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
March 31, 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 March 31, 1996)
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of March 31, 1996 (unaudited)
and December 31, 1995 (audited) 2
Consolidated statements of loss (unaudited) for the three
months ended March 31, 1996 and 1995 3
Consolidated statements of stockholders' equity (unaudited)
for the three months ended March 31, 1996 and 1995 4
Consolidated statements of cash flows (unaudited) for the
three months ended March 31, 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
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 December 31, 1995
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 545,703 $ 376,986
VAT refund receivable 265,142 221,216
Receivables from related parties 29,567 566,746
Other 42,079 40,375
Total current assets 882,491 1,205,323
Property and equipment, less accumulated
depreciation of $80,745 and $77,773,
respectively 596,572 611,316
Construction in progress 3,508,193 3,119,721
Investment in and advances to affiliate 805,631 872,667
Other 385 51,308
$ 5,793,272 $5,860,335
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ $ 16,502
Accounts payable and accrued expenses 358,895 566,778
Payables to related parties 104,486
Deposits payable 491,354
Total current liabilities 954,735 583,280
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value - shares
authorized 3,000,000; issued and
outstanding 1,518,290 1,518 1,518
Additional paid-in capital 14,645,998 14,645,998
Accumulated deficit (9,808,979) (9,370,461)
Total stockholders' equity 4,838,537 5,277,055
$ 5,793,272 $5,860,335
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three Months Ended
March 31,
1996 1995
REVENUES
Construction $ $ 28,008
Other 31,098 36,999
Total 31,098 65,007
EXPENSES (INCOME)
Cost of construction revenue 79,300
Compensation and related costs 182,221 437,966
Consulting and professional fees 31,000 6,000
Foreign currency (gain)loss 85,030 88,236
Interest and dividend income (20,986) (79,299)
Depreciation and amortization 6,368 10,053
Other 103,983 175,637
Total 387,616 717,893
Loss before equity in net loss of
unconsolidated affiliate (356,518) (652,886)
Equity in net loss of unconsolidated affiliate (82,000)
Net loss $(438,518) $(652,886)
Net loss per share $ (.29) $ (.43)
Weighted average number of common
shares outstanding 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
THREE MONTHS ENDED MARCH 31, 1996:
Balance, January 1, 1996 1,518,290 $1,518 $14,645,998 $(9,370,461)
Net loss for the period (438,518)
Balance, March 31, 1996 1,518,290 $1,518 $14,645,998 $(9,808,979)
THREE MONTHS ENDED MARCH 31, 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 299,000
Net loss for the period (652,886)
Balance, March 31, 1995 1,518,290 $1,518 $9,559,331 $(3,543,970)
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(438,518) $(652,886)
Adjustments to reconcile net loss to
net cash provided by(used in) operating
activities:
Depreciation and amortization 6,368 10,053
Amortization of imputed interest income (13,000) (70,000)
Amortization of options granted as compensation 299,000
Loss on disposal of property and equipment 1,829
Foreign currency loss 85,030 88,236
Loss on sale of Pilistav 23,530
Equity in net loss of unconsolidated affiliate 82,000
Changes in operating assets and liabilities:
Decrease in accounts receivable 5,945
Increase in VAT refund receivable (43,926)
(Increase)decrease in receivables from
related parties 537,179 (46,363)
Decrease in other assets 49,219 123,895
Increase(decrease) in accounts payable and
accrued expenses (207,883) 33,616
Increase in payables to related parties 104,486
Increase in deposits payable 491,354
Net cash provided by(used in)
operating activities 654,138 (184,974)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
and construction in progress (381,925) (247,928)
Proceeds from sale of Pilistav 918,875
Increase in investment in and advances
to affiliate (1,964) (764,338)
Net cash used in investing activities (383,889) (93,391)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in bank overdraft (16,502)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (85,030) (88,236)
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 168,717 (366,601)
Cash and cash equivalents at beginning of period 376,986 2,107,892
Cash and cash equivalents at end of period $ 545,703 $1,741,291
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 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 9.4% 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 are
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 has been 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 March 31, 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 March 31, 1996, cash includes $137,399 denominated in U.S. dollars on
deposit with a major money center bank and $173,683 invested in a U.S.
Treasury Money Market Fund in the United States. In addition, $234,621
(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 March 31, 1996, receivables from and payables to related parties include
the following:
Receivables Payables
HTCC $29,567
Officer/stockholder and affiliate $104,486
The amount due from HTCC primarily represents accrued interest on
advances.
The amount due to the officer/stockholder and affiliate primarily
represents a non-interest bearing loan which is payable on December 31,
1996.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
7. Construction in Progress
Construction-in-progress of $3,508,193 at March 31, 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 $1,100,000 to complete. The condominiums
are expected to be completed during the second half of 1996.
8. Investment in and Advances to Affiliate
(a) Hungarian Broadcasting Corp.
At March 31, 1996, the investment in and advances to HBC includes
the following:
Investment at equity $321,000
Loans and advances, including
accrued interest, less original
issue discount of $65,000 484,631
$805,631
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 refusal 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.
The Company's 9.7% interest in HBC (250,000 shares of common stock)
at March 31, 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 $13,000 amortized during the three months
ended March 31, 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 March 31, 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
March 31, 1996 was $8.25.
(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 July and August 1993, the Company sold 850,000 and 127,500 shares
of common stock, respectively, pursuant to a public offering. The
net proceeds from these sales were $6,565,395.
In connection with the public offering, 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 April 1994, the Company received $1,767,004 in net proceeds,
after deducting placement agent fees and offering expenses of
$232,996, from a private placement of 180,790 shares of its common
stock. In connection with the private placement, the Company granted
placement agent warrants to purchase 25,000 shares at $10.75 per
share.
(c) On March 7, 1996, the Company's Board of Directors 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 and to authorize the issuance of up to 5,000,000 shares
of preferred stock. The above changes are subject to approval by
the Company's stockholders.
11. Stock Option Plan
The Company has adopted a Stock Option Plan (the "Plan") under which an
aggregate of 100,000 shares of common stock is authorized for issuance.
On March 7, 1996, the Board of Directors approved an increase in the
number of stock options available under the Plan to 350,000. The increase
is subject to approval by the Company's stockholders. 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"). The Board or Committee
determines, among other things, the persons to whom stock options are
granted, the number of shares subject to each option, the date or dates
upon which each option may be exercised and the exercise price per share.
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 March 31, 1996:
Outstanding Option price
options per share
January 1, 1993 - -
Granted 15,000 $8.00
December 31, 1993 15,000 $8.00
Granted 545,000 $1.00 - $10.00
Terminated (5,000) $8.00
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
March 31, 1996 555,000 $1.00 - $10.00
As of March 31, 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 thegranting of the 460,000 stock options was being amortized over
the five-year vesting period which began May 1, 1994. For the three
months ended March 31, 1995, $299,000 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.
(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.
The Company owns a building at 118 Budapest Szamado ut 19 which it
leases to HTCC on a month-to-month basis at a rental of approximately
$3,500 per month.
13. Related Party Transactions
(a) Revenues
For the three months ended March 31, 1996 and 1995, revenues earned
from subsidiaries of HTCC amounted to approximately $10,500 and
$36,000, 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.
(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 two of the condominium
apartment units being built by the Company for approximately
$420,000, which approximates the offering price to the public.
HTCC made a $250,000 deposit payment in April 1996.
On March 26, 1996, HTCC agreed to purchase from Teleconstruct the
ownership of the premises used as offices by HTCC and its subsidiary
HTCC Consulting Rt, in Budapest, for a price of $250,000 or such
lesser amount as can be substantiated as cost to Teleconstruct if
lower. $97,034 purchase price has been received as a deposit. In
the event that the Company does not complete the purchase for any
reason within 60 days, the deposit paid, and all accrued
interest, is returnable by Teleconstruct to the Company.
<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 three months ended March 31, 1996, the Company incurred a net loss of
$438,518 after interest and dividend income of $20,986. 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 $82,000 represents the
Company's share of HBC's loss for the three months ended March 31, 1996. 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 a negative working capital of $72,244 at March 31,
1996, it has incurred substantial losses in each fiscal year since inception,
and requires an estimated $1,100,000 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, two apartments have been sold to HTCC, an
affiliate, for approximately $420,000 of which $250,000 was received in April
1996 and the balance is due on completion. On March 26, 1996, HTCC agreed to
purchase from Teleconstruct the ownership of the premises used as offices by
HTCC and its subsidiary HTCC Consulting Rt, in Budapest, for a price of
$250,000 or such lesser amount as can be substantiated as cost to Teleconstruct
if lower. $97,034 of the purchase price has been received as a deposit.
<PAGE>
In the event that HTCC does not complete the purchase for any reason within 60
days, the deposit paid, and all accrued interest, is returnable by Teleconstruct
to HTCC. 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) 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
B. No reports on Form 8-K have been filed during the last quarter
covered by this report on Form 10-QSB<PAGE>
<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 20th day of May, 1996.
HUNGARIAN TELECONSTRUCT CORP.
Registrant
Frank R. Cohen
Frank R. Cohen
Treasurer
