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EXHIBIT 99.3
ODISEI S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 25, 1998 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1998
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Odisei S.A.
In our opinion, the accompanying balance sheet of Odisei S.A. (a company in the
development stage) and the related statements of operations and accumulated
deficit and of cash flows present fairly, in all material respects, the
financial position of Odisei S.A. (a company in the development stage) at
September 30, 1998, and the results of its operation and its cash flow for the
period from February 25, 1998 (date of incorporation) to September 30, 1998, in
conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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 the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has not generated significant revenues and, as
a result, has incurred significant losses from operations that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result form the outcome of this
uncertainty.
Nice, France
22 January 1999
KPMG Fiduciaire de France
Thierry Borel
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ODISEI
(a company in the development stage)
BALANCE SHEET
September 30, 1998
ASSETS
Current assets:
Cash and cash equivalents FF 335,800
VAT receivable 111,412
Other receivable 60,000
Prepaid expenses and other current assets 97,973
----------
Total current assets 605,185
Property and equipment, net 202,943
Other assets 45,675
----------
TOTAL ASSETS FF 853,803
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LIABILITIES
Current liabilities:
Accounts payable FF 53,565
Accrued liabilities 76,878
Accrued compensation 199,619
Accrued payroll taxes 262,916
Current portion of capital lease obligations 36,877
----------
Total current liabilities 629,855
Capital lease obligations, less current portion 61,687
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Total liabilities 691,542
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Commitments (Note 4 and 5)
SHAREHOLDERS' EQUITY
Common stock 1 FF par value:
Authorized: 564 000 shares in September 1998
Issued and outstanding: 564 000 shares in September 1998 564,000
Additional paid-in-capital 981,627
Deficit accumulated during the development stage (1,383,366)
----------
Total shareholders equity 162,261
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY FF 853,803
==========
The accompanying notes are integral part of these financial statements
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ODISEI
(a company in the development stage)
STATEMENTS OF OPERATIONS
Period from February 25, 1998 (date of inception) to September 30, 1998
Revenues from grants FF 60,000
Operating expenses:
Research and development 1,020,461
General and administrative 419,940
---------
Loss from operations 1,380,401
Interest expense net 2,965
---------
Loss before income taxes 1,383,366
Provision for income taxes --
---------
Net loss FF 1,383,366
=========
The accompanying notes are integral part of these financial statements
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ODISEI
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS' EQUITY
Period from February 25, 1998 (date of inception) to September 30, 1998
Deficit
accumulated
Common stock Additional during the
------------------------- paid-in- development
Shares Amount capital stage Total
---------- ---------- ---------- -------------- ----------
Issuance of common stock to the founders at one
franc per share for cash on February 25, 1998 300,000 FF 300,000 FF 300,000
Issuance of common stock at 2,5 francs per share
for cash on April 8, 1998 98,100 98,100 FF 147,150 245,250
Issuance of common stock at 6,03 francs per share
for cash on April 27, 1998 165,900 165,900 834,477 1,000,377
Net loss FF (1,383,366) (1,383,366)
---------- ---------- ---------- -------------- ----------
Balances, September 30, 1998 564,000 FF 564,000 FF 981,627 FF (1,383,366) FF 162,261
========== ========== ========== ============== ==========
The accompanying notes are integral part of these financial statements
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ODISEI
(a company in the development stage)
STATEMENTS OF CASH FLOWS
Period from February 25, 1998 (date of inception) to September 30, 1998
Cash flows from operating activities
Net loss FF (1,383,366)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 25,476
Change in operating assets and liabilities:
VAT receivable (111,412)
Other receivable (60,000)
Prepaid expenses and other current assets (97,973)
Other assets (45,675)
Accounts payable 53,565
Accrued liabilities and payroll taxes 339,794
Accrued compensation 199,619
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Net cash used in operating activities (1,079,972)
Cash flows from investing activities
Acquisition of property and equipment (110,039)
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Net cash used in investing activities (110,039)
Cash flows from financing activities
Proceeds from issuance of common stock 1,545,627
Payment under capital lease obligations (19,816)
----------
Net cash provided by financing activities 1,525,811
Net increase (decrease) in cash 335,800
Cash at beginning of year --
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Cash at end of year FF 335,800
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SUPPLEMENTAL DISCLOSURES OF CASH-FLOW INFORMATIONS
Interest paid FF 3,634
The accompanying notes are integral part of these financial statements
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ODISEI
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY
Odisei (the Company) is a societe anonyme (SA) and was incorporated on February
25, 1998. Since inception, the Company has devoted substantially all of its
effort to developing the initial products, recruiting personnel, creating
relationships and raising capital.
Odisei is a software development company with offices in Silicon Valley and
Sophia Antipolis, France.Odisei has developed an open software platform for
IP-based telephony solutions. The product leverages Java server technology and
is designed to provide for both highly scalable and distributed configurations.
By focusing its expertise on call control, Odisei has developed a unique
approach to managing voice over IP networks.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
The financial statements have been prepared assuming the Company will continue
as a going concern. The Company is in the development stage and has therefore
incurred cumulative losses of 1 383 366 French francs through September 30,
1998. Management is currently pursuing additional equity financing to further
fund the development of its products and markets. Since there is no assurance
that management will complete their plans, there is substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might be necessary should the Company be unable
to continue as a going concern.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
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Cash and cash equivalent
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Cash is comprised of funds in two financial institutions.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the related assets
(generally three to five years). Property and equipment acquired under capital
leases are amortized over their useful lives, generally three years.
Income taxes
The Company accounts for income taxes under the liability method, whereby
deferred tax asset and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Grant accounting
Grants received from government agencies are recognized as income or as a
reduction of costs in accordance with the purpose of the specific contract and
in the period in which the related expense is incurred.
In October 1998, the Company entered into a grant agreement with the Agence
Nationale de Valorisation de la Recherche (ANVAR) under which the Company will
receive grants of 1,4 million of French francs for research and development. A
liability to repay 1,4 million of French francs would arise in the likely event
the Company should succeed in marketing and selling its product.
Research and development
Research and development expenditures are charged to operations as incurred.
Fair Value of Financial Instruments
The amounts reported for cash, account payable, accrued liabilities and note
payable to shareholder are considered to approximate fair values due to their
short maturities.
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3. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
September 30, 1998
------------------
Software FF 3,050
Computer and equipment 222,419
Leasehold improvements 2,950
--------
228,419
Less accumulated depreciation and amortization (25,476)
--------
FF 202,943
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4. CAPITAL LEASE OBLIGATIONS
The Company currently leases equipment under noncancelable capital leases which
expire at various dates over the next three years. At September 30, 1998
equipment acquired under capital leases amounted to 118,380 French francs. Such
amounts are included in property and equipment and have accumulated amortization
totaling approximately 10,741 French francs at September 30, 1998.
Future minimum lease payments are as follows:
September 30, 1998
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Financial year:
1999 FF 44,344
2000 44,344
2001 22,173
2002 -
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110,861
Less amount interesting interest (12,297)
Less current portion (36,877)
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FF 61,687
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5. COMMITMENTS
The Company subleases its facility under an operating lease expiring in July
1999. The rental payment includes common area maintenance costs, property taxes
and insurance.
Future minimum lease payments are as follows:
September 30, 1998
------------------
Financial year:
1999 FF 184,814
Rent expense for the period from February 24, 1998 (date of inception) to
September 30, 1998 was 77,810 French francs.
6. SHAREHOLDERS' EQUITY
Common stock
On January 22, 1999, the Board of shareholders declared a one for one hundred
common stock split. All applicable share data has been adjusted for the stock
splits.
7. INCOME TAXES
The Company's net deferred tax asset comprised as follows:
September 30, 1998
------------------
Net operating losses FF 485,678
Other accruals and credits 21,286
Research and development credit 450,000
Deferred depreciation 4,732
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961,696
Valuation allowance (961,696)
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NET DEFERRED TAX ASSETS FF --
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The Company has established a 100% valuation allowance against its deferred tax
assets due to the uncertainty of the ultimate realization of this asset.
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At September 30, 1998, the Company had net operating loss carryforwards of
approximately 1,324,573 French francs available to reduce future taxable income.
The carryforwards expire by the year 2003 unless utilized.