U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1200
HUNGARIAN TELECONSTRUCT CORP.
(Exact name of small business issuer 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, 15th Floor, New York, NY 10022
(Address of principal executive offices)
(212) 758-9870
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 par value 3,321,753 Shares
(Class) (Outstanding at June 30, 1997)
Transitional Small business Disclosures Format (Check one): Yes No X
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 December 31, 1996
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 378,781 $ 495,703
Accounts receivable 219,133 -
VAT refund receivable 55,016 74,412
Receivables from related parties 480,168 480,784
Prepaid and other current assets 132,275 101,564
Total current assets 1,265,373 1,152,463
Property and equipment, less accumulated
depreciation of $93,018 and $38,750,
respectively 337,963 65,586
Office condominium unit held for sale - 209,000
Construction in progress, net of $1,000,000
allowance for reduction to market value 3,677,468 3,527,090
Advances on acquisitions - 1,585,000
Investment in and advances to affiliate 228,260 218,344
Goodwill 1,721,137 -
Other 34,319 -
$ 7,264,520 $ 6,757,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to affiliate $ 350,000 $ -
Payable to owners of acquired business 268,508 400,000
Accounts payable and accrued expenses 655,724 259,996
Compensation payable to officers 46,000 96,000
Deposits payable 594,320 594,320
Total current liabilities 1,914,552 1,350,316
10% CONVERTIBLE DEBENTURES 680,000 485,000
PAYABLE TO FORMER OFFICER 1,020,778 895,719
Total liabilities 3,615,330 2,731,035
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS;
$.001 PAR VALUE, SHARES ISSUED AND
OUTSTANDING 144,000 360,000 -
STOCKHOLDERS' EQUITY
Common stock, $.001 par value - shares
authorized 10,000,000 (1997) and
3,000,000 (1996); issued and
outstanding 3,177,753 and 2,476,269,
respectively 3,178 2,476
Additional paid-in capital 18,831,680 17,681,947
Accumulated deficit (15,545,668) (13,657,975)
Total stockholders' equity 3,289,190 4,026,448
$ 7,264,520 $ 6,757,483
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,
1997 1996 1997 1996
REVENUES
Internet $ 321,828 $ - $ 608,080 $ -
Other - - - 31,098
Total 321,828 - 608,080 31,098
EXPENSES(INCOME)
Compensation and
related costs 97,804 117,181 317,805 299,402
Consulting and
professional fees 86,286 80,400 170,561 111,400
Foreign currency loss 1,337 19,047 75,761 104,077
Depreciation and amortization
of property and equipment 33,860 6,315 54,268 12,683
Amortization of goodwill 105,000 - 191,000 -
Interest and dividend income (21,211) (20,674) (40,211) (41,660)
Interest expense 426,320 - 854,517 -
Financing costs 73,779 - 133,703 -
Loss on sale of office
condominium unit 75,000 - 75,000 -
Other 407,231 46,198 663,369 150,181
Total 1,285,406 248,467 2,495,773 636,083
Loss before equity in net loss
of unconsolidated affiliate (963,578) (248,467) (1,887,693) (604,985)
Equity in net loss of
unconsolidated affiliate - (100,000) - (182,000)
Net loss $ (963,578) $ (348,467) $(1,887,693)$ (786,985)
Net loss per share $ (.30) $ (.23) $ (.63)$ (.52)
Weighted average number of
common shares outstanding 3,197,570 1,518,290 3,007,469 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, 1997:
Balance, January 1, 1997 2,476,269 $2,476 $17,681,947 $(13,657,975)
Issuance of put options on
common stock issued in
connection with acquisitions (144,000) (144) (359,856) -
Compensation relating to the
extension of the period of
exercisability of former
officers' options - - 125,000 -
Issuance of shares on conversion
of debentures 845,484 846 604,589 -
Incremental interest from
revaluation of convertible
debentures - - 780,000 -
Net loss for the period - - - (1,887,693)
Balance, June 30, 1997 3,177,753 $3,178 $18,831,680 $(15,545,668)
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)
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,887,693) $(786,985)
Adjustments to reconcile net loss to
net cash provided by(used in) operating
activities:
Depreciation and amortization of
property and equipment 54,268 12,683
Amortization of goodwill 191,000 -
Amortization of imputed interest income (26,000) (26,000)
Options granted/extended as compensation 125,000 -
Incremental interest on revaluation of
convertible debentures 780,000 -
Interest on debentures paid in shares of
capital stock 20,435 -
Loss on sale of office condominium unit 75,000 -
Loss on disposal of property and equipment - 1,829
Foreign currency loss 75,761 104,077
Equity in net loss of unconsolidated affiliate - 182,000
Changes in operating assets and liabilities:
Increase in accounts receivable (219,133) -
Decrease in VAT refund receivable 19,396 143,758
Decrease in receivables from related parties 616 533,962
(Increase)decrease in prepaid and other assets (65,030) 20,104
Increase(decrease) in accounts payable and
accrued expenses 395,728 (420,259)
Decrease in compensation payable to officers (50,000) -
Increase in payables to related parties - 13,319
Increase in deposits payable - 594,320
Increase in payable to former officer 125,059 -
Net cash provided by(used in) operating activities (385,593) 372,808
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
and construction in progress (477,023) (751,736)
Decrease in advances on acquisitions 1,585,000 -
Acquisition of goodwill (1,912,137) -
Payment to owners of acquired business (131,492) -
Proceeds from sale of building to HTCC - 315,000
Proceeds from sale of office condominium unit 134,000 -
(Increase)decrease in investment in and advances
to affiliate 16,084 (5,214)
Net cash used in investing activities (785,568) (441,950)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt 780,000 -
Proceeds from note payable to affiliate 350,000 -
Decrease in bank overdraft - (16,502)
Net cash provided by(used in) financing activities 1,130,000 (16,502)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (75,761) (104,077)
DECREASE IN CASH AND CASH EQUIVALENTS (116,922) (189,721)
Cash and cash equivalents at beginning of period 495,703 376,986
Cash and cash equivalents at end of period $ 378,781 $187,265
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock upon conversion of
debentures and accrued interest $ 605,435 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
HUNGARIAN TELECONSTRUCT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
The incremental yield on the debentures relating to the convertibility of
the debentures into common stock at a 50% discount to the common stock's
market price resulted in interest charges of $780,000 to the consolidated
statement of loss for the six months ended June 30, 1997. In addition,
the financing costs of $133,703 incurred in connection with the sale of
the debentures were charged to 1997 operations, since a substantial
portion of the debentures is expected to be converted to common stock
within a short period.
(b) In October 1996, the Company sold a private placement consisting of
550,000 shares of common stock and 550,000 common stock purchase warrants
exercisable at $2 per share at any time from October 1, 1997 until
September 30, 2001 for net proceeds of $972,450 after deducting placement
agent fees and offering expenses of $127,550. The warrants and the
underlying shares of common stock have been registered under the
Securities Act of 1933. The exercise price was reduced to $1.25 per
share on June 26, 1997.
10. Stock Option Plan and Warrants
Stock Options
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 any 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.
For options granted to employees at exercise prices equal to the fair market
value of the underlying common stock at the date of grant, no compensation
cost is recognized.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
The Company was organized on November 9, 1992. The Company was in the
development stage through December 31, 1993 and has been unprofitable to
date. Through its wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Rt.
("Teleconstruct") the Company is constructing for sale two luxury 14-unit
condominiums in Budapest.
In January 1997, the Company acquired three operating Internet service provider
businesses and has been in the process of consolidating the three businesses
under one roof and operating the three businesses as a single unit. Revenues
from the Internet business for the six months ended June 30, 1997 amounted to
$608,080.
In February 1997, the Company's Chairman of the Board resigned as an officer,
director and employee, and agreed to a cancellation of his employment agreement
upon payment of $50,000, which represented the approximate amount owed to him
with respect to 1996 salary. In addition, 125,000 stock options which were
granted to him under his employment agreement will not terminate as a result
of the resignation, but will continue to be governed by the original terms of
the options. Compensation of $100,000 has been charged to the 1997 operations
relating to the period of exercisability of the options.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests
and Internet business. He agreed to render consulting services for a two-year
period for a fee of 100,000 five-year options exercisable at $2.00 per share.
The compensation relating to these options is being charged to operations over
a two-year period.
For the six months ended June 30, 1997, the Company incurred a net loss of
$1,887,693; the net loss for the six months ended June 30, 1996 amounted to
$786,985. The acquisition of the Internet business resulted in goodwill of
$1,912,077, which is being amortized over five years; amortization for the
six months ended June 30,1997 amounted to $191,000.
The equity in net loss of unconsolidated affiliate of $182,000 for the six
months ended June 30, 1996 represented the Company's share of HBC's estimated
loss. The Company's 9.7% interest in HBC was carried at equity because the
Company had the ability to exercise significant influence over HBC. Effective
October 1, 1996, the Company discontinued its use of the equity method of
accounting for its investment in HBC, since the Company no longer had the
ability to exercise significant influence over HBC.
Financing costs of $133,703 incurred in connection with the sale of convertible
debentures were charged to 1997 operations since a substantial portion of the
debentures are expected to be converted to common stock within a short period.
Interest expense of $854,517 in 1997 includes $780,000 of incremental interest
on the convertible debentures relating to the convertibility of the debentures
at a 50% discount to the Common Stock's market price. The balance of the
interest was primarily incurred on various borrowings.
<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 th day of November 1998
HUNGARIAN TELECONSTRUCT CORP.
By /s/ Frank R. Cohen
Frank R. Cohen
Chairman of the Board
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] JUN-30-1997
[CASH] 378,781
[SECURITIES] 0
[RECEIVABLES] 754,317
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1,265,373
[PP&E] 430,981
[DEPRECIATION] 93,018
[TOTAL-ASSETS] 7,264,520
[CURRENT-LIABILITIES] 1,914,552
[BONDS] 1,700,778
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 3,178
[OTHER-SE] 3,286,012
[TOTAL-LIABILITY-AND-EQUITY] 7,264,520
[SALES] 0
[TOTAL-REVENUES] 608,080
[CGS] 0
[TOTAL-COSTS] 1,641,256
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 854,517
[INCOME-PRETAX] (1,887,693)
[INCOME-TAX] 0
[INCOME-CONTINUING] (1,887,693)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,887,693)
[EPS-PRIMARY] (.63)
[EPS-DILUTED] (.63)
</TABLE>
