      On October 12, 1999, the Company adopted the "1999 Equity Incentive Plan"
      (the "Plan"). The Plan provides for the granting of stock options to
      employees and consultants of the Company. Options granted under the Plan
      may be either incentive stock options or non-qualified stock options.
      Incentive stock options ("ISOs") may be granted only to Company employees
      (including officers and directors who are also employees). Non-qualified
      stock options ("NSOs") may be granted to Company employees and
      consultants. As of June 30, 2004, the Company had reserved approximately
      51,189,000 shares of common stock for issuance under the Plan (see also
      Note 11).

      Options under the Plan may be granted for periods of up to ten years and
      at prices no less than 85% of the estimated fair value of the shares on
      the date of grant as determined by the Board of Directors, provided,
      however, that (i) the exercise price of an ISO and NSO shall not be less
      than 100% and 85% of the estimated fair value of the shares on the date of
      grant, respectively, and (ii) the exercise price of an ISO and NSO granted
      to a 10% shareholder shall not be less than 110% of the estimated fair
      value of the shares on the date of grant. Options may have a maximum term
      of up to 10 years as determined by the Board of Directors. To date,
      options granted generally vest over four years.

      The following table summarizes activity under the Plan:

<TABLE>
<CAPTION>
                                                      OPTIONS OUTSTANDING
                                                      -------------------
                                                                  WEIGHTED
                                           SHARES                 AVERAGE
                                          AVAILABLE    NUMBER    EXERCISE
(in thousands, except per share amounts)  FOR GRANT   OF SHARES    PRICE
<S>                                       <C>         <C>        <C>
BALANCES, JUNE 30, 2002                      5,268     23,307     $  0.03
Options granted                             (2,025)     2,025        0.01
Options exercised                                -         (3)       0.05
Options cancelled                            2,048     (2,048)       0.03
                                           -------     ------
BALANCES, JUNE 30, 2003                      5,291     23,281        0.03
Shares reserved                             17,530          -           -
Options granted                            (24,270)    24,270        0.01
Options exercised                                -       (234)       0.02
Options cancelled                            3,807     (3,807)       0.04
Shares repurchased                             420          -           -
                                           -------     ------
BALANCES, JUNE 30, 2004                      2,778     43,510     $  0.02
                                           =======     ======
</TABLE>

                                       5
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      The options outstanding and exercisable by exercise price at June 30, 2004
      are as follows:

<TABLE>
<CAPTION>
                                 WEIGHTED
                                  AVERAGE       OPTIONS
                                 REMAINING    EXERCISABLE
   EXERCISE          NUMBER     CONTRACTUAL   AT JUNE 30,
    PRICE         OUTSTANDING       LIFE         2004
                 (in thousands)             (in thousands)
<S>              <C>            <C>         <C>
$ 0.005 - 0.025     41,202       8.8 years      11,556
$  0.04 - 0.05       1,758       6.6 years       1,534
$  0.12 - 0.50         548       6.4 years         512
$      2.00              2       6.0 years           2
                    ------                      ------
                    43,510                      13,604
                    ======                      ======
</TABLE>

      At June 30, 2004 approximately 13,604,000 options were exercisable.

      The fair value of each employee option grant is estimated on the date of
      grant using the minimum value method with the following assumptions:

<TABLE>
<CAPTION>
                                      JUNE 30,
                                 -----------------
                                  2004      2003
<S>                              <C>       <C>
Risk-free interest rate           3.50%     1.25%
Expected life                    4 years   4 years
Dividend yield                      0%        0%
Weighted average fair value of
 options granted during the year   0.001    $0.001
</TABLE>

      COMPREHENSIVE INCOME (LOSS)

      For the years ended June 30, 2004 and 2003, there was no difference
      between net income (loss) and comprehensive income (loss).

      RECLASSIFICATIONS

      Certain amounts reported in prior year have been reclassified to conform
      to the 2004 presentation.

                                       6
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

3.    BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
                                                           JUNE 30,
                                                     --------------------
(in thousands)                                         2004        2003
<S>                                                  <C>         <C>
PROPERTY AND EQUIPMENT, NET:
   Computers, software and other equipment           $ 16,874    $ 15,334
   Furniture and fixtures                                 340         295
   Leasehold improvements                                 120         115
                                                     --------    --------
                                                       17,334      15,744
   Less: Accumulated depreciation and amortization    (13,445)    (12,761)
                                                     --------    --------
                                                     $  3,889    $  2,983
                                                     ========    ========

ACCRUED LIABILITIES:
   Payroll and related expenses                      $    822    $  1,032
   Accrued co-location expenses                           126         247
   Operating and other accrued liabilities                487         211
                                                     --------    --------
                                                     $  1,435    $  1,490
                                                     ========    ========
</TABLE>

4.    INCOME TAXES

      The provision for income taxes is summarized below:

<TABLE>
<CAPTION>
                                                           JUNE 30,
                                                     --------------------
(in thousands)                                         2004        2003
<S>                                                  <C>         <C>
CURRENT:
   Federal                                           $      -    $      -
   State                                                   80           -
                                                     --------    --------
Total provision for income taxes                     $     80    $      -
                                                     ========    ========
</TABLE>

                                       7
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      The components of net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                            JUNE 30,
                                      --------------------
(in thousands)                          2004        2003
<S>                                   <C>         <C>
DEFERRED TAX ASSETS:
   Net operating loss carryforwards   $ 11,663    $  8,309
   Accruals, reserves and others           570         738
   Fixed and intangible assets             718          53
                                      --------    --------
                                        12,951       9,100
DEFERRED TAX LIABILITIES:
   Internally developed software          (368)          -
                                      --------    --------
Gross deferred tax assets               12,583       9,100
Less: Valuation allowance              (12,583)     (9,100)
                                      --------    --------
Net deferred tax asset                $      -    $      -
                                      ========    ========
</TABLE>

      Management believes that, based on a number of factors, it is more likely
      than not that the deferred tax assets will not be fully realizable.
      Accordingly, the Company has provided a full valuation allowance against
      its deferred tax assets as of June 30, 2004 and June 30, 2003.

      The Company's actual tax provision differs from the expected federal rate
      of 34% due primarily to state taxes of approximately $80,000, meals &
      entertainment of approximately $18,000, warrants of approximately $17,000
      and the net change in valuation allowance for deferred tax assets net of
      true-up of approximately $(408,000).

      As of June 30, 2004, the Company had approximately $29 million and $28
      million of federal and state net operating loss carryforwards available to
      offset future taxable income, respectively. The federal and state net
      operating losses will begin to expire in 2020 and 2008, respectively.

      Under the Tax Reform Act of 1986, the amount of benefit from net operating
      loss carryforwards may be impaired or limited in certain circumstances.
      Events which cause limitations in the amount of net operating losses that
      the Company may utilize in any one year include, but are not limited to, a
      cumulative ownership change of more than 50%, as defined, over a three
      year period.

5.    BORROWINGS

      SUBORDINATED LOAN AND SECURITY AGREEMENT

      In April 2000, the Company entered into a subordinated loan and security
      agreement to borrow up to $5 million, in minimum advances of $250,000, at
      an interest rate of 12% per annum under which the Company borrowed the
      maximum aggregate amount. In March 2001, an agreement was made to amend
      the original terms of the subordinated loan and

                                       8
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      security agreement. Pursuant to these amended terms, $2 million of the
      then outstanding principal was converted into shares of Series B
      mandatorily redeemable convertible preferred stock at $0.233 per share.
      The remaining principal balance of approximately $2.7 million was to be
      payable in monthly installments commencing on January 1, 2003 and any
      unpaid principal and interest was due in full on June 1, 2004. Accrued
      interest of approximately $298,000, for the months of February 2001
      through December 2001 was paid in Series B preferred stock at a conversion
      rate of $0.233 per share. The remaining interest was to be paid in cash.
      In connection with this subordinated loan and security agreement, the
      Company issued a warrant to purchase shares of Series B mandatorily
      redeemable preferred stock (Note 7).

      In January 2002, the Company entered into an agreement to terminate the
      subordinated loan and security agreement. Pursuant to this termination,
      approximately $468,000 was paid in cash and approximately $272,000 was
      converted into shares of Series C mandatorily redeemable convertible
      preferred stock at $0.091 per share. The remaining principal and accrued
      interest of approximately $2.0 million was forgiven by the lender and
      recorded as a gain on the debt restructuring. The remaining unamortized
      loan fee of approximately $185,000 was offset to the gain on debt
      restructuring.

      PROMISSORY NOTE

      In May 2000, the Company entered into a promissory note agreement to
      borrow up to $10 million at an interest rate of 10.75% per annum under
      which the Company borrowed approximately $8.1 million. In March 2001, the
      Company entered into an agreement to amend the original terms of the
      promissory note. Pursuant to these amended terms, $2 million of the then
      outstanding principal was converted into shares of Series B mandatorily
      redeemable convertible preferred stock at $0.233 per share and
      approximately $408,000 of accrued interest converted into outstanding
      principal resulting in a note balance of approximately $6.5 million.
      Pursuant to the amended terms, interest was due and payable quarterly
      commencing on January 1, 2002. Principal was to be paid in cash in
      eighteen equal monthly installments beginning on January 1, 2003. In
      connection with this note, the Company issued a warrant to purchase shares
      of Series B mandatorily redeemable preferred stock (Note 7).

      In January 2002, the Company entered into an agreement to further amend
      the original terms of the promissory note. Pursuant to these amended
      terms, $700,000 was paid in cash and approximately $3.4 million of the
      then outstanding principal and interest was forgiven by the lender and
      recorded as a gain on debt restructuring, resulting in a note balance of
      approximately $3 million. The unamortized debt discount of approximately
      $245,000 was offset to the gain on debt restructuring.

      In November 2002, the Company entered into an agreement to terminate the
      promissory note. Pursuant to this termination, $700,000 was paid in cash
      and approximately $2.6 million of the remaining outstanding principal and
      interest was forgiven by the lender and recorded as a gain on debt
      restructuring. The unamortized debt discount of approximately $172,000 was
      offset to the gain on debt restructuring.

                                       9
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      CREDIT FACILITIES

      In November 2003, the Company entered into a credit facility agreement
      with a bank. This agreement consists of an accounts receivable revolver,
      with maximum borrowings equal to the lesser of 80% of eligible receivables
      or $1.5 million, a non-formula term loan of $500,000, and a term loan of
      $500,000 collateralised by equipment purchases. The accounts receivable
      revolver bears interest equal to the prime rate in effect from time to
      time, plus three percent per annum, provided that the interest rate in
      effect on any day shall not be less than seven percent per annum. The
      non-formula term loan and the term loan bear interest at seven percent.
      The accounts receivable revolver expires in November 2004. The non-formula
      term loan and term loan mature in January 2006 and November 2006,
      respectively. As of June 30, 2004, there were no borrowings outstanding
      under the accounts receivable revolver and an outstanding balance of
      approximately $396,000 and $403,000 under the non-formula term loan and
      the term loan, respectively. The credit facility contains certain
      financial covenants, with which the Company was in compliance at June 30,
      2004.

      In May 2004, an agreement was made to amend the original terms of the
      credit facility agreement above. In addition to the above loans the bank
      made a non-formula term loan (No. 2) of an amount not to exceed $1 million
      and a non-formula term loan (No. 3) of an amount not to exceed $500,000 to
      the Company. As of June 30, 2004, the outstanding balance for non-formula
      term loan No. 2 was $1 million and matures in June 2007. The non-formula
      term loan No. 3 shall be made in a single advance after September 16, 2004
      and prior to March 31, 2005 given all terms and conditions are met (See
      note 11). Borrowings under these loans bear interest at a fixed rate equal
      to the prime rate in effect as of the date of the advance, plus three
      percent per annum, provided that the interest rate in effect on any day
      shall not be less than seven percent per annum.

      In conjunction with the November 2003 and May 2004 credit facilities with
      a bank, in addition to accounts receivable, substantially all of the
      Company's equipment and registered patents and trademarks are being used
      as collateral. Further, in conjunction with the November 2003 credit
      facility and May 2004 credit facility amendment, the Company issued
      warrants to the bank (Note 7).

      Principal payments under the bank loans are as follows:

<TABLE>
<CAPTION>
(in thousands)
YEAR ENDING JUNE 30,

<S>                                 <C>
2005                                $   750
2006                                    646
2007                                    403
                                    -------
                                      1,799
Less: current portion                  (750)
                                    -------
Notes payable - long-term portion   $ 1,049
                                    =======
</TABLE>

                                       10
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

6.    COMMITMENTS AND CONTINGENCIES

      BANDWIDTH USAGE AND CO-LOCATION COMMITMENTS

      The Company has commitments for bandwidth usage and co-location with
      network service providers that expire at various dates through 2005. For
      the year ending June 30, 2005, the minimum commitment is approximately
      $3,195,000. Some of these agreements may be amended to either increase or
      decrease the minimum commitments during the life of the contract.

      LEASE COMMITMENTS

      The Company leases its principal operating facilities under noncancelable
      operating leases. Rent expense was approximately $503,000 and $495,000 for
      the years ended June 30, 2004 and 2003, respectively.

      Future minimum lease payments under noncancelable operating leases are as
      follows (see also Note 11):

<TABLE>
<CAPTION>
(in thousands)
                         OPERATING
YEAR ENDING JUNE 30,      LEASES
<S>                      <C>
2005                       $300
                           ----
</TABLE>

      CONTINGENCIES

      LITIGATION

      In June 2002, a competitor filed suit in California Superior Court against
      the Company, alleging theft of its trade secrets from an independent
      company that provides website performance testing services. In October
      2002, the Company filed a cross-claim against the competitor seeking
      monetary damages and injunctive relief and alleging that the competitor
      engaged in various unfair trade practices, made false and misleading
      statements and engaged in unfair competition.

      In fiscal 2002 and 2003, the competitor filed suits against the Company
      for violations of certain patents held by the competitor. The Company has
      filed counterclaims in these cases, including that the competitor has
      infringed a patent that was issued to the Company.

      In January 2004, another competitor filed suit in United States District
      Court in Delaware against the Company, alleging infringement of certain
      patents held by the competitor. The Company filed a counterclaim against
      the competitor alleging infringement of certain patents held by the
      Company.

      The Company's management believe that they have meritorious defenses and
      counterclaims, and intend to vigorously defend these actions. During the
      year ended June 30, 2004, the Company incurred approximately $4 million in
      legal fees to defend the above

                                       11
<PAGE>


SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      claims. The outcome is not known at this time and accordingly no amounts
      have been accrued in the accompanying financial statements.

      The Company is involved in various other lawsuits and claims arising from
      the conduct of its business. The Company's management believes that the
      disposition of these matters will not have a material effect on the
      financial position of the Company.

      INDEMNIFICATIONS

      FIN No. 45, Guarantor's Accounting and Disclosure Requirements for
      Guarantees, Including indirect Guarantees of Indebtedness of Others ,
      requires that upon issuance of a guarantee, the guarantor must disclose
      and recognize a liability for the fair value of the obligation it assumes
      under that guarantee. As of June 30, 2004 and 2003, the Company's
      management believes the fair value of guarantees the Company issued or
      modified after December 31, 2002 were nominal.

      In the normal course of business to facilitate sales of its services, the
      Company indemnifies other parties, including business partners, customers,
      lessors, preferred stock holders and parties to other transactions with
      the Company, with respect to certain matters. The Company has agreed to
      hold the other party harmless against losses arising from a breach of
      representations or covenants, or out of intellectual property infringement
      or other claims made against certain parties. These agreements may limit
      the time within which an indemnification claim can be made and the amount
      of the claim. In addition, the Company has entered into indemnification
      agreements with an agent and an employee, and the Company's bylaws contain
      similar indemnification obligations to the Company's officers and
      directors.

      It is not possible to determine the maximum potential exposure or amount
      under these indemnification agreements due to the Company having no prior
      indemnification claims and the unique facts and circumstances involved in
      each particular agreement. However, the Company has an errors and
      omissions insurance policy that may enable it to recover a portion of any
      future amounts paid.

7.    WARRANTS

      WARRANT ISSUED IN CONJUNCTION WITH THE SUBORDINATED LOAN AND SECURITY
      AGREEMENT

      In April 2000, the Company issued a warrant to purchase shares of Series B
      mandatorily redeemable convertible preferred stock at $0.233 per share.
      This warrant expires five years from the date of grant. The Company valued
      the warrant using the Black-Scholes option pricing model applying an
      expected life of five years, a weighted average risk free rate of 6.71%, a
      dividend yield of zero percent and volatility of 80%. The fair value of
      approximately $451,000 represents loan fees on the loan and was amortized
      over the loan term. During the year ended June 30, 2002, approximately
      $86,000 was amortized as interest expense and approximately $185,000 was
      offset to the gain on debt restructuring upon termination of the
      subordinated loan and security agreement. At June 30, 2004, none of the
      warrants issued had been exercised.

                                       12
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      WARRANT ISSUED IN CONJUNCTION WITH THE PROMISSORY NOTE

      In May 2000, the Company issued a warrant to purchase shares of Series B
      mandatorily redeemable convertible preferred stock at $0.233 per share.
      This warrant expires four years from the date of grant. The Company valued
      the warrant using the Black-Scholes option pricing model applying an
      expected life of four years, a weighted average risk free rate of 6.75%, a
      dividend yield of zero percent and volatility of 80%. The fair value of
      approximately $878,000 represents additional interest on the promissory
      note and is being expensed over its term using the effective interest rate
      method. During the year ended June 30, 2002, approximately $175,000 was
      amortized as interest expense and approximately $245,000 was offset to the
      gain on debt restructuring upon amendment of the promissory note. During
      the year ended June 30, 2003, approximately $43,000 was amortized as
      interest expense and approximately $172,000 was offset to the gain on debt
      restructuring upon termination of the promissory note. At June 30, 2004,
      none of the warrants issued had been exercised.

      WARRANTS ISSUED IN CONJUNCTION WITH THE EQUIPMENT LEASE AGREEMENT

      In January 2000, the Company issued warrants to purchase shares of Series
      A mandatorily redeemable convertible preferred stock at $0.233 per share.
      These warrants expire five years from the date of grant. The Company
      valued the warrants using the Black-Scholes option pricing model applying
      expected lives of five years, a weighted average risk free rate of 6.62%,
      a dividend yield of zero percent and volatility of 80%. The fair value of
      approximately $52,000 represents loan fees on the loan and was amortized
      over the loan term. During the year ended June 30, 2002, approximately
      $9,000 was amortized as interest expense and approximately $22,000 was
      offset to the gain on debt restructuring upon termination of the lease
      agreement. At June 30, 2004, none of the warrants issued had been
      exercised.

      In April 2000, the Company issued a warrant to purchase shares of Series B
      mandatorily redeemable convertible preferred stock at $0.233 per share.
      This warrant expires five years from the date of grant. The Company valued
      the warrant using the Black-Scholes option pricing model applying an
      expected life of five years, a weighted average risk free rate of 6.76%, a
      dividend yield of zero percent and volatility of 80%. The fair value of
      approximately $496,000 represents loan fees on the loan and was amortized
      over the loan term. During the year ended June 30, 2002, approximately
      $81,000 was amortized as interest expense and approximately $243,000 was
      offset to the gain on debt restructuring upon termination of the lease
      agreement. At June 30, 2004, none of the warrants issued had been
      exercised.

      WARRANTS ISSUED IN CONJUNCTION WITH SERVICES RENDERED

      In January 2002, the Company issued warrants to purchase shares of Series
      C mandatorily redeemable convertible preferred stock at $0.09 per share in
      conjunction with services rendered in connection with the Company's debt
      restructuring. These warrants expire five years from the date of grant.
      The Company valued the warrants using the Black-Scholes option pricing
      model applying expected lives of four years, a weighted average risk free
      rate of 4.4%, a dividend yield of zero percent and volatility of 100%. All
      of the fair value

                                       13
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      of approximately $97,500 was offset to the gain on debt restructuring in
      fiscal 2002. At June 30, 2004, none of the warrants issued had been
      exercised.

      In November 2003, the Company issued warrants to purchase shares of Series
      C mandatorily redeemable convertible preferred stock at $0.091 per share
      in conjunction with services rendered in connection with a credit
      facility. These warrants expire seven years from date of grant. The
      Company valued the warrants using the Black-Scholes option pricing model
      applying expected lives of four years, a weighted average risk free rate
      of 4.17%, a dividend yield of zero percent and volatility of 80%. The fair
      value of approximately $90,000 represents loan fees on the loan and is
      being amortized over the credit term. During the year ended June 30, 2004,
      approximately $35,000 was amortized. At June 30, 2004, none of the
      warrants issued had been exercised.

      In May 2004, the Company issued warrants to purchase shares of Series C
      mandatorily redeemable convertible preferred stock at $0.091 per share in
      conjunction with services rendered in connection with a credit facility.
      These warrants expire seven years from date of grant. The Company valued
      the warrants using the Black-Scholes option pricing model applying
      expected lives of four years, a weighted average risk free rate of 3.45%,
      a dividend yield of zero percent and volatility of 80%. The fair value of
      approximately $71,000 represents loan fees on the loan and is being
      amortized over the loan term. During the year ended June 30, 2004,
      approximately $2,000 was amortized. At June 30, 2004, none of the warrants
      issued had been exercised.

      The purchase price of the preferred stock for warrants issued in November
      2003 and May 2004 is based on the holder being able to convert into the
      most recent round of financing or the next round of financing. In the
      event that the next round of financing, if any, is priced at below the
      holder's conversion price of $0.091 per share, then the Company would be
      required to issue additional warrants such that the holder maintains the
      same level of valuation.

8.    MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

      Mandatorily redeemable convertible preferred stock ("Preferred Stock") at
      June 30, 2004 consists of the following:

<TABLE>
<CAPTION>
                                                          PROCEEDS
(in thousands)                                             NET OF
                        SHARES             LIQUIDATION    ISSUANCE
SERIES           AUTHORIZED  OUTSTANDING      AMOUNT       COSTS
<S>              <C>         <C>           <C>            <C>
A                   7,523        7,433       $  5,575     $  5,530
B                 122,463      110,189         31,278       20,034
C                  92,837       86,867         25,983        7,344
                  -------      -------       --------     --------
                  222,823      204,489       $ 62,836     $ 32,908
                  =======      =======       ========     ========
</TABLE>

                                       14
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      The rights with respect to Series A, Series B and Series C Preferred
      Stocks are as follows:

      VOTING

      Each share of the Series A, Series B and Series C Preferred Stock has
      voting rights equal to an equivalent number of shares of common stock into
      which it is convertible and, except with respect to rights related to the
      election of directors and certain protective provisions, has the same
      voting rights and powers as shares of common stock.

      DIVIDENDS

      Holders of Series A Preferred Stock are entitled to receive non-cumulative
      dividends at the per annum rate of $0.06 per share. The dividends are
      payable when and if declared by the Board of Directors. No dividends on
      the Series A Preferred Stock have been declared by the Board of Directors
      from inception through June 30, 2004.

      Holders of Series B Preferred Stock are entitled to receive cumulative
      dividends at the per annum rate of 6% per share. The dividends are payable
      when declared by the Board of Directors. No dividends on the Series B
      Preferred Stock have been declared by the Board of Directors from
      inception through June 30, 2004.

      Holders of Series C Preferred Stock are entitled to receive cumulative
      dividends at the per annum rate of 12% per share, when declared by the
      Board of Directors. No dividends on the Series C Preferred Stock have been
      declared by the Board of Directors from inception through June 30, 2004.

      LIQUIDATION

      In the event of any liquidation, dissolution or winding up of the Company,
      including a merger, acquisition or sale of assets where the beneficial
      owners of the Company's common stock and Preferred Stock own less than a
      majority of the resulting voting power of the surviving entity. The
      holders of Series A Preferred Stock are entitled to receive, prior and in
      preference to the holders of common stock, an amount of $0.75 per share
      plus all declared but unpaid dividends on Series A Preferred Stock. The
      holders of Series B Preferred Stock are entitled to receive, prior and in
      preference to the holders of Series A Preferred Stock and common stock,
      $0.233 per share plus all declared or accrued but unpaid dividends on the
      Series B Preferred Stock. The holders of Series C Preferred Stock are
      entitled to receive, prior and in preference to the holders of Series A
      Preferred Stock, Series B Preferred Stock and common stock, $0.273 per
      share plus all declared or accrued but unpaid dividends on the Series C
      Preferred Stock.

      Should the Company's legally available assets be insufficient to satisfy
      the liquidation preferences of the Series C Preferred Stock, the funds
      will be distributed ratably among the holders of Series C Preferred Stock
      in proportion to the amount of such stock owned by each holder. Should the
      Company's legally available assets

                                       15
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      be insufficient to satisfy the liquidation preferences of the Series B
      Preferred Stock after the full satisfaction of the liquidation preferences
      of the Series C Preferred Stock, such remaining funds will be distributed
      ratably among the holders of Series B Preferred Stock in proportion to the
      amount of such stock held by each holder. Should the Company's legally
      available assets be insufficient to satisfy the liquidation preferences of
      the Series A Preferred Stock after the full satisfaction of the
      liquidation preferences of the Series B and Series C Preferred Stock, such
      remaining funds will be distributed ratably among the holders of Series A
      Preferred Stock in proportion to the amount of such stock held by each
      holder. The remaining assets, if any, shall be distributed among the
      holders of common stock prorated based on the number of shares held by
      each holder of common stock.

      CONVERSION

      Each share of Series A, Series B and Series C Preferred Stock is
      convertible, at the option of the holder, according to a conversion ratio
      of two shares, one share and one share of common stock for one share of
      Series A, Series B and Series C Preferred Stock, respectively, subject to
      adjustment for dilution, common stock splits and declared or accrued but
      unpaid dividends.

      Each share of Series A, Series B and Series C Preferred Stock
      automatically converts into the number of shares of common stock into
      which such shares are convertible at the then effective conversion ratio
      upon the closing of a public offering of common stock at a per share price
      of at least $3.00 per share, with gross proceeds of at least $50 million.
      Each share of the Series A, Series B or Series C Preferred Stock
      automatically converts into the number or shares of common stock into
      which such shares are convertible at the then effective conversion ratio
      if the holders of a majority of the shares of the Series A, Series B or
      Series C Preferred Stock, respectively, consent to such conversion.

      REDEMPTION (SEE NOTE 11)

      Upon written request of a majority of the holders of the outstanding
      Series C Preferred Stock, the outstanding Series C Preferred Stock may be
      redeemed at any time after May 31, 2005. The Company shall redeem on the
      day which is one month following its receipt of such written redemption
      request and on the last day of each successive calendar quarter
      thereafter, a number of shares of Series C Preferred Stock equal to at
      least 12.5% of the then outstanding shares of Series C Preferred Stock,
      until all Series C Preferred Stock has been redeemed or converted to
      common stock. The redemption price shall be approximately $0.091 per share
      of Series C, plus any declared or accrued but unpaid dividends.

      Upon written request of a majority of the holders of the outstanding
      Series B Preferred Stock, and provided that no shares of Series C
      Preferred Stock are then outstanding, the outstanding Series B Preferred
      Stock may be redeemed at any time after May 31, 2005. The Company shall
      redeem on the day which is one month following its receipt of such written
      redemption request and on the last day of each successive calendar quarter
      thereafter, a number of shares of Series B Preferred Stock equal to at
      least 12.5% of the then outstanding shares of Series B Preferred Stock,
      until all Series B Preferred Stock has been redeemed or converted to
      common stock. The redemption price shall be approximately $0.233 per share
      of Series B, plus any declared or accrued but unpaid dividends.

                                       16
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      Upon written request of a majority of the holders of the outstanding
      Series A Preferred Stock, and provided that no shares of Series C or
      Series B Preferred Stock are then outstanding, the outstanding Series A
      Preferred Stock may be redeemed at any time after May 31, 2005. The
      Company shall redeem on the day which is one month following its receipt
      of such written redemption request and on the last day of each successive
      calendar year thereafter, a number of shares of Series A Preferred Stock
      equal to at least 12.5% of the then outstanding shares of Series A
      Preferred Stock, until all shares of Series A Preferred Stock have been
      redeemed or converted to common stock. The redemption price shall be $0.75
      per share of Series A Preferred Stock, plus any declared but unpaid
      dividends.

9.    RESTRICTED COMMON STOCK

      In October 1999, the Company granted its founders 16,000,000 shares of
      restricted common stock subject to vesting. Under the terms of the related
      restricted stock agreements, the Company has the right to repurchase
      unvested shares of common stock at $0.005 per share, in the event that the
      founders cease to be employees of the Company. The fair value of the
      common stock is being amortized as compensation expense over a four-year
      vesting period. Compensation expense of $5,000 and $15,000 was recognized
      in the years ended June 30, 2004 and 2003, respectively. At June 30, 2004,
      there were no shares of common stock subject to repurchase rights of the
      Company.

10.   EMPLOYEE BENEFIT PLAN

      The Company sponsors a 401(k) defined contribution plan covering all
      employees. Contributions made by the Company are determined annually by
      the Board of Directors. No contributions have been made under this plan
      since inception.

11.   SUBSEQUENT EVENTS

      FACILITY LEASE

      In July 2004, the Company entered into a noncancelable operating lease for
      its new facility in Bangalore, India. Future minimum lease payments under
      this lease are $112,000, $127,000, $133,000, $140,000, $147,000, and
      $12,000, during the fiscal years ending June 30 of 2005, 2006, 2007, 2008,
      2009 and thereafter, respectively.

      STOCK OPTION PLAN

      In September 2004, the Company reserved an additional 20,600,000 shares of
      common stock for issuance under the "1999 Equity Incentive Plan" and
      granted approximately 20,779,000 of the then available shares under the
      Plan.

      CREDIT FACILITY BORROWING

      In September 2004, the Company borrowed the $500,000 available under the
      non-formula term loan No. 3 from the bank (see Note 5).

                                       17
<PAGE>

SPEEDERA NETWORKS, INC.

NOTES TO FINANCIAL STATEMENTS

      REDEMPTION

      On October 14, 2004, the holders of Series A, Series B and Series C
      Preferred Stocks agreed to extend the earliest date at which they may
      redeem their shares of Mandatorily Redeemable Convertible Preferred Stock
      to November 15, 2005.

12.   2003 SUBSEQUENT EVENTS (AS OF NOVEMBER 21, 2003)

     PREFERRED STOCK

     In October 2003, the Company and one of its attorneys reached an agreement
     to exchange 7,732,332 shares of Series C preferred stock for $703,642 in
     outstanding legal fees due the attorney.

     CREDIT FACILITY

     In November 2003, the Company entered into a credit facility agreement with
     a bank, whereby the Company may borrow up to $2,500,000. The credit
     facility agreement permits borrowings under a) a $1,500,000 secured
     revolving line collateralized by eligible accounts receivable that matures
     12 months from the date of documentation, b) a $500,000 non-formula term
     loan that is repayable in monthly installments over 24 months from the date
     of documentation, and c) a $500,000 secured loan collateralized by eligible
     equipment that is repayable in monthly installments over 36 months from the
     date of documentation. These borrowings bear interest at Prime + 3.00%
     (Prime is determined at the time of the borrowing, currently 4.00%) with a
     minimum rate of 7.00%. In connection with this credit facility, the Company
     issued a warrant to purchase shares of preferred stock at the lower of
     $0.091, or the price of a subsequent round of equity financing, if that
     round occurs prior to November 2010. The number of shares to be issued will
     be equal to $125,000 divided by the warrant price.

     REDEMPTION

     In November 2003, the holders of Series A, Series B and Series C Preferred
     Stock agreed to extend the earliest date at which they may redeem their
     shares of Mandatorily Redeemable Convertible Preferred Stock to May 31,
     2005.


                                       18
<PAGE>

SPEEDERA NETWORKS, INC.

Financial Statements
As of June 30, 2004 and 2003
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Speedera Networks, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of mandatorily redeemable convertible preferred stock and
stockholders' deficit and of cash flows present fairly, in all material
respects, the financial position of Speedera Networks, Inc. (the "Company") at
June 30, 2003, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.

September 30, 2003, except for Note 12,
which is as of November 21, 2003

/s/ PricewaterhouseCoopers LLP
