<PAGE>
EXHIBIT 99.3
ITS EUROPE, S.L.
Financial Statements
(With Independent Auditor's Report)
December 31, 1999 and 1998
<PAGE>
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Independent Auditor's Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Consolidated Statement of Changes in Stockholders' Equity 7
Notes to Consolidated Financial Statements 8-19
</TABLE>
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of I.T.S. EUROPE, S.L.
------------------------------------------
We have audited the accompanying consolidated balance sheets of I.T.S.
EUROPE, S.L. and its subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders'
equity, and cash flows and for the years then ended. 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. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall consolidated 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 consolidated financial
position of I.T.S. EUROPE, S.L. and its subsidiaries as of December 31,
1999 and 1998, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Barcelona, Spain
July 14, 2000
MOORE STEPHENS
SANTACANA AUDITORES, S.A.
----------------------------
Certified Public Accountants
3
<PAGE>
ITS EUROPE, S.L.
Consolidated Balance Sheets
(expressed in thousands)
<TABLE>
<CAPTION>
U.S. DOLLARS
------------
December 31
-----------
ASSETS 1.999 1.998
------ ----- -----
<S> <C> <C>
Cash and cash equivalents $ 19 $ 303
Short-term investments 254 35
Accounts receivable and other debtors 205 144
Prepaid expenses 1 -
----- -----
Current assets 479 482
----- -----
Long-term investments 12 7
Property and equipment 111 24
Intangible assets 6 2
----- -----
129 33
----- -----
Total assets $ 608 $ 515
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities $ 706 $119
Accounts payable - related parties 150 626
Accounts payable to banks 394 -
----- -----
Current liabilities 1,250 745
----- -----
Accounts payable to banks 2 -
----- -----
Long term liabilities 2 -
----- -----
- -
Commitments and contingencies
420 4
Common stock 52 (2)
Accumulated other comprehensive Income (Loss) (1,116) (232)
Retained earnings (Deficit) ----- -----
(644) (230)
Stockholders' equity (deficit) ----- -----
$ 608 $ 515
Total liabilities and stockholders' equity ===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ITS EUROPE, S.L.
Consolidated Statements of Operations
(expressed in thousands except per share data)
<TABLE>
<CAPTION>
U.S. DOLLARS
------------
Years ended December, 31
-------------------------
1.999 1.998
----- -----
<S> <C> <C>
Operating revenues $ 1,212 $ 919
Costs of Goods sold 1,162 717
------- ---------
Gross profit 50 202
------- ---------
Personnel costs 434 102
Depreciation 18 3
Sundry expenses 444 209
Provision for doubtful accounts 30 -
------- ---------
Operating expenses 926 314
------- ---------
Operating loss (876) (112)
------- ---------
Other income-net 7 2
Interest income 2 -
Interest expense (17) (2)
------- ---------
Other expenses (8) -
------- ---------
Net loss (884) (112)
======= =========
Earnings (loss) per share (basic and diluted) $ (325.40) $ (2,240.00)
======= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
ITS EUROPE, S.L.
Consolidated Statements of Cash Flows
(expressed in thousands)
<TABLE>
<CAPTION>
U.S. DOLLARS
------------
Years ended December, 31
------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net / (Loss) $ (884) $ (112)
Adjustments to reconcile net /(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 24 4
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable and other debtors (61) (119)
Prepaid expenses
(1) 1
Increase (Decrease) in:
Accounts payable -related parties- (406) 581
Accounts payable and other liabilities 517 10
------ -------
NET CASH - OPERATING ACTIVITIES (811) 365
------ -------
INVESTING ACTIVITIES
Purchase of intangible assets (4) (2)
Purchase of tangible assets (111) (21)
Purchase of Financial investments (long term) (224) (42)
------ -------
NET CASH - INVESTING ACTIVITIES (339) (65)
------ -------
FINANCING ACTIVITIES
Issuance of common stock 416 -
Accounts payable to banks 396 (5)
------ -------
NET CASH - FINANCING ACTIVITIES $ 812 $ (5)
EFFECT OF EXCHANGE RATES ON CASH 54 (11)
------ -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (284) 284
CASH AND CASH EQUIVALENTS- BEGINNING OF YEAR 303 19
------ -------
CASH AND CASH EQUIVALENTS- END OF YEAR 19 303
====== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
ITS EUROPE, S.L.
Consolidated Statement of Changes in Stockholders' Equity
$ (US Dollars expressed in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE EARNINGS COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL INCOME (LOSS) (DEFICIT) INCOME (LOSS) EQUITY
----- ------- ------------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1998 $ 4 - - $ (120) $ 12 $ (104)
Comprehensive Income (Loss) - - $ (112) (112) - (112)
Other Comprehensive Income (Loss):
Foreign Currency Adjustment - - (14) - (14) (14)
-----
Comprehensive Income (Loss) - - (126) - - -
----- ----- ===== ----- ----- -----
BALANCE - DECEMBER 31, 1998 $ 4 - - $ (232) $ (2) $ (230)
===== ===== ===== ===== ===== =====
Increase in Common Stock 416 - - - - 416
Comprehensive Income (Loss) - - (884) (884) - (884)
Other Comprehensive Income (Loss):
Foreign Currency Adjustment - - 54 - 54 54
-----
Comprehensive Income (Loss) - - (830) - - -
----- ----- ----- ----- -----
=====
BALANCE - DECEMBER 31, 1999 $ 420 - - $ (1,116) $ 52 $ (644)
===== ===== ===== ===== ===== =====
</TABLE>
7
<PAGE>
ITS EUROPE, S.L.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
I.T.S. EUROPE, S.L.(the "Company") was set up in Spain as a limited liability
company and started its operations on January 23, 1995, and is currently located
in Avda. Ricardo Soriano, 65 1(0) 2(a), in Marbella, Spain. The Company
purchases telecommunication services from telephone operators and acts as a
reseller, providing these services to its customers in Spain.
I.T.S.EUROPE, S.L. has a wholly-owned subsidiary, P-TEL, S.L. P-TEL, S.L. was
set up in Spain as a limited liability company in December 21, 1998.
P-TEL, S.L. provides marketing and public relations to targeted corporate
customers through the use of the Company's calling cards and by other means.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statutory records
Under current Spanish legislation, companies are required to maintain certain
statutory books of account. These books are the only ones recognized by the
fiscal, legal and foreign exchange control authorities. The accompanying
consolidated financial statements have been adjusted as required to conform with
generally accepted accounting principles of the United States of America
(US-GAAP).
Basis of Consolidation
The consolidated financial statements incorporate the assets and liabilities of
the Company and its wholly owned subsidiary P-TEL, S.L. All intercompany
balances and transactions have been eliminated upon consolidation.
8
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Foreign Currency Translations
The Company's functional currency is the Spanish Peseta (PTA). The consolidated
financial statements are prepared in US Dollars. The assets and liabilities are
translated at year-end exchange rates. Income and expense items are translated
at average rates of exchange prevailing during the year. Equity transactions are
translated at historical exchange rate. Differences resulting form such
translations are included in stockholders' equity under the caption "Accumulated
Other Comprehensive Income". Net gains (losses) resulting form foreign currency
transactions are immaterial for the years ended December 31, 1998 and 1999.
Accumulated Other Comprehensive Income (Loss)
The comprehensive income (loss) is the total of (1) the net income (loss) plus
(2) all the other changes in net assets arising form nonowner sources, which are
referred to as other comprehensive income (loss).
Cash and cash equivalents
Cash equivalents are comprised of certain highly liquid investments with a
maturity of three months or less when purchased. There were no cash equivalents
at December 31, 1999 or 1998. Cash and cash equivalents in the balance sheet
include petty cash and bank accounts.
Accounts receivables
Allowance for bad debts is made, if necessary, for any debt considered to be
doubtful. Management considers the balance of accounts receivable to be fully
collectible.
Financial investments
Financial investments are stated at acquisition cost.
Property and equipment and depreciation
Tangible assets are stated at cost. Major renewals and improvements are
capitalized, while the cost of maintenance and repairs which do not extend the
lives of the respective assets are charged to expense as incurred. The cost of
software refers to the right to use the programs.
Depreciation of fixed assets is provided over the estimated useful lives of the
respective assets on a straight-line basis.
9
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 3 - EARNINGS (LOSS) PER SHARE
Basic earnings per share are calculated in accordance with FASB Statement No.
128 "Earnings Per Share" (EPS). Basic EPS is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding during the
period. Diluted EPS is calculated based on the weighted average of common stock
and potential common stock during the reported period. The Company has no equity
instruments that dilute nor could potentially dilute basic earnings per share in
the future.
<TABLE>
<CAPTION>
1999 1998
---- -----
<S> <C> <C>
Net loss $ (884,000) $ ( 112,000)
Weighted-average outstanding shares 2,716.67 50
Earnings per share (basic) $ (325.40) $( 2,240.00)
======== =========
</TABLE>
NOTE 4 - SHARE CAPITAL
CORPORATE ASPECTS
ITS Europe, S.L. and P-TEL, S.L. are duly incorporated and have both sufficient
legal status to exercise the rights and obligations inherent in its activity and
to carry out the business for which it was incorporated pursuant to its
corporate by-law and in accordance with Spanish Law. The Corporate By-law which
govern its performance are those commonly used and reproduce the rules
established in the Limited Liability Companies Act, Law 2/1995, of March ("Ley
de Sociedades de Responsabilidad Limitada") for each of the subjects regulated
therein.
The Companies duration is indefinite.
The Corporate bodies are the General Stockholders Meeting and Administration
Body which consists of a Sole Director.
10
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - SHARE CAPITAL (CONTINUED)
Under Spanish law the Corporate structure and stockholders liability of a
Limited Liability Company and a Public Limited Company are basically the same.
The main differences are:
- The Common Stock in a Limited Liability Company is presented by
participations, whose transmission is restricted.
- The Limited Liability Company has more flexibility when working and when
its Corporate Bodies take decisions as well as in the duration of the
posts.
The participation's' transmission is restricted. According to the Company's
By-law and the Spanish Limited Liability Companies Act, the stockholder who
wants to transmit participations must communicate it in writing to the Company
so that it is able to offer them to the other stockholders for a period of time.
After this and if the participations are not acquired by any stockholder, the
Company can acquire them in order to depreciate them. The participations can be
acquired by a third party only after the already mentioned periods of time and
in the case that neither the other stockholders nor the Company had exercised
their rights to acquire them in a preferable way.
The general rule is that resolutions are passed at a general meeting of the
shareholders of the Company by majority of the issued votes, whenever they
represent at least the third part of the votes in which the capital is divided.
Under the Spanish law, a minimum reserve of 20% of the par value of the capital
must be maintained in a reserve and may not be paid out in the form of a
dividend. This reserve has to be formed by deduction of a yearly 10% of the net
income until the reserve reaches the 20% of the capital.
The Company's shareholders are the following as of December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Canival Enterprises Limited 90% -
Volim Holding B.V. 10% -
Haberton Limited - 98%
Fideso, S.L. - 2%
----- -----
100% 100%
===== =====
</TABLE>
11
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - SHARE CAPITAL (CONTINUED)
At the stockholders' general meeting on April 11, 1999, it was decided that a
capital increase with a 6.400 participation emission of a nominal value of PTA.
10.000, each one subscribed in July 20, 1999. The amount of this capital
increase was deposited in the company bank accounts in December 4, 1998. With
this capital increase, the authorized share capital as of December 31, 1999 is
made up of 6.450 participations of a nominal value of PTA. 10.000 each entirely
subscribed and fully paid up. As of December 31, 1998 the authorized share
capital was made up of 50 participations of a nominal value of PTA. 10.000 each
one entirely subscribed and fully paid up.
According to the Spanish Company Law, if the value of stockholders' falls below
an amount equal to one half of the nominal value of the share capital, the
Company has to replace it or go into liquidation. In June 2000, a capital
increase amounting to approximately $986,000 was completed, obviating the need
for corporate liquidation (see Note 13 Post Balance Sheet Events).
The Pro forma Equity as of December 31, 1999 after the capital increase and
contribution will be as follows:
<TABLE>
<CAPTION>
Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C>
At December 31, 1999 $ 420 $ - $(1,064) $(644)
Capital Increase 246 - -- 246
Contribution from stockholders -- 740 740
---- --- -------- ----
Pro forma Equity as of June 2000
$ 666 $740 $ (1,064) $342
=== === ======== =====
</TABLE>
12
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - INCOME TAX AND PUBLIC BODIES ACCOUNTS
Income tax expense calculation is based on pretax accounting income. Deferred
tax assets and liabilities, if any, are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts. The Company had no taxable temporary
differences which would have resulted in material deferred tax liabilities at
December 31, 1999.For the years ended 31 December, 1999 and 1998 the Company had
no taxable income and therefore, no income tax expense has been calculated.
Deferred tax assets related to loss carry forwards have not been booked since
realization is dependent, basically, on the generation of enough future income
to compensate this tax assets. According to Spanish tax law the carry forward
period is limited to ten years. The tax loss the Company can compensate with
future income amounts to approximately $ 176,000 and $ 905,000 at December 31,
1998 and 1999, respectively, an increase of $ 729,000 do to the loss in year
1999. The carry forward period and amounts to compensate this tax loss with
future tax income is as follows:
<TABLE>
<CAPTION>
Carry forward
Year Amount
------ ------
<S> <C>
1995 $ 11,000
1996 26,000
1997 63,000
1998 76,000
1999 729,000
----------
$ 905,000
==========
</TABLE>
The detail of the Public Body related accounts as of December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ----------------------------------------
Debit Credit Debit Credit
----- ------ ----- ------
<S> <C> <C> <C> <C>
V.A.T $ 11 $ - $ - $ 9
Social Security - 26 - 6
Personnel income tax 2 8 - 4
---- ---- ---- ----
$ 13 $ 34 $ - $ 19
==== ==== ==== ====
</TABLE>
13
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - RELATED PARTIES - ACCOUNTS PAYABLE
The detail of these accounts is as follows :
<TABLE>
<CAPTION>
1999 1998
Accounts Accounts
Payable Payable
------- -------
<S> <C> <C>
Tucker Enterprises Limited $ 125 $ 146
Current account with shareholders and administrators 25 31
Investment to capital increase - 449
---- ----
$ 150 $ 626
==== ====
</TABLE>
The business relation between the Irish Company called Tucker Enterprises
Limited and ITS Europe, SL comes from the agency contract valid from 1996 to
September 1997. By means of this contract, ITS Europe, SL acts as the agent of
Tucker Enterprises Limited and receives a commission on the sales volume that
this company invoiced to its clients.
The balance payable to Tucker Enterprises Limited as of December 31, 1999 and
1998 refers, basically, to the payments that this company realized to suppliers
and creditors from I.T.S. Europe, S.L. on its account. The balance as of
December 31st, 1999 and 1998 has not changed and its difference in balance is
due to Currency translation adjustments between one year and the other one.
The balance of Investment to capital increase corresponds to the amount that the
stockholders deposited in the company bank accounts on December 4, 1998 for the
capital increase to be done in July 20, 1999 (see Note 4 Share Capital).
NOTE 7- ACCOUNTS PAYABLE TO BANKS
The detail of this caption is as follows:
<TABLE>
<CAPTION>
1999
----------------------------------
Financing Institution Type Short Long
--------------------- of Loan Term Term
------- ---- ----
<S> <C> <C> <C>
B.B.V. Credit loan $ 393 2
Banco Atlantico Overdrawn 1 -
---- ----
$ 394 2
==== ====
</TABLE>
14
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7- ACCOUNTS PAYABLE TO BANKS (CONTINUED)
The due date of the long term credit loan is on March, the 16th, 2001 and the
applied interest rate of this loan is 8%.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Compensation for termination of employment
Except in the case of justiable cause, companies are liable to pay indemnities
to employees whose services are terminated. Except for top level executives,
such indemnities currently amount to 20,33 or 45 days salary for each year of
service up to a maximum of 12,12 or 42 months salary. In the absence of any
foreseeable need for abnormal termination of employees services, and because the
indemnities are not payable to chose employees who retire or voluntary leave the
company service, indemnities are expensed at the time of payment.
NOTE 9 - FINANCIAL INVESTMENTS
The detail of these accounts is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------- ------------------------
Short Term Long Term Short Term Long Term
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Deposits $ 125 $ 12 $ - $ 7
Temporary financial investments 129 - 35 -
----- ---- ---- ---
$ 254 $ 12 $ 35 $ 7
===== ==== ==== ===
</TABLE>
Short-term deposits refer, basically, to the deposits constituted as a payment
warranty for the operations made with the supplier RSL Communications Spain,
S.A.
Long-term deposits refer, basically, to the deposits constituted by the rentals
of the Marbella, Malaga, Ronda and Barcelona offices.
15
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 10 -PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
Furniture and Fixtures $ 30 $ 10 10 Years
Computer Equipment 42 12 4 Years
Vehicles 23 10 6 Years
Other 46 - 104 Years
---------- ----------
Total - at cost 141 32
Less: accumulated depreciation (30) (8)
---------- ----------
Net $ 111 $ 24
========== ==========
</TABLE>
Depreciation expense amounted to $22,000 and $4,000 for the years ended December
31, 1999 and 1998, respectively.
NOTE 11 - CONCENTRATION OF CREDIT RISK
(A) BUSINESS RISK
The Company acts as reseller of telecommunications services. The
telecommunications market in Spain was deregulated in 1998. The market is
primarily dominated by one telecommunication operator. The Company's business
strategy consists of increasing its market share to extend services offered to
the whole National territory. The market is highly competitive.
(B) CREDIT RISK
The Company sells telecommunications services to a large number of small
customers, which are primarily in Spain. The risk of losses from payment arrears
is very low because after two months, the Company cuts off the line to those
clients with unpaid invoices and it has contracted a policy of risk coverage
with a Company of credit coverage that covers about the 60 and 80% of the
clients' balances.
16
<PAGE>
ITS EUROPE, S.L.
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 12 - GOING CONCERN CONSIDERATIONS AND POST BALANCE SHEET EVENTS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the statement of Income
the Company incurred a net loss of USD 884,000 during the year ended December
31, 1999 and, as of that date, the Company's current liabilities exceeded its
current assets by USD 771,000. These conditions raised substantial doubt as to
the Company's ability to continue as a going concern. The Company has taken
actions to alleviate the situation.
The shareholders have expressed their support on June 2000 by deciding a
combined capital increase and contribution of approximately USD 986,000 to
balance the equity (see Note 13 "Post Balance Sheet Events" in the financial
statements and Note 4 Share Capital).
The stockholders' general meeting on June 2000 decided a capital increase of
PTA. 35.500.000 and a contribution of PTA. 139.450.000 to compensate accumulated
losses. Approximately USD 986,000 (See pro forma effects in Note 4 Share
Capital).
NOTE 13 - NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standard Board (FASB) has issued Statement of Financial
Accounting Standards No. 133 (FAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities." FAS No 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of derivative
depends on the intended use of the derivative and how it is designated, for
example, gain or losses related to changes in the fair value of a derivative not
designated as a hedging instrument is recognized in earnings in the period of
the change, while certain types of hedges may be initially reported as a
component of other comprehensive income (outside earnings) until the
consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter on that date, hedging relationships must be
designated a new and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods.
The Company does not currently have any derivative instruments and is not
currently engaged in any hedging activities. In June 1999, the FASB issued SFAS
No. 137 which deferred the effective date of SFAS No. 133 of fiscal quarters
beginning after June 30, 2000.
17
