Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(D)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
June 30, 1996 1-1200
HUNGARIAN TELECONSTRUCT CORP.
(Exact name of Registrant as specified in its charter)
Delaware 13-3696015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 Park Avenue, New York, NY 10022
(Address of principal executive offices)
(212) 758-9870
The Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest possible date:
Common Stock, $.001 par value 1,518,290 Shares
(Class) (Outstanding at June 30, 1996)
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of June 30, 1996 (unaudited)
and December 31, 1995 (audited) 2
Consolidated statements of loss (unaudited) for the three
months ended June 30, 1996 and 1995 and the six months
ended June 30, 1996 and 1995 3
Consolidated statements of stockholders' equity (unaudited)
for the six months ended June 30, 1996 and 1995 4
Consolidated statements of cash flows (unaudited) for the
six months ended June 30, 1996 and 1995 5
Notes to consolidated financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II. Other Information 18
Signature 20
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31, 1995
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 187,265 $ 376,986
VAT refund receivable 77,458 221,216
Receivables from related parties 32,784 566,746
Notes receivable from affiliate 388,000
Other 71,214 40,375
----------- ----------
Total current assets 756,721 1,205,323
Property and equipment, less accumulated
depreciation of $87,060 and $77,773,
respectively 264,678 611,316
Construction in progress 3,888,583 3,119,721
Investment in and advances to affiliate 333,881 872,667
Other 365 51,308
----------- ----------
$ 5,244,228 $5,860,335
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ $ 16,502
Accounts payable and
accrued expenses 146,519 566,778
Payables to related parties 13,319
Deposits payable to related parties 594,320
---------- -----------
Total current liabilities 754,158 583,280
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value - shares
authorized 10,000,000 (1996) and
3,000,000 (1995); issued and
outstanding 1,518,290 at both dates 1,518 1,518
Additional paid-in capital 14,645,998 14,645,998
Accumulated deficit (10,157,446) (9,370,461)
------------ -----------
Total stockholders' equity 4,490,070 5,277,055
------------ -----------
$ 5,244,228 $ 5,860,335
============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
REVENUES
Construction $ $ 61,714 $ $ 89,722
Other 51,816 31,098 88,815
-------- ---------- --------- --------
Total 113,530 31,098 178,537
-------- ---------- --------- ---------
EXPENSES(INCOME)
Cost of construction revenue 4,447 83,747
Compensation and related costs 117,181 454,132 299,402 892,098
Consulting and professional fees 80,400 39,921 111,400 45,921
Foreign currency (gain)loss 19,047 (38,918) 104,077 49,318
Interest and dividend income (20,674) (133,887) (41,660) (213,186)
Depreciation and amortization 6,315 16,135 12,683 26,188
Other 46,198 129,625 150,181 305,262
-------- ---------- --------- ---------
Total 248,467 471,455 636,083 1,189,348
-------- ---------- --------- ---------
Loss before minority interest and
equity in net loss of
unconsolidated affiliate (248,467) (357,925) (604,985) (1,010,811)
Minority interest in net losses 12,975 12,975
Equity in net loss of
unconsolidated affiliate (100,000) (182,000)
--------- --------- --------- ---------
Net loss $(348,467) $(344,950) $(786,985) $(997,836)
========= ========= ========= =========
Net loss per share $ (.23) $ (.23) $ (.52) $ (.66)
========= ========= ========= =========
Weighted average number of common
shares outstanding 1,518,290 1,518,290 1,518,290 1,518,290
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
SIX MONTHS ENDED JUNE 30, 1996:
Balance, January 1, 1996 1,518,290 $1,518 $14,645,998 $ (9,370,461)
Net loss for the period (786,985)
Balance, June 30, 1996 1,518,290 $1,518 $14,645,998 $(10,157,446)
SIX MONTHS ENDED JUNE 30, 1995:
Balance, January 1, 1995 1,518,290 $1,518 $9,260,331 $(2,891,084)
Amortization of unearned
portion of options granted
as compensation 598,000
Net loss for the period (997,836)
Balance, June 30, 1995 1,518,290 $1,518 $9,858,331 $(3,888,920)
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(786,985) $ (997,836)
Adjustments to reconcile net loss to
net cash provided by(used in) operating activities:
Depreciation and amortization 12,683 26,188
Amortization of imputed interest income (26,000) (110,000)
Amortization of options granted as compensation 598,000
Loss on disposal of property and equipment 1,829
Foreign currency loss 104,077 49,318
Loss on sale of Pilistav 23,530
Minority interest in net losses (12,975)
Equity in net loss of unconsolidated affiliate 182,000
Changes in operating assets and liabilities:
Increase in accounts receivable (5,545)
(Increase)decrease in VAT refund receivable 143,758 (143,397)
Decrease in receivables from related parties 533,962 352,130
Decrease in other assets 20,104 43,997
Increase(decrease) in accounts payable and
accrued expenses (420,259) 8,052
Increase in payables to related parties 13,319
Increase in deposits payable to related parties 594,320
Net cash provided by(used in) operating activities 372,808 (168,538)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
and construction in progress (751,736) (872,651)
Proceeds from sale of building to HTCC 315,000
Proceeds from sale of Pilistav 918,875
Increase in investment in and advances
to affiliate and notes receivable (5,214) (778,941)
Net cash used in investing activities (441,950) (732,717)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft (16,502)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (104,077) (49,318)
DECREASE IN CASH AND CASH EQUIVALENTS (189,721) (950,573)
Cash and cash equivalents at beginning of period 376,986 2,107,892
Cash and cash equivalents at end of period $ 187,265 $1,157,319
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Hungarian
Teleconstruct Corp. (the "Company") and its majority-owned subsidiaries,
except for Pilistav Kft ("Pilistav") in which the Company had a 68%
interest at January 1, 1995, but control was temporary (see Note 8(b)).
All material intercompany balances and transactions have been
eliminated.
(b) Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Fiscal Year
The Company's reporting period is the fiscal year ending December 31.
(d) Foreign Currency Translation
The Company uses the U.S. dollar as the functional currency for its
majority-owned Hungarian subsidiaries. Accordingly, monetary assets and
liabilities of the subsidiaries were translated by using the exchange
rate in effect at the balance sheet date while nonmonetary assets and
liabilities were translated at historical rates. Income and expense
accounts were translated at the average rates in effect during the
period. Translation adjustments and transaction gains or losses were
reflected in the consolidated statements of loss.
(e) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The carrying amounts
reported in the accompanying balance sheets approximate fair value.
(f) Fair Value of Financial Instruments
Due to the nature of the VAT refund receivable, receivables from related
parties, notes receivable from affiliate, payables to related parties
and advances to affiliate, it is not practicable to approximate their
fair market values.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
(g) Investment in Affiliate
The Company's 9.7% equity interest in Hungarian Broadcasting Corp.
("HBC") is accounted for using the equity method since the Company has
the ability to exercise significant influence over HBC. Under this
method, the Company records as a loss its share of the losses
incurred by HBC and dividends are credited against the investment
account when declared.
(h) Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed by
the straight-line method over the estimated useful lives of the assets
as follows:
Estimated
Useful Life
Office condominiums 40
Furniture, fixtures and equipment 3 - 5
Motor vehicles 4 - 5
(i) Net Loss Per Share
The net loss per share is computed using the weighted average number of
common shares outstanding during each period.
2. Organization, Business and Discontinued Operations
(a) Business
The Company was organized on November 9, 1992 and was in the development
stage through December 31, 1993. The Company had two operating business
segments: (1) building of condominium apartments and building renovation
and (2) design and civil engineering, and laying of underground fiber
optic telephone and cable lines. The latter segment was discontinued in
1994. Through its wholly-owned Hungarian subsidiary, Teleconstruct
Epitesi RT. ("Teleconstruct") the Company is currently building for sale
two luxury 14-unit condominiums in Budapest.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
During 1993, the Company also organized the following Hungarian
subsidiaries, all of which are limited liability companies:
%
Name Ownership Business
Tele-Media Kft 100 Advertising and promoting use of
additional telephone options. In
process of being liquidated.
TC Telecom Kft 100 Liquidated in 1995
Termolang Kft 90 Sold in September 1995 (building
renovation)
Tele-Plusz Kft 60 Sold in April 1995 (laying of
underground fiber optic telephone
and cable lines and design and
civil engineering)
During 1994, the Company organized Central Europe Consult ("CEC"), an
Austrian corporation, in which it has a 51% interest, with Hungarian
Telephone and Cable Corp. ("HTCC"), a U.S. public company which has two
of the same officers and directors as the Company, owning a 49% interest.
CEC is in the process of being liquidated.
(b) Sale of Building Renovation Business
Effective September 30, 1995, the Company's 90% interest in Termolang Kft
was sold for its original investment to the 10% interest holder for a gain
of approximately $11,000. All construction revenues reflected in the
consolidated statements of loss were earned by Termolang Kft.
(c) Discontinued Operations
By selling Tele-Plusz Kft ("Tele-Plusz") and discontinuing the operations
of TC Telecom Kft ("TC Telecom"), the Company discontinued one of its two
business segments.
On April 27, 1995, the Company entered into an agreement to sell its 60%
interest in Tele-Plusz to an affiliate of the 40% interest holder for
approximately $40,000 payable on May 11, 1995. The agreement also
provided for the repayment of the loan to Teleconstruct in 18 equal
monthly installments beginning June 1, 1995. As a result of the sale,
Tele-Plusz's assets and liabilities as of December 31, 1994 and its
operations for the year then ended were deconsolidated from the Company's
financial statements. Based on the financial condition of Tele-Plusz and
since the payment of the sales price and repayment of the loan were
conditional on Tele-Plusz being awarded a subcontract for the building of
the Kelet-Nograd telephone exchange, Teleconstruct's loan receivable of
$354,325 from Tele-Plusz was written off at December 31, 1994 and none of
the sales price on the sale of the 60% interest was recognized in the
financial statements. Any proceeds realized in the future from the loan
or the sale of the interest will be recognized upon receipt.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
The Company will not be responsible for the payment of any obligations
related to Tele-Plusz. Accordingly, the Company's share of accumulated
deficit in excess of its investment in Tele-Plusz was reflected as a gain
on abandonment of discontinued operations at December 31, 1994.
During 1994, TC Telecom discontinued its operations and it was liquidated
during 1995. Substantially all of its revenues were earned from
subsidiaries of HTCC.
3. Interim Periods
The accompanying consolidated financial statements for the three months
ended June 30, 1996 and 1995 and the six months ended June 30, 1996 and
1995 are unaudited but, in the opinion of management, include all
adjustments, consisting mainly of normal recurring accruals necessary for
fair presentation. Results for the interim periods are not necessarily
indicative of the results for a full year.
4. Incorporation by Reference
Reference is made to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1995 and to the notes to the consolidated
financial statements included therein, which are incorporated herein by
reference.
5. Concentration of Cash and Cash Equivalents
At June 30, 1996, cash includes $22,089 denominated in U.S. dollars on
deposit with a major money center bank and $75,356 invested in a U.S.
Treasury Money Market Fund in the United States. In addition, $89,820
(denominated partly in U.S. dollars and partly in Hungarian forints) was
on deposit with Hungarian government-owned banks and a foreign bank in
Hungary.
6. Receivables from and Payables to Related Parties
At June 30, 1996, receivables from and payables to related parties include
the following:
Receivables Payables
HTCC $32,874
Officer/stockholder and affiliate $13,319
The amount due from HTCC primarily represents accrued interest on advances.
The amount due to the officer/stockholder and affiliate primarily represents
non-interest bearing advances.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
7. Construction in Progress
Construction-in-progress of $3,888,583 at June 30, 1996 includes the cost
of land ($885,000) and construction costs incurred in connection with the
building for sale of two luxury 14-unit condominiums which are estimated to
cost approximately an additional $700,000 to complete. The condominiums
are expected to be completed during the second half of 1996.
8. Investment in and Advances to Affiliate and Notes Receivable from Affiliate
(a) Hungarian Broadcasting Corp.
At June 30, 1996, the investment in and advances to HBC includes the
following:
Investment at equity $221,000
Loans and advances 112,881
$333,881
On November 28, 1994, the Company entered into a loan agreement with
HBC, which provided for the Company to lend HBC $800,000 at 6% interest
per annum, originally repayable on the earlier of December 31, 1995 or
the completion of an Initial Public Offering ("IPO") by HBC. The IPO
was consummated in December 1995 by selling 1,150,000 shares of common
stock at a price of $5 per share, with the Company recognizing a gain of
approximately $203,000 resulting from the increase in the Company's
proportionate share in HBC's equity. The gain was accounted for as an
equity transaction, increasing additional paid-in capital.
The loan agreement provided for the following additional consideration
to the Company: (1) issuance of 100,000 shares of HBC's common stock,
which shares shall be deemed fully paid and nonassessable; (2) an option
which was exercised in April 1995, to purchase an additional 150,000
shares of HBC's common stock at $3 per share; and (3) three years
right of first reusal to act as general contractor for all broadcast
facilities to be built by companies controlled by HBC. On January 2,
1996, HBC repaid $424,000 of the amount owed to the Company with the
balance being due June 30, 1997. Notes receivable of $388,000 at
June 30, 1996 includes accrued interest and is shown net of $52,000
original issue discount.
The Company's 9.7% interest in HBC (250,000 shares of common stock) at
June 30, 1996 has an original cost of $615,000 and includes the 100,000
shares received in connection with the loan made to HBC and valued at
$165,000 representing the original issue discount on the $800,000 loan.
The original issue discount is being amortized over the term of the loan
with $26,000 amortized during the six months ended June 30, 1996 and
included in interest income.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
The 250,000 shares are restricted securities under Rule 144 promulgated
under the Securities Act of 1933, as amended. In addition, the Company
has entered into an agreement with HBC's underwriters not to sell or
otherwise dispose of the HBC shares before December 23, 1997 without the
written consent of the underwriters. The Company has the right to include
the HBC shares in any registration statement filed by HBC to the extent
that the managing underwriter of the public offering advises HBC that such
inclusion would not interfere with the orderly sale of the securities to
be offered to the public.
At June 30, 1996, two officers of the Company own approximately 16% of the
outstanding common stock of HBC and sit on the Board of HBC, constituting
a majority of the Board. The Company's 9.7% interest in HBC is carried at
equity since the Company has the ability to exercise significant influence
over HBC. The quoted market price per share of HBC's common stock on the
NASDAQ Small Cap Market at June 30, 1996 was $9.50.
(b) Pilistav
During 1993, the Company acquired a 7% interest in Pilistav, a
community-sponsored telecommunication company which was unsuccessful in
its bids for concession rights to provide local public telephone service
in its area. HTCC had previously acquired a 75.2% interest in Pilistav.
The Company's interest in Pilistav was increased to 68% in September 1994
when it invested $930,000 directly into Pilistav. In March 1995, the
Company agreed to sell its interest in Pilistav to HTCC for approximately
$930,000. Although the Company had a 68% interest in Pilistav at
December 31, 1994, the investment was carried at cost since the Company's
control was considered temporary. The sale to HTCC was consummated and
full payment was received by March 31, 1995.
9. Private Placement
In March 1993, the Company sold a private placement consisting of $1,150,000
principal amount of unsecured promissory notes with interest at 6% and
230,000 shares of common stock for an aggregate purchase price of
$1,150,000.
The private placement investors have the right to include their shares in
any registration statement filed by the Company after the IPO to the extent
that the managing underwriter of the public offering advises the Company
that such inclusion would not interfere with the orderly sale of the
securities to be publicly offered.
The Company, in connection with the private placement, granted placement
agent warrants to purchase an aggregate of 5,700 shares of common stock
at an exercise price of 165% of the IPO price per share. The holders of
placement agent warrants have been granted certain rights to require the
Company, at the Company's expense, to register under the Securities Act
such private placement warrants and the underlying shares of common
stock. In addition, the holders of placement agent warrants have "piggy
back" registration rights.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
10. Capital Stock
(a) In connection with a public offering in July 1993, the Company granted
warrants entitling the underwriters to purchase up to 62,000 shares of
common stock during the four-year period commencing July 29, 1993 at an
exercise price equal to 165% of the IPO price.
(b) In connection with a private placement in April 1994, the Company
granted placement agent warrants to purchase 25,000 shares at $10.75
per share.
(c) On May 14, 1996, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to increase the number of
authorized shares of common stock from 3,000,000 to 10,000,000.
11. Stock Option Plan
On May 14, 1996, the Company's stockholders approved an increase in the
number of stock options available under the Stock Option Plan (the "Plan")
to 350,000. The Plan provides that incentive and nonqualified options may
be granted to officers and directors and consultants to the Company. The
Plan may be administered by either the Board of Directors or a committee of
three directors appointed by the Board (the "Committee").
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company,
except that, under certain circumstances, an optionee may exercise an
option within the three-month period after such termination of employment.
An optionee may not transfer any options except that an option may be
exercised by the personal representative of a deceased optionee within
the three-month period following the optionee's death. Incentive options
granted to any employee who owns more than 10% of the Company's outstanding
common stock immediately before the grant must have an exercise price of not
less than 110% of the fair market value of all underlying stock on the date
of the grant and the exercise term may not exceed five years. The aggregate
fair market value of common stock (determined at the date of grant) for
which any employee may exercise incentive options in the first calendar
year may not exceed $100,000. In addition, the Company will not grant a
nonqualified option with an exercise price less than 85% of the fair
market value of the underlying common stock on the date of the grant.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Effective July 29, 1993, the Company granted to three directors 15,000
incentive stock options exercisable at $8 per share, the IPO price; 5,000 of
these options were terminated in 1994. In February 1994, three employees in
Hungary were granted 20,000 incentive stock options exercisable at $10 per
share, provided they remain in the employ of the Company until December 31,
1994. In May 1994, 460,000 options exercisable at $1 per share were granted
to three officers in connection with their employment agreements (see Note
12(a)). In June 1994, the officers and directors of the Company were granted
65,000 incentive stock options exercisable at $8 per share, market value on
the date of grant. On March 7, 1996, the exercise price of the 75,000
options granted under the Plan was reduced from $8 to $3.375, which was the
market price at that date.
The following table is a summary of all stock options as of June 30, 1996:
Outstanding Option price
options per share
January 1, 1993 - -
Granted 15,000 $8.00
Balance at December 31, 1993 15,000 $8.00
Granted 545,000 $1.00 - $10.00
Terminated (5,000) $8.00
Balance at December 31, 1994
and 1995 555,000 $1.00 - $10.00
Change of exercise price
from $8.00 to $3.375 (75,000) $8.00
75,000 $3.375
Balance at June 30, 1996 555,000 $1.00 - $10.00
As of June 30, 1996, all stock options were exercisable.
12. Commitments and Contingencies
(a) Employment Agreements
Effective May 1, 1994, the Company entered into three-year employment
agreements with the three officers and terminated the existing
consulting and retainer agreement with them. The agreements were
extended by two additional years on October 23, 1995. The agreements
provided for aggregate annual compensation of $336,000 for the Chairman
of the Board, President and Secretary/Treasurer of the Company, and the
granting of options to the three officers to purchase 460,000 shares of
common stock of the Company at the exercise price of $1 per share with
vesting over a five-year period (20% per year).
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
Compensation expense, the difference between the quoted market price at
the date of grant and the option price, of $5,980,000 in connection with
the granting of the 460,000 stock options was being amortized over the
five-year vesting period which began May 1, 1994. For the six months
ended June 30, 1995, $598,000 of compensation expense was recorded in
connection with the above stock options. On October 23, 1995, the Board
of Directors voted to replace the original vesting period with immediate
vesting and, accordingly, the remaining balance of $4,285,667 of deferred
compensation at that date was charged to operations during the quarter
ended December 31, 1995.
In addition to the above compensation, the Company also paid legal fees of
$25,000 and $15,000 to the Secretary/Treasurer for the six months ended
June 30, 1996 and 1995, respectively.
(b) Leases
In August 1993, HTCC entered into a three-year lease in New York City, for
office space at a minimum annual rental of $21,375, plus electricity, and
which provides for rent escalation based on certain cost increases. The
Company entered into a sharing agreement as of August 1993 with HTCC
pursuant to which it agreed to share the costs for rent and electricity
equally with HTCC. Both companies vacated the premises effective April 1,
1996; the Company moved its offices to those of its counsel, Cohen &
Cohen, 445 Park Avenue, New York, NY 10022. Cohen & Cohen agreed to
supply offices when needed and office services to the Company without
charge.
The Company entered into a lease for office space in Vienna, Austria which
provides for minimum annual rental payments of approximately $33,000
through September 1997.
13. Related Party Transactions
(a) Revenues
For the six months ended June 30, 1996 and 1995, revenues earned from
subsidiaries of HTCC amounted to approximately $10,500 and $71,000,
respectively. These amounts include rental income of approximately $3,500
per month from the rental of an office condominium in Budapest, Hungary on
a month-to-month basis until the building was sold to HTCC during the
second quarter of 1996.
(b) Sale of Condominium Units
In January 1996, an entity wholly owned by the Company's President
acquired three condominium apartment units and three garage spaces being
built by the Company for $394,320. The purchase price was approximately
61% of the current offering price to the public and approximately 86% of
the currently expected cost. The purchase price was satisfied by
offsetting amounts due to the President for an amount paid by him in
January 1996, on behalf of the Company.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
HTCC is in the process of purchasing one of the condominium apartment
units being built by the Company for $250,000, which approximates the
offering price to the public. HTCC has paid deposits amounting to
$200,000.
During the second quarter of 1996, HTCC purchased from Teleconstruct the
ownership of the premises used as offices by HTCC and its subsidiary, HTCC
Consulting Rt, in Budapest, for $315,000, which approximated the Company's
cost.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
The Company was organized on November 9, 1992. Through its wholly-owned
Hungarian subsidiary, Teleconstruct Epitesi RT. ("Teleconstruct") the Company is
constructing in Budapest, Hungary, two apartment buildings with 14 apartments
in each, which the Company intends to sell as condominiums.
The Company was in the development stage through December 31, 1993 and has
been unprofitable to date.
For the six months ended June 30, 1996, the Company incurred a net loss of
$786,985 after interest and dividend income of $41,660. The net loss for the
six months ended June 30, 1995 amounted to $997,836 after interest and dividend
income of $213,186. The decrease in revenues from 1995 related primarily to a
decrease in construction revenue since all construction revenue was earned by
the Company's 90% owned subsidiary, Termolang Kft, which was sold effective
September 30, 1995.
The equity in net loss of unconsolidated affiliate of $182,000 for the six
months ended June 30, 1996 represents the Company's share of HBC's loss. The
Company's 9.7% interest in HBC is carried at equity since the Company has the
ability to exercise significant influence over HBC.
Liquidity and Capital Resources
In March 1993, the Company received $964,000 in net proceeds from a private
placement of Common Stock. The Company provided $588,250 to establish
Teleconstruct and $31,770 to establish Termolang and it retained the remaining
proceeds for operating funds.
In August 1993, the Company received $6,565,395 in net proceeds from a public
offering for the sale of 977,500 shares of its Common Stock at $8 per share.
In January 1994, the Company purchased for approximately $885,000 a 60,000
sq. foot parcel of undeveloped land in Hungary and is building two structures,
each one consisting of 14 units on this land. The Company intends to sell the
28 units as apartments with underground parking facilities, upon completion
during 1996.
In April 1994, the Company received $1,767,004 in net proceeds from a private
placement of 180,790 shares of its Common Stock. The Company used these
proceeds in connection with its construction activities.
Although the Company has incurred substantial losses in each fiscal year since
inception, and requires an estimated $700,000 to complete the two condominium
buildings it is currently constructing, the Company believes that it will
generate sufficient working capital for it to remain a going concern. The
Company intends to finance its construction requirements through advance
deposits from the selling of units. Currently, one apartment has been sold
to HTCC, an affiliate, for $250,000. During the second quarter of 1996, HTCC
purchased from Teleconstruct the ownership of the premises used as offices by
HTCC and its subsidiary HTCC Consulting Rt, in Budapest, for $315,000, which
approximated the Company's cost.
<PAGE>
The Company is also currently negotiating for a line of credit with a bank in
the event additional apartments are not sold fast enough to provide the required
funds to complete the buildings.
Inflation and Seasonality
The rate of inflation in Hungary was 28% in 1995 as compared to 18% for 1994
and 23% for 1993. Prices have been rising rapidly in recent years mainly
because of reduction or removal of subsidies and price controls, not because
of expansionist monetary policies. Since the Company uses the U.S. dollar as
the functional currency for its Hungarian subsidiaries, the Hungarian inflation
does not have a material effect on financial condition and results of
operations.
The Company believes that its construction operations will be seasonal in that
construction operations take place from March through November rather than
from December through February when the winter weather deters construction.
<PAGE>
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits* (numbers below reference Regulations S-B)
(3) (a) Certificate of Incorporation filed November 9, 1992
(b) Amendment to Certificate of Incorporation filed April 23, 1993
(c) Amendment to Certificate of Incorporation filed May 21, 1996****
(d) By-laws
(4) (a) Form of Common Stock Certificate
(b) Form of Underwriters' Warrants to be sold to Underwriters
(c) Placement Agreement between Registrant and J.W. Barclay & Co.,
Inc. and form of Placement Agent Warrants issued in connection
with private placement financing
(d) Placement Agreement between Registrant and Nichols Safina Lerner
& Co. Inc. and Placement Agent Warrants issued in connection
with private placement financing
(10) (a) Consulting agreement between Registrant and Klenner Securities,
Ltd.
(b) Consulting agreement between Registrant and Robert Genova
(c) Consulting agreement between Registrant and Laszlo Modransky
(d) 1993 Incentive Stock Option Plan
(e) Sharing agreement for space and facilities between Registrant
and Hungarian Telephone & Cable Corp.
(f) Articles of Association (in English) of Teleconnect Building
Corp.
(g) Articles of Association (in English) of Termolang Engineering
and Construction Ltd.
(h) Letter of intent between Teleconnect Building Corp. and Pilistav
Kft
(i) Employment Agreement between Registrant and Robert Genova**
(j) Employment Agreement between Registrant and Peter E. Klenner**
<PAGE>
(k) Employment Agreement between Registrant and Frank R. Cohen**
(l) Letter of Intent Agreement between Registrant and Raba-Com RT***
(m) Letter of Intent Agreement between Registrant and Kelet-Nograd
Com RT***
(n) Letter of Intent Agreement between Registrant and 3 Pilistav
villages for installation of cable in those areas
* All Exhibits are incorporated by reference to Registrant's
Registration Statement on Form SB-2 dated May 12, 1993 (Registration
No. 33-62672-NY, as amended)
** Filed with Form 8-K as of February 17, 1994 and as of May 27, 1994
(modifications)
*** Filed with report on Form 10-K for year ended December 31, 1993
**** Filed with report on Form 10-QSB for the quarter ended June 30, 1996
B. No reports on Form 8-K have been filed during the last quarter covered by
this report on Form 10-QSB
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 15th day of August, 1996.
HUNGARIAN TELECONSTRUCT CORP.
By
Frank R. Cohen
Treasurer
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Hungarian Teleconstruct Corp., a corporation organized and existing under and
by virtue of the General Corporation law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of Hungarian
Teleconstruct Corp., resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling
a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered
FOURTH so that, as amended said Article shall be and read as
follows:
FOURTH: The notal number of shares of all classes of stock
which the corporation is authorized to issue is 10,000,000.
All such shares are to have a par value and are classified
as 10,000,000 shares of Common Stock and the par value of
each such share of Common Stock is $.001. Each issued and
outstanding share of Common Stock shall entitle the holder
of record thereof to one vote.
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a meeting of the stockholders of said corporation was duly called
and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting
the necessary number of shares as required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said Hungarian Teleconstruct Corp., has caused this
certificate to be signed by Robert Genova, its Chairman of the Board, and
Frank R. Cohen, its Secretary, this 14th day of May, 1996.
By:
Robert Genova
Chairman of the Board
By:
Frank R. Cohen
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000905428
<NAME> HUNGARIAN TELECONSTRUCT CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 187,265
<SECURITIES> 0
<RECEIVABLES> 498,242
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 756,721
<PP&E> 351,738
<DEPRECIATION> 87,060
<TOTAL-ASSETS> 5,244,228
<CURRENT-LIABILITIES> 754,158
<BONDS> 0
0
0
<COMMON> 1,518
<OTHER-SE> 4,488,552
<TOTAL-LIABILITY-AND-EQUITY> 5,244,228
<SALES> 0
<TOTAL-REVENUES> 31,098
<CGS> 0
<TOTAL-COSTS> 677,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (786,985)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (786,985)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
