AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EUROWEB INTERNATIONAL CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
(STATE OR JURISDICTION
OF INCORPORATION OR ORGANIZATION)
7379
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
13-3696015
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
445 PARK AVENUE, 15TH FLOOR, NEW YORK, NEW YORK 10022
(212) 758-9870 (ADDRESS AND TELEPHONE NUMBER OF
PRINCIPAL EXECUTIVE OFFICES)
FRANK R. COHEN
445 PARK AVENUE, 15TH FLOOR NEW YORK, NEW YORK 10022,
(212) 758-9870 (NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
COPIES TO:
FRANK R. COHEN, ESQ.
COHEN & COHEN
445 PARK AVENUE, 15TH FLOOR
NEW YORK, NEW YORK 10022
TEL: (212) 758-9870
HENRY C. MALON, ESQ.
1 BATTERY PARK PLAZA, 3RD FLOOR
NEW YORK, NY 10004
TEL: (212) 483-9600
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective. If any of the
Securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box|X|.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering|_|.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering|_|.
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box|_|.
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH MAXIUM MAXIUM
CLASS OF SECUTITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED TO BE PRICE OFFERING REGISTRATION
REGISTERED PER UNIT(1) PRICE(1) FEE
Units each consisting
of one share of
Preferred Stock,
$.001 par value,
and two Common Stock
Purchase Warrants(2) 1,150,000 $ 6.00 $6,900,000 $ 2,035
COMMON STOCK, ($.001
PAR VALUE)(3) 4,600,000 -- -- --
COMMON STOCK, ($.001
PAR VALUE)(4) 2,300,000 $ 2.20 $5,060,000 $ 1,493
UNDERWRITERS' UNIT
WARRANTS(5) 100,000 $ .00 $ 100 --
UNITS UNDERLYING THE
UNDERWRITERS'
UNIT WARRANTS 100,000 $ 9.90 $ 990,000 $ 292
COMMON STOCK, $.001
PAR VALUE(6) 400,000 -- -- --
COMMON STOCK, $.001
PAR VALUE(7) 200,000 $ 2.20 $ 440,000 $ 130
<PAGE>
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Total registration Fee $1,390,100 $3,950
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(FOOTNOTES CONTINUED ON NEXT PAGE)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
(Continued from cover page)
(1) Estimated solely for the purpose of computing the registration fee. (2)
Includes 150,000 Units subject to the Underwriters' over-allotment option.
(3) Issuable upon conversion of Preferred Shares.
(4) Represents shares of Common Stock issuable upon the exercise of Warrants.
The Registration Statement also covers any additional shares which may
become issuable pursuant to antidilution provisions in the aforementioned
warrants.
(5) To be issued to the Underwriters.
(6) Issuable upon conversion of Preferred Shares underlying Underwriters' Unit
Warrants.
(7) Issuable upon exercise of Warrants included in the Units underlying the
Underwriters' Unit Warrants. The Registration Statement also covers any
additional shares which may become issuable pursuant to antidilution
provisions in the aforementioned warrants.
<PAGE>
PRELIMINARY PROSPECTUS DATED AUGUSt 19, 1998
SUBJECT TO COMPLETION
EUROWEB INTERNATIONAL CORP.
1,000,000 Units
Each Unit Consisting of One Share of Series A Convertible
Cumulative Redeemable Preferred Stock and Two Common Stock Purchase Warrants
--------------------------------------------
Euroweb International Corp. ("Euroweb" or the "Company") hereby offers
1,000,000 Units (the "Units"), each Unit consisting of one share of Series A
Convertible Cumulative Redeemable Preferred Stock (the "Preferred Shares") and
two Common Stock Purchase Warrants (the "Warrants"). The components of the
Units will not be separately transferable until 1999 (nine months after the
date of the Prospectus) or such earlier date after (two months after the date
of this Prospectus) as J.W. Barclay & Co., Inc. (the "Representative") may
determine (the "Separation Date"). The Warrants are neither detachable nor
separately transferable until the Separation Date. Each Warrant entitles the
holder to purchase one share of Common Stock at a price of $_ per share after
the Separation Date until 2003 (five years after the date of the Prospectus).
The Warrants may be redeemed by the Company commencing two months after the
Separation Date under certain circumstances. Each Preferred Share is
convertible into three shares of Common Stock commencing on the Separation
Date and pays a cumulative annual dividend of $.36 per share payable on
April 30 of each year.
(Continued on page 2)
--------------------------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS."
--------------------------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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Per Unit....................... $6.00 $.60 $5.40
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Total(3)....................... $6,000,000 $600,000 $5,400,000
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(1) Does not reflect additional compensation to the Underwriters, including a
nonaccountable expense allowance equal to 3% of the aggregate purchase
price of the Units and Warrants to purchase 100,000 Units from the
Company, for a period of five years commencing on the effective date of
the Offering, at an exercise price equal to 165% of the public offering
price of the Units. The Company and the Underwriters have also agreed to
indemnify each other against certain civil liabilities including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $400,000 which
includes the Underwriters' nonaccountable expense allowance.
(3) The Company has granted an option to the Underwriters exercisable within
45 days after the date of this Prospectus, to purchase up to an additional
150,000 Units, on the same terms, solely to cover over-allotments, if any.
If the over allotment option is exercised in full, the total "Price to
Public," "Underwriting Discounts and Commissions" and "Proceeds to
Company" would be $6,900,000, $690,000, and $6,210,000, respectively.
See "Underwriting."
The Units are being offered by the Underwriters on a "firm commitment"
basis, subject to prior sales, receipt and acceptance, the approval of
certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to reject orders in whole or in part.
It is expected that delivery of the certificates representing the Units
will be made at the offices of J.W. Barclay & Co., Inc., One Battery Park
Plaza, New York, New York 10004 on or about 1998.
J.W. BARCLAY & CO., INC.
The date of this Prospectus is 1998
<PAGE>
(Continued from Cover Page)
Dividends on the Preferred Shares may be paid in shares of Common Stock or
cash at the Company's option. For the foreseeable future, the Company expects
to make dividend payments in shares of Common Stock to the extent it may
legally do so. The Company has been operating at a loss since it commenced
operations. In the years ended December 31, 1996 and 1997, the Company had
losses of $3,795,014 and $2,007,228, respectively. For the first six months of
1997 and 1998, the Company had losses of $1,411,693 and $377,104 respectively.
The Preferred Shares are redeemable after the Separation Date at the option of
the Company, on not less than 30 days' written notice to registered holders at
the redemption price of $7.20 per share plus accumulated dividends, provided
the Company may not redeem the Preferred Shares unless the closing price of the
Common Stock equals or exceeds $ per share for at least 20 of the 30
consecutive trading days ending within five trading days prior to the date the
redemption notice is mailed. See "Description of Securities."
The Company's Common Stock is traded on the NASDAQ Small-Cap Market under
the symbol EWEB. There has been no market for the Units or the Preferred Shares
or the Common Stock Purchase Warrants prior to this offering. It is expected
that after this offering, the Units will trade on the NASDAQ Small-Cap Market
under the symbol EWEBU, but there can be no assurance that a market will
develop for the Units. See "Underwriting." On August 17, 1998, the closing bid
prices of the Common Stock, as reported by NASDAQ, was $1 7/8. See "Price
Range of Securities."
--------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE UNITS OF THE
COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. SUCH STABILIZING ACTIONS, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
--------------------------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933 (the
"Act") with respect to the securities to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, which may be obtained, together with other information about the
Company, from the Public Reference Section of the Commission upon payment of
the prescribed fees.
The Company will provide without charge to any person who receives a copy
of this Prospectus, upon written or oral request of such person, a copy of any
of the information that is incorporated by reference in this Prospectus. Any
such request should be directed to the attention of Frank R. Cohen, Chairman of
the Board, EuroWeb International Corp. at 445 Park Avenue, New York, New York
10022, telephone number: (212) 758-9870.
The Company furnishes its stockholders after the close of each fiscal
year, annual reports containing financial statements audited by its independent
certified public accountants. The Company will also furnish other reports as it
may determine or as may be required by law.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance with
Section 12(g) thereunder, files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
2
<PAGE>
and at its Regional Offices located at 7 World Trade Center, New York, New York
10048 and 500 West Madison Street, Chicago, Illinois 60601.
The Commission maintains a Web Site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file documents electronically with the
Commission.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY.
SUCH STATEMENTS REFLECT SIGNIFICANT ASSUMPTIONS AND SUBJECTIVE JUDGMENTS BY THE
COMPANY'S MANAGEMENT CONCERNING ANTICIPATED RESULTS. THESE ASSUMPTIONS AND
JUDGMENTS MAY OR MAY NOT PROVE TO BE CORRECT. MOREOVER, SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING
STATEMENTS. FOR A DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS." INVESTORS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS,
WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE UNDERWRITER HAS NOT ATTEMPTED TO
VERIFY THE BASIS FOR ANY SUCH STATEMENTS INDEPENDENTLY AND NEITHER THE
UNDERWRITER NOR THE COMPANY UNDERTAKE ANY OBLIGATION TO RELEASE PUBLICLY ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OCCURRING OR
CIRCUMSTANCES ARISING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise noted (i) the information in
this Prospectus assumes that the Underwriter's over-allotment option will not
be exercised, and (ii) all statistical and financial information presented in
this Prospectus has been converted into United States Dollars using exchange
rates as of July 31, 1998. All references to $ or Dollars are to United States
Dollars; all references to "HUF" are to Hungarian Forints. As of July 31, 1998,
the Exchange Rate was HUF 215 to $1.
THE COMPANY
EuroWeb International Corp. ("EuroWeb" or the "Company") is a full service
Internet service provider ("ISP") operating in Hungary, supplying international
leased lines and MCI VSAT data connections to the World Wide Web and providing
access to managed lease lines and dial-up subscribers, complete Internet
graphic services including designing and creation of Web sites and hosting of
Web sites, Internet fax discount services, and development of software to
provide electronic commercial Internet based solutions to perform many business
processes.
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company through
December 31, 1993. It originally had two subsidiary Hungarian corporations, one
of which was engaged as a general contractor in the construction of buildings
and the other was engaged in the construction of local telephone exchanges for
community sponsored telecom companies in Hungary. It had two operating business
segments: (1) building of condominium apartments and (2) design and laying of
underground fiber optic telephone and cable lines. The latter segment was
discontinued in 1994.
The Company built two luxury 14-unit condominium buildings in Budapest,
which were completed in early 1998, at which time the Company ceased its
construction activities. One of such buildings was sold in March 1998, and the
second was leased for a five-year period commencing April 1, 1998. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions").
On January 2, 1997, the Company entered the Internet service provider
business in Hungary acquiring three Hungarian Internet Service companies,
namely EUNET Hungary Ltd. (EUNET"), MS Telecom Rt. ("MS Telecom"), and E-Net
Hungary Telecommunications and Multimedia, Kft. ("E-Net"). EUNET was a provider
of managed leased line Internet access to corporate customers, MS Telecom was a
provider of dial-up Internet access to small businesses, and E-Net was a
developer of Web Sites. Each of these companies had separate facilities,
marketed their services through different channels, had different customer
bases, different personnel and different bookkeeping systems. By the end of
April 1997, the Company rented a new facility, combined all three companies
into one facility, eliminated approximately 35% of the personnel to avoid
duplication, established a common accounting department and was able to retain
the customer bases of each of the acquired companies.
In 1998 the Company started a division to develop Internet software to
provide electronic commercial based solutions to perform many business
processes. This division was retained by Fornex, an agent of the Budapest Stock
Exchange ("BSE"), to develop software to record all transactions on the BSE in
real time, which information can be obtained by subscribers through the
Internet. The division also has been retained by Posta Bank, Hungary's second
largest bank, to help develop software for home banking use by customers of the
bank and to provide access for the customers to enable the customers to
transfer funds on deposit at the bank by the Internet electronically to third
parties. The Company is also working on software for credit card processing and
transaction validation.
The Company also added discount fax service for its customers in 1998.
These services enable customers to send faxes anywhere in the world at a cost
substantially lower than what the customers would pay using ordinary telephone
lines. Customers are able to access this new service using a regular fax
machine or through their computers. Recipients will be able to receive the
transmission on a computer or on a fax machine. The Company is also the node
for faxes sent to Hungary from locations around the world by members of a
worldwide alliance of Internet service providers known as GRIC (Global Research
Internet Connection).
4
<PAGE>
EuroWeb further expanded its capabilities in 1998 by leasing satellite
space on a satellite owned by MCI.
The Company's objective is to become the leading Hungarian Internet
professional services firm. To achieve its goal, the Company's strategy is to
expand its Internet services and solutions, both through internal growth and
through related business acquisitions.
Unless the context otherwise requires, when used herein, the term
"Company" shall include EuroWeb International Corp. and its Hungarian
subsidiaries, EuroWeb Rt., which administers the Internet Company's operations
in Hungary, and Teleconstruct Epitesi, Kft., which administers the Company's
building operation in Hungary. The office of the Company in the United States
is 445 Park Avenue, New York, NY 10022; Telephone number: (212) 758-9870. The
office of both subsidiaries in Hungary is H-1122 Budapest, Varosmajor utca 13;
Telephone number: (361) 2244-000.
5
<PAGE>
THE OFFERING(1)
Securities Offered 1,000,000 Units, each unit consists of one
by the Company Preferred Share and two Common Stock Purchase
Warrants. The Underwriter has an option to
purchase up to 150,000 additional Units to
cover over-allotments. See "Underwriting."
The Preferred Shares and the Common Stock
Purchase Warrants are not detachable,
separately transferable or exercisable until
May 12, 1999 or such earlier date
after October 12, 1998 as may be designated
by the Underwriter (the "Separation
Date"). See "Description of Securities."
Rights of the Preferred Shares:
Dividends ................. Cumulative annual dividends of $.36 payable
on April 30 of each year beginning April 30,
1999. Unpaid dividends will accumulate and
be payable prior to the payment of dividends
on the Common Stock. The Company may, at its
option, pay dividends in shares of Common
Stock, in lieu of cash. Shares used for such
purpose will be valued at the average closing
bid price during the ten trading days ending
on the tenth day before the dividend record
date, subject to certain conditions.
For the foreseeable future, the Company
expects to make dividend payments on the
Preferred Shares in shares of Common Stock.
See "Description of Securities."
Conversion Rights............Unless previously redeemed, Preferred Shares
are convertible at any time at the option of
the holder, commencing on the Separation Date
at the rate of _____ (_) shares of Common
Stock for each Preferred Share, subject
to adjustment under certain circumstances.
Redemption.................. The Preferred Shares are redeemable at the
Company's option beginning on the Separation
Date at the redemption price of $7.20 per
share plus accumulated dividends,
provided the Company may not redeem Preferred
Shares unless the closing price of the Common
Stock equals or exceeds $_ per share for 20 of
the 30 consecutive trading days ending within
five trading days prior to the date the
notice of redemption is mailed.
Voting Rights................Preferred Shares will be entitled to one
vote per share voting together with the
Common Stock, as one class except as
otherwise provided by the Delaware General
Corporation Law or in connection with certain
other matters. See "Description of Securities
- Series A Convertible Cumulative
Redeemable Preferred Stock.".
Warrants:
Exercise Price...............$____ per share subject to adjustment in
certain circumstances. See "Description of
Securities-- Warrants." The Warrants may
be exercised at any time commencing on
the Separation Date.
Expiration Date.............. 2003.
6
<PAGE>
Redemption......................Redeemable by the Company at any time
commencing on the earlier of the Separation
Date or at a price of $.__ per
Warrant, provided that the closing sale or bid
price per share of the Common Stock exceeds
$____ per share on at least 20 of the 30
consecutive trading days ending within 15 days
of the date on which the Company mailed notice
of redemption. See "Description of
Securities--Warrants."
Common Stock Outstanding
(prior to and after
Offering(2)...................5,336,750 shares of Common Stock.
Preferred Stock Outstanding:
Prior to the Offering........ 0
After the Offering(3)........ 1,000,000 Preferred Shares.
Warrants and Options
Outstanding(2)
Prior to the Offering........ 1,405,000
After the Offering...........
Use of Proceeds................. The net proceeds of the Offering will be
used for acquisitions of complementary
businesses, establishment of a branch
office in Central Europe, development of
software, marketing and advertising,
purchase of additional equipment,
working capital, and general corporate
purposes. See "Use of Proceeds".
Risk Factors.................... The securities offered hereby involve a high
degree of risk and immediate substantial
dilution. See "Risk Factors."
NASDAQ Symbols:
Common Stock..................EWEB
Preferred Shares..............EWEBP
Warrants......................EWEBW
Units ........................EWEBU
(1) Unless otherwise indicated, all information in this Prospectus assumes
that no portion of the Over-allotment Option is exercised.
(2) Does not include an aggregate of ___________ shares of Common Stock,
reserved as follows: (i) 350,000 shares reserved for outstanding options
granted pursuant to the Company' Stock Option Plan; (ii) 1,055,000 shares
reserved to cover exercise of outstanding Common Stock Purchase Warrants
and options; (iii) __________ shares issuable upon conversion of the
Preferred Shares including shares issuable on exercise of the
over-allotment option; (iv) _________ shares issuable on exercise of
warrants included in Units including warrants issuable on exercise of
overallotment option; and (v) __________ shares issuable upon conversion
of the Preferred Shares underlying the Underwriters' Preferred Share
Warrants. In addition, shares of Common Stock may be issuable upon
payment of dividends on the Preferred Shares.
(3) Does not include 150,000 Units reserved to cover Underwriters' Over
Allotment Option.
7
<PAGE>
SUMMARY OF FINANCIAL INFORMATION
The following table summarizes certain selected consolidated financial
data derived from the financial statements of the Company, and is qualified in
its entirety by the more detailed consolidated financial statements included
elsewhere herein.
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues - Internet...... . $ -- $1,270,135 $608,080 $840,000
- Construction... -- -- -- 1,724,468
- Rent income -- -- -- 66,000
----------- ----------- -------- ----------
-- 1,207,135 608,080 2,630,468
----------- ---------- -------- ---------
Expenses (income):
Cost of construction....................... -- -- -- 1,723,870
Compensation and related costs............. 1,364,550 810,543 386,117 316,945
Network costs.............................. -- 525,530 194,493 453,269
Consulting and professional fees........... 190,330 234,042 203,362 93,124
Rent....................................... 5,716 117,531 55,193 65,593
Depreciation and amortization.............. 29,352 497,362 245,268 250,192
Interest - net..................... 287,677 370,166 338,306 (11,733)
Financing costs............................ 99,000 153,965 133,703 --
Foreign currency loss...................... 150,917 28,654 75,761 6,148
Write-down of construction-in-
progress to estimated market value....... 1,000,000 350,000 -- --
Gain on sale of investment in affiliate.... -- (524,000) -- --
Other...................................... 379,472 713,570 387,570 110,164
--------- ---------- --------- -----------
3,517,014 3,277,363 2,019,773 3,007,572
--------- ---------- --------- ----------
Loss before equity in net loss of
unconsolidated affiliate................. (3,517,014) (2,007,228) (1,411,693) (377,104)
Equity in net loss of unconsolidated
affiliate.................................. 278,000) -- -- --
----------- ---------- ----------- -------------
Net Loss................................... (3,795,014) (2,007,228) (1,411,693) (377,104)
Other comprehensive income(loss) -
foreign currency translation adjustment.... -- (35,900) -- 7,592
----------- ---------- ---------- -----------
Comprehensive loss......................... ($3,795,014) ($2,043,128) ($1,411,693) ($369,512)
=========== ========== =========== ==========
Net loss per share - basic and diluted..... (2.26) ($0.54) $(.47) $(.07)
====== ======= ====== =====
Weighted average number of shares
outstanding................................ 1,681,000 3,728,000 3,007,469 5,118,892
============ =========== ========= =========
BALANCE SHEET DATA
DECEMBER 31,
1997 AS OF JUNE 30, 1998
ACTUAL ACTUAL AS ADJUSTED(1)
Current assets.................... 1,519,511 1,093,529 6,093,529
CURRENT LIABILITIES............... 1,349,079 1,087,572 1,087,572
WORKING CAPITAL................... 170,432 5,957 5,005,957
TOTAL ASSETS...................... 6,640,304 4,477,314 9,477,314
STOCKHOLDERS' EQUITY.............. 3,551,572 3,343,742 8,343,742
</TABLE>
(1) ADJUSTED FOR THE UNITS TO BE SOLD BY THE COMPANY IN THIS OFFERING AND THE
ESTIMATED NET PROCEEDS OF $5,000,000 TO BE RECEIVED BY THE COMPANY.
8
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including the
factors set forth below and elsewhere in this Prospectus. The following risk
factors should be considered carefully in addition to the other information
contained in this Prospectus before purchasing the Securities offered hereby
1. Limited Operating History; Accumulated Deficit. Although the Company was
founded in November 1992, it only entered the Internet business in January
1997 by acquiring three operating Internet businesses. Accordingly, the
Company has only a limited operating history on which to base an
evaluation of its present business and prospects. The Company and its
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly companies in new and rapidly evolving markets
such as Internet. Such risks for the Company include, but are not limited
to, an evolving business model and the management of both internal and
acquisition~based growth. To address these risks, the Company must, among
other things, continue to expand its client base, continue to develop the
strength and quality of its operations, maximize the value delivered to
clients, respond to competitive developments and continue to attract,
retain and motivate qualified employees. There can be no assurance that
the Company will be successful in meeting these challenges and addressing
such risks and the failure to do so could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company has incurred net losses since inception, and as of June 30,
1998 had an accumulated deficit of $15.5 million. In 1997, the only
complete year in which the Company had Internet operations, the Company
incurred a net loss of approximately $2.0 million. In the first six month
period ended June 30, 1998 the Company had a net loss of $377,104. On a
pro forma basis, assuming that the acquisition by the Company of the three
Internet services providers occurred on January 1, 1996, the Company's
consolidated net loss for the year ended December 31, 1996 would have been
approximately $4.6 million. Although the Company has experienced revenue
growth in recent months, such growth rates may not be sustainable or
indicative of future operating results. There can be no assurance that the
Company will achieve or sustain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
2. Risks Associated with Unspecified Acquisitions. The Company intends to use
approximately 40% of the proceeds of this offering to expand its
operations through acquisitions of complementary businesses such as making
selective acquisitions of subscriber bases or service firms. While the
Company from time to time evaluates possible acquisition opportunities, as
of the date of this Prospectus, the Company has no plans, agreements,
commitments, understandings or arrangements with respect to any such
acquisition. Accordingly, the shareholders of the Company will not be able
to review or vote on any such acquisitions which the Company may make.
There can be no assurance that the Company will ultimately effect any
acquisition, that it will be able to successfully integrate into its
operations any subscriber base which it may acquire or that the Company
will not incur significant amortization expense associated with attrition
of newly acquired subscriber bases. See "Use of Proceeds: and
"Business--EuroWeb Strategy."
3. Risks Related to Expansion. The Company has limited experience in
effectuating rapid expansion and there can be no assurance that the
Company will be able to successfully expand its operations or manage
growth.
4. Possible Future Capital Needs. The Company currently anticipates
that its available cash resources, combined with the net
proceeds to the Company from this offering, will be sufficient
to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months.
However, the Company may need to raise additional funds in order
to support more rapid expansion, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities through
public or private financing, strategic relationships or other arrangements.
There can be no assurance that such additional funding, if needed, will be
available on terms acceptable to the Company, or at all. If adequate funds
are not available on acceptable terms, the Company may be unable to develop
or enhance its services and products or take advantage of future
opportunities either of which could have a material adverse effect on the
Company's business, results of operations and financial condition. The
Company may determine, depending upon the opportunities available to it,
to seek additional debt or equity financing to fund the cost of
acquiring subscriber bases or service firms. To
9
<PAGE>
the extent that the Company finances an acquisition with equity
securities, any such issuance of equity securities would result in
dilution to the interests of the Company's stockholders. Additionally, to
the extent that the Company incurs indebtedness or issues debt securities
in connection with any acquisition, the Company will be subject to risks
associated with incurring substantial indebtedness, including the risks
that interest rates may fluctuate and cash flow may be insufficient to pay
principal and interest on any such indebtedness. See "Use of Proceeds" and
"Business--EuroWeb Strategy.
5. Recruitment and Retention of Internet Solutions Professionals.
The Company's business of delivering Internet services is labor
intensive. Accordingly, the Company's success depends in part on
its ability to identify, hire, train and retain employees who
can provide the Internet strategy, technology, marketing,
audience development and creative skills required by clients.
There is currently a shortage of such personnel, and this
shortage is likely to continue for the foreseeable future, The
Company competes intensely for qualified personnel with other
companies, and there can be no assurance that the Company will
be able to attract, assimilate or retain other highly qualified
technical, marketing and managerial personnel in the future. The
inability to attract and retain the necessary technical,
marketing and managerial personnel would have a material adverse
effect on the Company's business, results of operations and
financial condition. See "Business--Employees."
6. Broad Discretion by Management in Application of All Proceeds;
Benefits of Related Parties. Approximately $2,000,000 (40.0%) of
the estimated net proceeds of this offering has been allocated
to acquisition costs and $400,000 (8.0%) to working capital and
general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of
such proceeds. Additionally, a portion of the proceeds of this
offering allocated to working capital may be used to pay the
salaries of executive officers (which is anticipated to be
approximately $318,000 (or 6.4% of the net proceeds) during the
twelve months following this offering) to the extent operating
cash flow is insufficient for such purpose. The failure of
Management to apply such funds effectively could have a material
adverse effect on the Company's business, results of operations
and financial condition. See "Use of Proceeds."
7. Competition, Low Barriers to Entry. The market for Internet services is
relatively new, intensely competitive, rapidly evolving and subject to
rapid technological change. The Company expects competition to persist,
intensify and increase in the future. The Company's principal competitors
are Datanet, which has a customer base similar to that of the Company but
larger than the Company's, and MATAV, the national Hungarian telephone
company, which targets residential rather than business subscribers. The
Company believes it can compete on the basis of the quality and
reliability of its services, but there can be no assurance that it will be
able to compete successfully.
There are relatively low barriers to entry into the Company's business.
Because professional services firms such as the Company rely on the skill
of their personnel and the quality of their client service, the Company
has no patented technology that would preclude or inhibit competitors from
entering the Internet services market. The Company expects that it will
face additional competition from new entrants into the market in the
future. There can be no assurance that existing or future competitors will
not develop or offer services that provide significant performance, price,
creative or other advantages over those offered by the Company, which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Competition."
8. Management of Growth. The Company's rapid growth has placed, and is
expected to continue to place, a significant strain on the Company's
managerial, operational, financial and other resources. The Company
expects that continued hiring of new personnel will be required to support
its business. The Company's future success will depend, in part, upon its
ability to manage its growth effectively, which will require that the
Company continue to implement and improve its operational, administrative
and financial and accounting systems and controls and to expand, train and
manage its employee base. There can be no assurance that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that the Company's management will be able to achieve the
rapid execution necessary to exploit the market for the Company's business
model. Furthermore, the Company's future performance will depend on the
Company's ability to integrate any organizations which it may acquire and
whose integration, which, even if successful, could take a significant
period of time and will place a significant strain on the Company. As a
result, there can be no assurance that the Company will be able to
integrate any acquisitions successfully or in a timely manner in
10
<PAGE>
accordance with its strategic objectives. If the Company is unable to
manage internal or acquisition-based growth effectively, the Company's
business, results of operations and financial condition will be materially
adversely affected. See "Business-- Employees."
9. Rapid Technological Change. The market for Internet services is
characterized by rapid technological change, changes in user and client
requirements and preferences, frequent new product and service
introductions embodying new processes and technologies and evolving
industry standards and practices that could render the Company's existing
service practices and methodologies obsolete. The Company's success will
depend, in part, on its ability to improve its existing services, develop
new services and solutions that address the increasingly sophisticated and
varied needs of its current and prospective clients, and respond to
technological advances, emerging industry standards and practices, and
competitive service offerings. There can be no assurance that the Company
will be successful in responding quickly, cost-effectively and sufficiently
to these developments. If the Company is unable, for technical, financial
or other reasons, to adapt in a timely manner in response to changing
market conditions or client requirements, its business, results of
operations and financial condition would be materially adversely affected.
See "Business--Industry Overview."
10. Dependence on Key Personnel; Limited Management; Need for Qualified
Management and Other Personnel. The success of the Company will be
dependent on The personal efforts of Csaba Toro, Managing Director of
Operations, Frank R. Cohen, Chairman, Chief Executive Officer and
Treasurer and Robert Genova, who will serve as President after the
Offering. Although the Company has entered into an employment
agreement with Mr. Cohen and intends to enter into employment
agreements with Messrs. Genova and Toro effective the month after
completion of this offering, the loss of the services of any of such
individuals could have a material adverse effect on the Company's
business and prospects. The Company does not have and does not intend
to obtain "key-man" insurance on the life of any of its officers. Mr.
Toro devotes all of his time to the affairs of the Company, Mr Cohen
devotes 75% of his time and Mr. Genova will devote 75% of his time to
the affairs of the Company. Mr. Cohen is also a member of Cohen &
Cohen, a law firm that is representing the Company in this offering.
At the present time the Company has only two executive officers. The
success of the Company is largely dependent upon its ability to hire
and retain additional qualified management, marketing, technical,
financial and other personnel including a Chief Financial Officer.
Competition for qualified personnel is intense, and there can be no
assurance that the Company will be able to hire or retain additional
qualified personnel. Any inability to attract and retain qualified
management and other personnel will have a material adverse effect on
the Company. See"Business- Employees" and "Management."
11. Government Regulation and Legal Uncertainties. The Company is not
currently subject to direct government regulation other than laws and
regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing growth and
use of the Internet, it is likely that a number of laws and
regulations may be adopted at the local, state, national or
international levels with respect to the Internet covering issues
such as user privacy, freedom of expression, pricing of products and
services, taxation, information security or the convergence of
traditional communications services with Internet communications.
Moreover, the adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the demand
for the Company's services or increase the cost bf doing business or
in some other manner have a material adverse effect on the Company's
business, results of operations or financial condition. See
"Business--Government Regulations."
12. Foreign Currency and Exchange Risks and Rate Revaluation. The Company will
be subject to significant foreign exchange risk. There are currently no
meaningful ways to hedge currency risk in Hungary. Therefore, the
Company's ability to limit its exposure to currency fluctuations is
significantly restricted.
Although the Forint has recently become exchangeable outside Hungary,
there is not yet a freely convertible exchange market in place for the
Forint. In addition, Hungarian law permits the repatriation of foreign
currency only for dividends to the extent of capital investment and
earnings, as determined under applicable Hungarian law. There can no
assurances as to the future exchangeability or convertibility of Forints.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Foreign Currency."
11
<PAGE>
13. No Prior Public Market for Units or Preferred Shares. Prior to the
Offering, there has been no public market for the Units or the Preferred
Shares, and there can be no assurance that an active trading market will
develop or continue after the completion of the Offering. The initial
public offering price of the Units has been determined by negotiations
between the Company and the Underwriter and may not be indicative of the
market price for the Units after the Offering. Since July 29, 1993, the
Common Stock has traded on the NASDAQ SmallCap Market.
See "Description of Securities."
14. Dividends. The Company has not previously paid any dividends on its Common
Stock and intends to follow a policy of retaining all of its cash flow
from operations, if any, to finance the development and expansion of its
business. Since its formation, the Company's operation have resulted in
losses, and for the foreseeable future, the Company expects to pay
dividends on the Preferred Shares in Common Stock, to the extent legally
permissible. See "Dividend Policy."
15. Risk of Inclusion of Forward-Looking Statements. This Prospectus
includes certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of the
Company. Such statements reflect significant assumptions and
subjective judgments by the Company's management concerning
anticipated results. These assumptions and judgments may or may not
prove to be correct. Moreover, such forward-looking statements are
subject to risks and uncertainties that may cause actual results to
differ materially from those contemplated in such forward-looking
statements. Investors are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof. The Underwriter has not attempted to verify the basis for any
such statements independently and neither the Underwriter nor the
Company undertake any obligation to release publicly any revisions to
these forward-looking statements to reflect events occurring or
circumstances arising after the date hereof or to reflect the
occurrence of unanticipated events. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
16. Effect of Outstanding Options and Warrants on Future Price of Common
Stock. As of the date of this Prospectus, there are outstanding
Warrants to purchase an aggregate of 575,000 shares of Common Stock
at prices from $1.25 to $14.75 per share, outstanding non-plan stock
options to purchase 480,000 shares of Common Stock at prices ranging
from $1 to $2 per share and options outstanding under the Option Plan
to purchase 350,000 shares of Common Stock at prices from $1 to 3 3/8
per share. No prediction can be made as to the effect, if any, that
the exercise of Warrants and stock options will have on the market
prices prevailing from time to time. The possibility that substantial
amounts of Common Stock may be sold in the public market may
adversely affect the prevailing market price for the Common Stock and
could impair the Company's ability to raise capital through the sale
of its equity securities. See "Description of Securities--Outstanding
Options and Warrants."
17. Possible Delisting and Risk of Low-Priced Securities. The Common
Stock is currently being quoted on the NASDAQ SmallCap Market under
the symbols "EWEB." The Units are expected to be approved for
listing, subject to official notice of issuance, on the NASDAQ
SmallCap Market. If the Company is unable to satisfy the NASDAQ
SmallCap Market maintenance criteria in the future, its Units and
Common Stock may be delisted from trading on the NASDAQ SmallCap
Market. If it did not qualify for such listing, trading, if any,
would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc. ("NASD"), and
consequently an investor could find it more difficult to dispose of,
or to obtain accurate quotations as to the price of the Company's
securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that
has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on NASDAQ
and any equity security issued by an issuer that has net tangible assets
of at least $2,000,000, if such issuer has been in continuous operation
for three years. Unless an exception is available, the regulations require
the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith. The regulations also require that broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale.
12
<PAGE>
If the Company's securities become subject to the regulations applicable
to penny stocks, the market liquidity for the Company's securities could
be severely affected. In such an event, the regulations on penny stocks
could limit the ability of broker/dealers to sell the Company's securities
and thus the ability of purchasers of the Company's securities to sell
their securities in the secondary market. The Company's Common Stock was
trading below $1 per share for more than a year prior to April 1998.
Furthermore, the Company's net tangible assets at June 30, 1998 were
approximately $1,980,000.
18. Possible Negative Effects of Preferred Stock. The Company has
authorized 5,000,000 shares of Preferred Stock, of which 1,500,000
have been designated as Series A Convertible Cumulative Redeemable
Preferred Stock. The designation, rights and preferences of the
remaining 3,500,000 shares (including voting, dividend, redemption
and liquidation rights) may be fixed by the Company's Board of
Directors, from time to time, without further shareholder action.
Shares of such remaining shares of Preferred Stock could be issued in
the future with such rights and preferences as could make the
possible takeover of the Company or the removal of management of the
Company more difficult or could otherwise adversely impact the rights
of holders of Common Stock. Further, under current regulations of the
Securities and Exchange Commission, if any such Preferred Stock were
issued by the Company with such voting rights as had the effect of
nullifying, restricting or disparately reducing the per share voting
rights of holders of Common Stock, such issuance could result in the
disqualification of the Company's securities from listing on NASDAQ
or on a securities exchange. See "Description of
Securities--Preferred Stock."
19. Limited Voting Rights of Preferred Shares. Until conversion, the Preferred
Shares will be entitled to only one vote per share, voting together with
the Common Stock as one class on all matters except as otherwise provided
by Delaware law and with respect to the issuance of certain additional
shares of Preferred Stock. Each Preferred Share is convertible into ____
shares of Common Stock, each of which is entitled to one vote. See
"Description of Securities."
20. Limitation on Director Liability. As permitted by Delaware corporation
law, the Company's Certificate of Incorporation limits the liability of
Directors to the Company or its stockholders for monetary damages for
breach of a Director's fiduciary duty except for liability in certain
instances. As a result of the Company's charter provision and Delaware
law, stockholders may have a more limited right to recover against
Directors for breach of their fiduciary duty other than as existed prior
to the enactment of the law. See "Management--Limitation of Liability and
Indemnification."
13
<PAGE>
PRICE RANGE OF SECURITIES
Prior to the date hereof, there has been no market for the Units or
Preferred Stock of the Company. The Company's Common Stock has traded since July
29, 1993 on the NASDAQ Small-Cap Market. Prior to that date, there was no
established public trading market for the Company's Common Stock. The name of
the corporation was changed from Hungarian Teleconstruct Corp. to EuroWeb
International Corp. on July 9, 1997 and the symbol was changed from HTEL to
EWEB on the NASDAQ Small-Cap Market.
The NASDAQ SmallCap Market now requires that in order to continue to be
listed, the Company must maintain $2 million in net tangible assets and a
minimum bid price of $1.00 per share. Failure to meet either of these
maintenance requirements in the future may result in the discontinuance of the
inclusion of the Company's securities in the NASDAQ SmallCap Market. In such
event trading, if any, of the Company's securities would thereafter be
conducted in the non-NASDAQ over-the-counter market known as the Bulletin
Board. Although the Company believes that it will be able to satisfy both of
these maintenance criteria after the completion of this offering, the Company's
Common Stock was trading below $1.00 for more than a year prior to April 1998
and the Company's net tangible assets at June 30, 1998 were approximately
$1,903000.
The following table sets forth the range of high and low bid prices as
reported by NASDAQ. Bid quotations reflect interdealer prices without retail
mark-up, mark-down or commission transactions.
HIGH LOW
QUARTER ENDING:
1995
March 31, 1995 ...................... 13 3/4 4 5/8
June 30, 1995 ...................... 6 1/2 4
September 30, 1995..................... 7 3 3/4
December 31, 1995...................... 5 2 5/8
1996
March 31, 1996 ...................... 3 7/8 3 1/4
June 30, 1996 ...................... 3 3/4 2 3/4
September 30, 1996..................... 5 1/4 2 7/8
December 31, 1996...................... 3 1/8 1 3/8
1997
March 31, 1997 ...................... 2 1/2 1 1/8
June 30, 1997 ...................... 1 5/16 5/8
September 30, 1997..................... 1 5/8
December 31, 1997...................... 7/8 3/8
1998
March 31, 1998 ...................... 1/2 1/4
June 30, 1998 ...................... 3 1/4 3/8
September 30, 1998 (up to August 17) 2 3/4 1 13/16
As of July 31, 1998, there were 57 holders of record of the 5,336,750
outstanding shares of the Common Stock. As of July 31, 1998, the Company had an
estimated 2,500 beneficial shareholders. The closing bid price of the Common
Stock on August 17, 1998 was 1 7/8. There is presently no market for the Units
and there can be no assurance that a public trading market for the Units will
develop after this Offering. The Underwriter has advised the Company that it
intends to make a market for the Units immediately after the public offering of
these securities but may discontinue these activities at any time.
The average daily trading volume of the Company's Common Stock for the
month of July 1998 was 217,274 shares.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of the
date of this prospectus, and adjusted to give effect to the sale of 1,000,000
Units offered by the Company and the application of the proceeds therefrom as
described in "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1998
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Stockholders' equity:
Common Stock, $.001 par value; 15,000,000 shares authorized;
issued and outstanding 5,306,750, as adjusted 5,306,750.................. $ 5,307 $ 5,307
Preferred Stock $.001 par value, 5,000,000 shares authorized -
Series A Convertible Cumulative Redeemable Preferred Stock, 1,500,000
shares authorized - no shares issued, 1,000,000 shares
issued as adjusted......................................................... 0 1,000
Additional paid-in capital.................................................. 18,916,550 23,915,550
Deficit..................................................................... (15,549,807) (15,549,807)
Accumulated other comprehensive loss:
Foreign currency translation adjustments.................................... (28,308) (28,308)
------------ ------------
Total Stockholders' Equity............................................... $ 3,343,742 $ 8,343,742
========== ==========
</TABLE>
(1) Unless otherwise indicated, all information in this Prospectus assumes
that no portion of the Over-allotment Option is exercised.
DIVIDEND POLICY
The Company has never paid any cash dividends on the Common Stock. The
Company anticipates that in the foreseeable future, earnings, if any, will be
retained for use in the business or for other corporate purposes, and it is not
anticipated that cash dividends will be paid either on the Preferred Shares or
Common Stock. It is expected that dividends on the Preferred Shares in the
foreseeable future will be paid in Common Stock if the Company is legally able
to do so. The Company is dependent upon payment of dividends from its Hungarian
subsidiary companies as the source of its own cash dividends.
Hungarian companies are permitted to pay annual dividends out of profits,
determined on the basis of Hungarian accounting principles, following
recommendation of its Board of Directors and a declaration by the Annual
General Meeting which must be held in the first four months of each year.
Dividends are payable to foreign investors, such as the Company, in Forints,
which may be converted into U.S. Dollars at the official rate of exchange set
by the National Bank of Hungary.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the securities offered
hereby are estimated to be $5,000,000 ($5,810,000 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use the net
proceeds during the twelve months following this offering approximately as
follows:
APPROXIMATE
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT DOLLAR AMOUNT
Acquisition of complementary
businesses (1).................. $2,000,000 40.0%
Establishment of branch office in
Central Europe(2).......... 1,000,000 20.0%
Development of software (3)................... 600,000 12.0%
Purchase of equipment (4)..................... 500,000 10.0%
Marketing and advertising (5)................. 500,000 10.0%
Working capital & general corporate
purposes (6)............. 400,000 8.0%
Total.............................. $5,000,000 100.0%
(1) Represents anticipated costs to acquire complementary businesses in
Internet access providing, Web design and software development. As of the
date of this prospectus, the Company has no plans, agreements,
commitments, understandings or arrangements with respect to any such
acquisition. See "Business--EuroWeb Strategy."
(2) Represents anticipated costs associated with the establishment of a branch
office in Central Europe, including the cost of equipment, telephone lines
and initial rent and salaries for technical and support personnel. See
"Business--EuroWeb Strategy."
(3) Represents estimated costs of developing databases and software for
special projects.
(4) Represents estimated costs of additional computers, servers, routers and
other equipment needed as the Company expands.
(5) Includes costs associated with advertising in local newspapers and trade
publications, fees for independent marketing consultants and the salaries
for up to three marketing and sales personnel. See "Business-- Marketing
and Sales."
(6) Working capital may be used among other things, to pay salaries of the
Company's executive officers (which is anticipated to be approximately
$318,000 during the twelve months following the offering), rent, trade
payables, professional fees and other operating expenses.
If the Underwriter exercises his over-allotment option in full, the
Company will realize additional net proceeds of $810,000, which will be added
to the Company's working capital.
Based on currently proposed plans and assumptions relating to the
implementation of its business plans, the Company believes that the proceeds of
this offering will be sufficient to satisfy its contemplated cash requirements
for at least twelve months following the consummation of this offering. In the
event that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering otherwise prove to be
insufficient to implement its business plans, the Company may find it necessary
or desirable to reallocate a portion of the proceeds within the above described
categories, use proceeds for other purposes, seek additional financing or
curtail its operations. Management will maintain broad discretion as to the
allocation of proceeds. Decisions as to the allocation of working capital will
be made by the executive officers and directors of the Company. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest
bearing investments.
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<PAGE>
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included in this
Prospectus. The data insofar as it relates to each of the years 1996 and 1997
have been derived from audited financial statements and notes thereto appearing
elsewhere herein. The data for the three months ended March 31, 1997 and 1998
have been derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting of only normally recurring
adjustments, necessary for a fair statement of the results for unaudited
interim periods. The Company entered into the Internet business in January
1997. Accordingly, and recognizing that the Company has engaged in its current
primary line of business only for approximately one year, the Company has a
limited operating history upon which an evaluation of the Company and its
prospects can be based. Management therefore believes that period-to-period
comparisons of the Company's results of operations are not indicative of future
results.
OPERATING STATEMENT DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997 1997 1998
<S> (UNAUDITED) (UNAUDITED)
Revenues - Internet........................ $ -- $1,270,135 $608,080 $840,000
- Construction................... -- -- -- 1,724,468
- Rent income -- -- -- 66,000
----------- ------------ ---------- -----------
-- 1,270,135 608,000 2,630,468
----------- --------- -------- ----------
Expenses (income):
Cost of construction....................... -- -- -- 1,723,870
Compensation and related costs............. 1,364,550 810,543 386,117 316,945
Network costs.............................. -- 525,530 194,493 453,269
Consulting and professional fees........... 190,330 234,042 203,362 93,124
Rent....................................... 5,716 117,531 55,193 65,593
Depreciation and amortization.............. 29,352 497,362 245,268 250,192
Interest - net................ 287,677 370,166 338,306 (11,733)
Financing costs............................ 99,000 153,965 133,703 --
Foreign currency loss...................... 150,917 28,654 75,761 6,148
Write-down of construction-in-
progress to estimated market value....... 1,000,000 350,000 -- --
Gain on sale of investment in affiliate.... -- (524,000) -- --
Other...................................... 379,472 713,570 387,570 110,164
---------- ---------- ----------- -----------
3,517,014 3,277,363 2,019,773 3,007,572
--------- --------- -----------
Loss before equity in net loss of
unconsolidated affiliate................... (3,517,014) (2,007,228) (1,411,693) (377,104)
Equity in net loss of unconsolidated
affiliate.................................. (278,000) -- -- --
----------- ------------- ------------- -------------
Net Loss................................... (3,795,014) (2,007,228) (1,411,693) (377,104)
Other comprehensive income(loss) -
foreign currency translation adjustment.... -- (35,900) -- 7,592
------------ ---------- -------------- -----------
Comprehensive loss......................... ($3,795,014) ($2,043,128) $(1,411,693) ($369,512)
============ ============ ============ ==========
Net loss per share - basic and diluted..... (2.26) ($0.54) ($0.47) ($0.07)
====== ======= ======= =======
Weighted average number of shares
outstanding................................ 1,681,000 3,728,000 3,007,469 5,118,892
============ =========== ========= =========
BALANCE SHEET DATA
DECEMBER 31,
1997 AS OF JUNE 30, 1998
ACTUAL ACTUAL AS ADJUSTED(1)
Current assets.................... 1,519,511 1,093,529 6,093,529
CURRENT LIABILITIES............... 1,349,079 1,087,572 1,087,572
WORKING CAPITAL................... 170,432 5,957 5,005,957
TOTAL ASSETS...................... 6,640,304 4,477,314 9,477,314
STOCKHOLDERS' EQUITY.............. 3,551,572 3,343,742 8,343,742
(1) ADJUSTED FOR THE UNITS TO BE SOLD BY THE COMPANY IN THIS OFFERING AND THE
ESTIMATED NET PROCEEDS OF $5,000,000 TO BE RECEIVED BY THE COMPANY.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
"Selected Financial Information" and the Company's Consolidated Financial
Statements including the Notes thereto, included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The Company's actual results could differ
materially from those discussed below. Factors that could cause or contribute
to such differences include those discussed in "Risk Factors," as well as
those discussed elsewhere herein.
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company
through December 31, 1993. It originally had two subsidiary Hungarian
corporations, one of which was engaged as a general contractor in the
construction of buildings and the other was engaged in the construction of
local telephone exchanges for community sponsored telecom companies in
Hungary. It had two operating business segments: (1) building of condominium
apartments and (2) design and laying of underground fiber optic telephone and
cable lines. The latter segment was discontinued in 1994.
The Company built two luxury 14-unit condominium buildings in Budapest.
During 1996 and 1997, the Company sold one of the apartments in the first
building ("Building A") to a third party and agreed to sell the remaining 13
apartments in Building A prior to its completion to M&A Corp. ("M&A"), a
corporation wholly owned by Peter Klenner ("Klenner"), its former president.
It was agreed that the closing of the sale would take place on the completion
of the second building ("Building B"). Klenner agreed to loan the Company
funds to complete Building B, which loans were to be applied against his
purchase price of Building A. The Company completed Building B in March 1998.
The Company leased Building B to an unaffiliated person for a five year term
commencing April 1, 1998 at a net rental of $22,000 per month with an option
to purchase the building for $2,000,000. The sale of Building A was recognized
for accounting purposes in the three months ended March 31, 1998. The Company
has no intention at the present time to commence new construction. (See
"Certain Transactions").
In January 1997, the Company entered the Internet business by acquiring
three Internet service providers in Hungary. At present, EuroWeb is a leading
Internet service provider operating in Hungary that provides full Internet and
Web site solutions and services primarily to businesses. The Company offers a
comprehensive range of services to deliver Internet solutions designed to
improve clients' business processes. The Company's services include providing
access to an international backbone, design of web sites, hosting of web sites,
strategy consulting, analysis and design, software development, electronic
commerce and discount fax. The Company markets its services principally to
medium-sized and large companies.
The Company has only a limited operating history upon which to base an
evaluation of its business and prospects. The Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in an early stage of development, particularly
companies in new and rapidly evolving markets such as Internet services. Such
risks for the Company include, but are not limited to, an evolving business
model and the management of both internal and acquisition based growth. To
address these risks, the Company must, among other things, respond to
competitive developments and continue to attract, retain and motivate qualified
employees. There can be no assurance that the Company will be successful in
meeting these challenges and addressing such risks and the failure to do so
could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company has incurred net losses since
inception and as of June 30, 1998 had an accumulated deficit of $15.5 million.
Although the Company has experienced revenue growth in recent months, such
growth rates may not be sustainable or indicative of future operating results,
and there can be no assurance that the Company will achieve and sustain
profitability. See "Risk Factors--Limited Operating History; Accumulated
Deficit."
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RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
For the six months ended June 30, 1998, the Company incurred a net loss of
$377,104, a net loss of $.07 per share compared to a net loss of $1,411,693, a
net loss of $.47 per share for the six months ended June 30, 1997.
For the six months ended June 30, 1998, revenues were $2,630,468, of which
$840,000 was derived from the Internet business and $1,790,468 from
construction and rent income compared with revenues of $608,080 during the six
months ended June 30, 1997, all of which was derived from the Internet business.
The increase of $231,920 in Internet revenues was due primarily to an increase
in the number of subscribers.
Cost of construction of $1,723,870 for the six months ended June 30, 1998
represents the costs associated with the construction revenue recognized during
the period.
Compensation and related costs decreased to $316,945 in 1998 from $386,117
in 1997. The 1997 amount includes approximately $112,500 more of stock
compensation to former officers of the Company than the 1998 amount.
Network costs of $453,269 were incurred in 1998 in connection with the
Internet business as compared with $194,493 in the comparable period of 1997.
Network costs represent connection fees charged to the Company by the owners of
the international and Hungarian telephone lines leased to the Company and
subleased by the Company to its subscribers. The increase in network costs was
due primarily to the increase in the number of subscribers.
The acquisition of the Internet business in 1997 resulted in goodwill of
approximately $1,900,000, which is being amortized over five years;
amortization for the six months ended June 30, 1998 and 1997 amounted to
$194,000 and $191,000, respectively.
Financing costs of $133,703 incurred in connection with the sale of
convertible debentures were charged to operations during the six months ended
June 30, 1997, since a substantial portion of the debentures were expected to
be converted to common stock within a short period. There were no such costs
during 1998.
Interest expenses - net for the six months ended June 30, 1997 includes
$304,000 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. There was no such interest expense in 1998.
Other expenses decreased to $110,164 in this six month period of 1998 from
$387,570 in the six months ended June 30, 1997 primarily as a result of greater
efficiency in the Internet business.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, the Company incurred a net loss of
$2,007,228, a net loss of $.54 per share compared to a net loss of $3,795,014,
a net loss of $2.26 per share for the year ended December 31, 1996.
For the year ended December 31, 1997, revenues were $1,270,135, all of
which were derived from the Internet business, compared with no revenues during
the year ended December 31, 1996. The Company first entered into the Internet
service provider business on January 2, 1997 when it acquired three Internet
service provider companies. It had no Internet related revenues prior to the
date of acquisitions.
Compensation and related costs decreased to $810,543 in 1997 from
$1,364,550 in 1996, even though the 1997 amount includes approximately $400,000
of costs relating to the Internet business. The 1996 amount included $972,000
in connection with the former President's resignation.
Network (or connection fee) costs of $525,530 were incurred in 1997 in
connection with the Internet business.
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Rent increased to $117,531 in 1997 from $5,716 in 1996 primarily as a
result of the Internet business.
Depreciation and amortization increased to $497,362 in 1997 from $29,352
in 1996 primarily as a result of amortization of goodwill ($383,000) and
depreciation of equipment ($95,078) relating to the Internet business.
Interest expense-net increased to $370,166 in 1997 from $287,677 in 1996
primarily as a result of the convertible debt borrowing and the loan from
Hungarian Broadcasting Corp.
Other expenses increased to $713,570 in 1997 from $379,472 in 1996
primarily as a result of the Internet business.
LIQUIDITY AND CAPITAL RESOURCES
In 1997 and 1996, the Company sold $850,000 and $792,500 of 10%
convertible debentures due 2 years from the date of sale to foreign investors
outside the United States in private placements receiving aggregate net
proceeds of approximately $696,000 and $693,500, respectively, after deducting
placement agent fees and offering expenses of approximately $154,000 and
$99,000, respectively. The original principal amount of the debentures was
convertible into shares of Common Stock at a conversion price of 50% of the
market price of the Company's common stock. During 1998, 1997 and 1996,
debentures of $150,000, $1,185,000 and $307,500 and accrued interest of
$11,682, $42,252 and $3,907, respectively, were converted into 356,814,
2,413,667 and 263,979 shares of common stock, respectively.
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 an interest charge of $327,000 and $300,000 to the
consolidated statement of loss for the years ended December 31, 1997 and 1996,
respectively. In addition, financing costs of approximately $154,000 and
$99,000 incurred in connection with the sale of the debentures have been
charged to operations during 1997 and 1996, respectively, since substantially
all of the debentures were converted to common stock within a short period
after issuance.
In October 1996, the Company sold a private placement of securities
consisting of 550,000 shares of common stock and 550,000 common stock purchase
warrants exercisable at $2 per share, (which exercise price was subsequently
reduced to $1.25 per share on June 26, 1997), at any time from October 1, 1997
until September 30, 2001 for net proceeds of $973,000 after deducting placement
agent fees and offering expenses of $127,000. The warrants and the underlying
shares of common stock have been registered under the Securities Act of 1933.
In March 1998, the Company completed the construction of two 14-unit
condominium buildings in Budapest. As of April 1, 1998, the Company net leased
Building B to an unaffiliated person for a net monthly rental of $22,000 for a
five year term. The net lease also contains an option to purchase Building B
for the sum of $2,000,000, plus VAT taxes, if any, during any time during the
lease. See "Certain Transactions."
The Company currently anticipates that its current cash position and its
cash flows from current operations, together with the proceeds of the subject
offering, will be sufficient to meet its presently anticipated working capital
and capital expenditure requirements for at least the next 12 months. The net
proceeds from this offering will be used to support more rapid expansion,
develop new or enhanced services and products, acquire complementary businesses
or technologies or take advantage of unanticipated opportunities. The Company's
future liquidity and capital requirements will depend upon numerous factors,
including the success of the Company's existing and new service offerings and
competing technological and market developments. The Company may be required to
raise additional funds through public or private financing, strategic
relationships or other arrangements. There can be no assurance that such
additional funding, if needed, will be available on terms acceptable to the
Company, or at all. If adequate funds are not available on acceptable terms,
the Company may be unable to develop or enhance its services and products, take
advantage of future opportunities or respond to competitive pressures, any of
which could have a material adverse effect on the Company's business, results
of operations and financial condition.
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THE YEAR 2000
The Company is currently evaluating the impact of the Year 2000 on its
management, information and operating systems. At this time, management
believes that the impact of the Year 2000 will have no material effect on its
operations or financial results.
FOREIGN CURRENCY, INFLATION AND SEASONALITY
The rate of inflation in Hungary was 18% in 1997 compared with 23% in 1996
and 28% for 1995. Prices have been rising rapidly in recent years.
Internet operations are not seasonal.
The Company is subject to significant foreign exchange risk. There are
currently no meaningful ways to hedge currency risk in Hungary. Therefore, the
Company's ability to limit its exposure to currency fluctuations is
significantly restricted.
Although the Forint has recently become exchangeable outside Hungary,
there is not yet a freely convertible exchange market in place for the Forint.
In addition, Hungarian law permits the repatriation of foreign currency only
for dividends to the extent of capital investment and earnings, as determined
under applicable Hungarian law. There can no assurances as to the future
exchangeability or convertibility of Forints.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No 130. "Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those results from investments
by owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial element that is displayed with the same prominence as other financial
statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier periods to
be restated. The Company adopted SFAS 130 as of January 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information, which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosure regarding products and
services, geographic areas and major customers. SFAS 131 defines operating
segments as components of a company about which separate financial information
is available that is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier periods.
Because of the recent issuance of this standard, management has been unable to
fully evaluate the impact, if any, it may have on future financial statement
disclosures. Results of operations and financial position, however, will be
unaffected by implementation of this standard.
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BUSINESS
HISTORY
The Company was organized on November 9, 1992 under the laws of the State
of Delaware as Hungarian Teleconstruct Corp., and changed its name to EuroWeb
International Corp. on July 9, 1997. It was a development stage company through
December 31, 1993. It originally had two subsidiary Hungarian corporations, one
of which was engaged as a general contractor in the construction of buildings
and the other was engaged in the construction of local telephone exchanges for
community sponsored telecom companies in Hungary. It had two operating business
segments: (1) building of condominium apartments and (2) design and laying of
underground fiber optic telephone and cable lines. The latter segment was
discontinued in 1994.
The Company built two luxury 14-unit condominium building in Budapest
which were completed in early 1998. The Company has no intention at the present
time to commence new construction. (See "Management Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions").
The Company entered the Internet service provider business in Hungary in
January 1997 by acquiring three Hungarian Internet service companies ("Internet
providers") from unrelated parties, namely, EUNET, E-Net and MS Telecom. EUNET
was the leading provider of leased line Internet access services in Hungary.
E-Net was recognized as the premier developer of Web sites in Hungary,
providing content, design and database functions, as well as Web site hosting
services. MS Telecom was a provider of dial-up Internet access services in
Hungary. The three combined companies were merged into a new Hungarian company
known as EuroWeb and relocated into a single new facility. New technological
equipment was added including a CISCO 7200 router, a CISCO AS 5200 Terminal
Server, and two pieces of Sun Ultra servers. Additional international trunk
line connections were added, including MCI VSAT connections and TMI (Italia
Telecom) terrestrial lines. The total number of employees was decreased by
approximately 35% by eliminating duplication of services.
INDUSTRY OVERVIEW
The Internet and the World Wide Web
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational institutions,
government agencies and individuals to communicate electronically, access and
share information and conduct business, The Internet was historically used by a
limited number of academic institutions, defense contractors and governmental
agencies. Use of the Internet by commercial organizations and individuals has
increased significantly in recent years as the result of cultural and business
changes, technological advances, including increases in microprocessor speed,
decreasing cost of computers, and the development of easy-to-use graphical user
interfaces. "Graphical user interfaces" in the context of the Internet are the
graphics and text that appear on a computer screen.
Much of the recent growth in Internet use by businesses and individuals
has been driven by the emergence of a network of servers and information
available on the Internet called the World Wide Web. The Web is not only rich
in content and format, containing magazines, news feeds, and corporate product,
educational, research, and political information, it also enables users to
engage in activities, including providing customer service, conducting
electronic commerce and banking, making reservations, playing games and
participating in discussion groups.
The market for Internet services is characterized by rapid technological
change, changes in user and client requirements and preferences, frequent new
product and service introductions embodying new processes and technologies and
evolving industry standards and practices that could render the Company's
existing service practices and methodologies obsolete. The Company's success
will depend, in part, on its ability to improve its existing services, develop
new services and solutions that address the increasingly sophisticated and
varied needs of its current and prospective clients, and respond to
technological advances, emerging industry standards and practices, and
competitive service offerings. There can be no assurance that the Company will
be successful in responding quickly, cost-effectively and sufficiently to these
developments. If the Company is unable, for technical, financial or other
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reasons, to adapt in a timely manner in response to changing market conditions
or client requirements, its business, results of operations and financial
condition would be materially adversely affected.
EUROWEB STRATEGY
EuroWeb's objective is to be the leading supplier to businesses of
complete communication solutions using Internet technologies. Instead of
concentrating on small users, EuroWeb concentrates on large business users and
seeks to satisfy all their needs with a high quality and reliable service.
The Company's business has shown continued growth since it entered the
Internet field in January 1997, and the Company expects such growth to continue
in Hungary both internally and through acquisitions of complementary
businesses. The Company regularly evaluates potential acquisition candidates
and is currently holding preliminary discussions with a number of such
candidates. If, after due diligence review and negotiation, such companies can
be acquired on a basis considered fair to the Company and its stockholders, the
Company may proceed with such acquisitions. None of these potential
acquisitions is currently considered to be pending or probable. The Company
expects some of its future acquisitions to include the issuance of additional
shares of the Company's Common Stock in the future.
PRODUCTS AND SERVICES
EuroWeb provides its customers with a comprehensive range of Internet
access options, content services and value added services. EuroWeb believes
that over time its strategic focus on business applications for the Internet
will play an increasing role in differentiating the Company from its
competitors.
ACCESS OPTIONS
The following tables describe EuroWeb's Internet access options.
LOW SPEED DIAL-UP ACCESS
Low speed dial-up access services are primarily marketed to individuals
and households.
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
Limitless Internet $290/Year Full Internet for single
No start up fee computer with mailbox
Company Post Office $17/Month Only mail service for corporate
Startup fee: $48 networks
Company Internet $29/Month Full Internet service for small
Traffic Fee corporate networks
Startup fee: $48
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HIGH SPEED ACCESS
High speed access services are primarily marketed to business accounts.
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
Company Internet ISDN $48/Month Full Internet service for medium
Traffic Fee corporate networks over Integrated
Startup fee: $48 Services Digital Network
("ISDN")
Company Internet $48-$762/Month Full Internet service for big
Managed Leased Line Traffic fee corporate networks over
dedicated line
Startup fee: $381-$4,571
Dedicated International
Line 64K-512K $2,300-$14,000/Month Full Internet service for very big
Traffic Fee: Limitless corporate networks or Internet
Startup fee: $571-$1,286 resellers over dedicated
international line
CONTENT (OR "WEB") SERVICES
EuroWeb markets various services for the design, development, hosting and
maintenance of home pages (entry points for a collection of information
presented through the World Wide Web) and content on the World Wide Web.
EuroWeb will install and maintain home pages on EuroWeb servers for customers
concerned with the cost, difficulty or security of maintaining home pages on
their own network.
SERVICES CURRENT LIST PRICE SUMMARY DESCRIPTION
Web Hosting $24-$476/Month Hosting companies' sites
Web Server Hosting From $143 Hosting companies' Web servers
Startup fee: $71 in EuroWeb's machinery room
Autoweb From $24/Month Automatic creation of Web sites
Startup fee: $476 Design & Programming corporate
Web sites
The Company provides Internet content services to clients in a variety of
industries, as indicated by the selected clients set forth below:
Microsoft Hungary Ltd. Budapest Sun (Sunpress Ltd.) Intercom Ltd.
Hewlett Packard Hungary Ltd. EMI Quint Record Corp. European Commercial
Bank Corp.
Digital Hungary Ltd. Hungarian Power Company Ltd. Kossuth Radio
Bull-Zenith Hungary Ltd. Paksi Power Generator Corp. Peton Radio
Generali Hungary Ins. Corp. Waterworks of Budapest Corp. Pesti Musor Magazin
Corp.
Sun Microsystems Ltd. Hungarian Tourism Service Magyar Hirlap (Daily)
Nationale-Niederland Corp.
VALUE ADDED SERVICES
EuroWeb provides various value added services to customers including
online databases, electronic banking and software development and Netfax.
Online Databases
The Company has developed several databases for its customers including a
"companies" database, and a composite Hungarian library catalogue database.
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The companies database enables subscribers to search for company data
registered in Hungarian Court of Registration. Every Hungarian company must
file with a Hungarian Court of Registration a statement setting forth the names
and addresses of its directors and managers, its accountants and attorneys and
its paid-in capital. In addition, regulations promulgated by the various
government ministries and statistical data releases by the government are also
filed with the Hungarian Court of Registration. The Company keeps this database
current on a weekly basis and has had it translated into English and German.
The library catalogue database consolidates the book catalogues of all of
the libraries in Hungary and identifies each book by name, author and a brief
identification of contents and in which libraries a copy of the book can be
found.
The Company intends to continue to develop databases for other customers.
Electronic Banking and Software Development
In 1998 the Company started a division to develop Internet software to
provide electronic commercial software to perform many business processes. This
division was retained by Fornex, an agent of the Budapest Stock Exchange
("BSE"), to develop software to record all transactions on the BSE in real time
and create a database for such information, which information can be obtained
by subscribers through the Internet. The division also has been retained by
Posta Bank, Hungary's second largest bank, to help develop software for home
banking use by customers of the bank and to provide access for the customers to
enable the customers to transfer funds on deposits at the bank by the Internet
electronically to third parties. The Company is also working on software for
credit card processing and transaction validation.
Netfax
The Company added discount fax service for its customers in 1998. These
services enable customers to send faxes any where in the world at a cost
substantially lower than what the customers would pay using ordinary telephone
lines. Customers are able to access this new service using a regular fax
machine or through their computers. Recipients are able to receive the
transmission on a computer or on a fax machine. The Company is also the node
for faxes sent to Hungary from locations around the world by members of a
worldwide alliance of Internet service providers known as GRIC (Global Research
Internet Connection).
CUSTOMERS
The Company's customers are businesses and professionals in varied lines
of business. The Company's customer base has grown to over 250 business
customers as of July 31, 1998. In 1998, no customer accounted for more than ten
percent of the Company's total revenues. The following is a list of certain
EuroWeb customers in each of 8 selected industry groups.
GOVERNMENT COMPUTER SYSTEMS & SERVICE
<S> <C>
- ---------- --------------------------
State Privatization and Holding Corp. DYNAsoft Ltd. (SAP consultant)
Office of Economic Competition ICON Computing Ltd.
General Inspectorate of Communications IDOM Corp. (System Integrator)
Institute of Geodesy, Cartography and Remote Hungarian Railway Information Services Ltd.
Sensing
Hungarian Banking and Capital Market Supervision Szuv Computing and Management Organization
Service Ltd.
KFKI Research Institute for Particle and Nuclear
Physics Corp.
Nuclear Physics Corp.
Scala ECE Hungary Ltd.
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MULTINATIONAL COMPANIES TOURISM & ENTERTAINMENT
Bull-Zenith Hungary Ltd. Danubius Hotels Corp.
Digital Hungary Corp. Hungarian Tourism Service
ICL Hungary Ltd. Intercom Ltd.
HBO Hungary Ltd.
INDUSTRY BANKING
North-West Hungarian Electricity Supply EuroNet Corp.
Company Corp.
RABA Hungarian Railway Carriage and Machine OTP Bank Corp.
Works
Waterworks of Budapest Corp. Postabank Corp.
Malev Hungarian Airlines Corp. Coopers & Lybrand Corp.
Dunaferr Danube Ironworks Corp. Credit Lyonnais Bank Corp.
Heinz Canning Factory
North American Bus Industries Ltd.
NEWSPAPER RADIO
Budapest Sun Sunpress Ltd. Kossult Radio
Axel Springer Hungary Ltd. Petofi Radio
Magyar Hirlap (Daily) Slager Radio
Radio Hungary
</TABLE>
NETWORK OPERATIONS AND TECHNICAL SUPPORT
EuroWeb believes that effective network and technical support are
important criteria by which commercial users select Internet access providers
and has dedicated substantial resources to building a high quality support
infrastructure. As of July 8, 1998, EuroWeb had a network operations group
consisting of 12 people, including 7 providing technical support and 5
providing customer support. The Company's network operations personnel located
at EuroWeb's network operations center in Budapest are responsible for
continuously monitoring traffic across the Company's network infrastructure.
The Company's technical support personnel work to find solutions for customers
experiencing difficulties with Internet applications. Both the technical
support and customer support personnel currently are available from 8 a.m. to 8
p.m. Monday through Friday. At other times, these personnel respond to
technical support requests by being paged.
SALES AND MARKETING
The Company employs eight persons in sales and marketing. To date, the
Company has sold its Internet access and applications products and services
primarily through direct telephone contact. Call activity is generated in
response to a variety of promotional programs, including advertising in general
business and specialty periodicals, participation in industry shows, and press
relations. The sales persons work closely with the twelve person customer and
technical support group, which is responsible for installation at multiple
sites and for support and technical consulting services for the first thirty
days after installation. In addition, the Company competes for government
tender offers to develop software for varying projects from time to time and
prepares proposals in connection therewith. The Company intends to employ three
additional persons in sales and marketing after this offering is completed. See
"Use of Proceeds."
COMPETITION
The market for Internet services is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. The Company expects
competition to persist, intensify and increase in the future. The Company's
principal competitors are Datanet, which has a customer base similar to that of
the Company's, and MATAV, the national Hungarian telephone company, and many
small niche companies engaged in WEB design,
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systems integration, and software development. Furthermore, some of the
Company's current and potential competitors have longer operating histories,
larger installed customer bases, longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than the Company, and could decide at any time to increase their
resource commitments to the Company's market. The Company strives to compete on
the basis of the quality and reliability of its services. There can be no
assurance that it will be able to compete successfully in the future.
There are relatively low barriers to entry into the Company's business.
Because professional services firms such as the Company rely on the skill of
their personnel and the quality of their client service, the Company has no
patented technology that would preclude or inhibit competitors from entering
the Internet services market. The Company expects that it will face additional
competition from new entrants into the market in the future. There can be no
assurance that existing or future competitors will not develop or offer
services that provide significant performance, price, creative or other
advantages over those offered by the Company, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
GOVERNMENT REGULATIONS
The Company is not currently subject to direct government regulation other
than laws and regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, it is likely that a number of laws and regulations may be adopted at
the local, state, national or international levels with respect to the Internet
covering issues such as user privacy, freedom of expression, pricing of
products and services, taxation, information security or the convergence of
traditional communications services with Internet communications. Moreover, the
adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for the Company's services or
increase the cost of doing business or in some other manner have a material
adverse effect on the Company's business, results of operations or financial
condition.
EMPLOYEES
The Company employs thirty-six persons; three in management, eight in
sales, eight in graphics and Web development, five in customer support, seven
in networking operations and five administrative persons. None of the Company's
employees are represented by a labor organization. The Company believes that
its relations with its employees are excellent.
The Company's business of delivering Internet services is labor intensive.
Accordingly, the Company's success depends in part on its ability to identify,
hire, train and retain employees who can provide the Internet strategy,
technology, marketing, audience development and creative skills required by
clients. There is currently a shortage of such personnel, and this shortage is
likely to continue for the foreseeable future, The Company competes intensely
for qualified personnel with other companies, and there can be no assurance
that the Company will be able to attract, assimilate or retain other highly
qualified technical, marketing and managerial personnel in the future. The
inability to attract and retain the necessary technical, marketing and
managerial personnel would have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's rapid growth has placed, and is expected to continue to
place, a significant strain on the Company's managerial, operational, financial
and other resources. The Company expects that continued hiring of new personnel
will be required to support its business. The Company's future success will
depend, in part, upon its ability to manage its growth effectively, which will
require that the Company continue to implement and improve its operational,
administrative and financial and accounting systems and controls and to expand,
train and manage its employee base. There can be no assurance that the
Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to achieve
the rapid execution necessary to exploit the market for the Company's business
model. Furthermore, the Company's future performance will depend on the
Company's ability to integrate the organizations to be acquired by the Company,
which, even if successful, may take a significant period of time, will place a
significant strain on the Company. As a result, there
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can be no assurance that the Company will be able to integrate acquired
businesses successfully or in a timely manner in accordance with its strategic
objectives. If the Company is unable to manage internal or acquisition-based
growth effectively, the Company's business, results of operations and financial
condition will be materially adversely affected.
DESCRIPTION OF PROPERTIES
The Company rents approximately 4,500 sq. feet of space at H-1122
Budapest, Varosmajor u. 13 from an unaffiliated person. It uses the premises
for executive offices and for operations and pays a rent in Hungarian forints
of approximately $114,000 per year under a five year lease expiring March 31,
2002. The Company also occupies space at 445 Park Avenue, New York, NY 10022 on
a month to month basis at a rental of $2,000 per month which it uses for
stockholder relations and general executive use.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings as of the
date of this Prospectus.
REPUBLIC OF HUNGARY
Investment Considerations--Political, Economic and Other Factors Regarding
Hungary
Investment in the Company involves certain special investment
considerations not usually associated with investing in securities of U.S.
companies, including risks related to (a) greater social, economic and
political uncertainty; (b) certain restrictions on foreign investment and
repatriation of capital; (c) exchange control regulations; (d) currency
exchange rate fluctuations, which may increase the costs associated with
conversion of investment principal and income from one currency to another; (e)
higher rates of inflation; and (f) greater governmental involvement in the
economy.
The value of the Company's assets may be adversely affected by political,
economic and social factors, changes in the law or regulations of Hungary, and
the status of political and economic foreign relations of Hungary. Developments
in the region may also affect the value of the Company's assets. In addition,
the economy of Hungary may differ favorably or unfavorably from the U.S.
economy in such respects as the rate of growth of gross domestic product, the
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Actions of the government of Hungary in the future may
affect the local economy, which may affect private sector companies, market
conditions and general economic stability.
Geography
Hungary is located in the Danubian Basin in East Central Europe. In terms
of square kilometers, Hungary ranks 18th amongst the European countries, with a
territory of about 93,033 square km (36,296 square miles, about the size of the
state of Indiana). According to the latest population census of January 1995,
Hungary has a population of 10.4 million. Currently, about 3.2 million people
are living in Budapest and environs, the capital of Hungary. Budapest is the
administrative, cultural, industrial, commercial and economic center of the
country. No other urban area in Hungary has over 220,000 people.
Foreign Exchange and Revaluation
The exchange rate of the Hungarian Forint is set by the National Bank of
Hungary against a basket of convertible currencies. Any devaluation exceeding
5% requires government approval. The National Bank of Hungary has announced
that its policy in the future will be to adjust the Forint on a continual
floating basis, thereby avoiding large devaluations. As of date of this
Prospectus, the exchange rate of the Forint is based on a ratio consisting of
70%
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European Currency Unit ("ECU") and 30% United States Dollars. The exchange rate
for the Hungarian Forint, as set by the National Bank of Hungary, declined from
approximately 100 Forints per U.S. Dollar at December 31, 1993 to 215 forints
per United States Dollar at July 31, 1998.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning the
executive officers and directors of the Company as of the date hereof.
NAME AGE POSITION WITH COMPANY
Frank R. Cohen........... 77 Chairman of the Board, President
and Secretary
Robert Genova........... 57 Director and Treasurer
Richard G. Maresca....... 57 Director
Donald K. Roberton....... 57 Director
Hershel Krasnow.......... 74 Director
Frank R. Cohen, age 77, has been a Director and Secretary of the Company
since its inception in 1992, and has been Chairman of the Board and President
since February 6, 1997. Mr. Cohen has been practicing law in the City of New
York since 1946. Since 1985 he has been a member of the law firm of Cohen &
Cohen, which has been counsel to the Company since its inception and is
representing the Company in the subject offering.
Robert Genova, age 57, had been Chairman of the Board of Directors between
February 17, 1994 and February 6, 1997. Prior thereto Mr. Genova had been a
management and financial consultant to the Company since 1992 and to other
companies since 1990. Mr. Genova resigned as a Director as of February 6, 1997,
but was appointed to the Board again in February 1998 and as Treasurer of the
Company. After the completion of this offering, Mr. Genova intends also to
assume the position of President of the Company in place of Mr. Cohen. Mr.
Genova also served as Chairman of the Board of Hungarian Telephone and Cable
Corp. from 1992 to 1995 and of Hungarian Broadcasting Corp. from 1995 to 1997.
Richard G. Maresca, age 57, has been a director of the Company since its
inception. He has been Senior Telecommunications Manager for the American Stock
Exchange since 1991. From 1954 to 1991, he was Communications Manager for
Josephthal & Co., Inc., a brokerage firm.
Donald K. Roberton, age 57, was Vice Chairman and Chief Operating Officer
of Hungarian Telephone and Cable Corp. ("HTC"), until he resigned in order to
become a director of the Company in 1996 and assist in the development of
EuroWeb's Internet service provider business. Prior to that, Mr. Roberton spent
five years with Citizens Utility Company as Assistant to the Chairman and Vice
President - Strategic Development - Telecommunications and as Vice President,
Telecommunications. Prior to Citizens Utilities he had been with Centel for 28
years, as an officer since 1984. During his tenure with Centel he held numerous
executive and managerial positions.
Hershel Krasnow, age 74, is a senior vice president of First Security
Investment Inc., investment bankers, and has held that position since March
1998. Prior thereto he was a senior vice president of Josephthal Lyon & Ross,
Inc. for seven years. He has been employed in the securities industry since
1961, and was a former allied member of the New York Stock Exchange, Inc. Mr.
Krasnow is presently a director of Windsor Capital Corp., a publicly traded
corporation engaged in the retail cigar distribution business, and of
International Asset Management Group Inc., a publicly traded company on the
bulletin board.
Board members are reimbursed for their expenses for each meeting attended
but do not receive fees for attendance at meetings.
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the Company and until their successors are
elected and qualified. Officers are elected annually and serve at the
discretion of the Board of Directors.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and long
term compensation of the Company's chief executive officer, the only executive
officer of the Company, whose salary and bonus for 1997 exceeded $100,000 for
services in all capacities to the Company during the Company's 1995, 1996, and
1997 fiscal years:
ANNUAL
COMPENSATION LONG-TERM COMPENSATION
Bonus and Securities
Name and Year Ended Other Annual Underlying
PRINCIPAL POSITION DECEMBER 31, SALARY($) COMPENSATION($) OPTIONS
- ------------------- ------------ --------- --------------- -------
Frank Cohen 1997 135,000 0 0
Chairman of the Board 1996 72,000 0 75,000
Chief Executive Officer 1995 72,000 0 0
Since February 7, 1997
EMPLOYMENT AND MANAGEMENT AGREEMENTS
The Company has an employment agreement (the "Agreement") with Frank R.
Cohen which expires December 31, 2005 and provides for an annual salary of
$150,000 and grants Mr. Cohen 35,000 options to purchase 35,000 shares of
Common Stock of the Company at $1.00 per share through December 31, 2005. The
Company has agreed to obtain a split dollar life insurance policy on the life
of Mr. Cohen in the face amount of $1,000,000. The Company would be the sole
owner and beneficiary of the life insurance policy and would pay an annual
premium of approximately $115,000 so long as Mr. Cohen lives, but in no event
would any premiums be required to be paid by the Company after the tenth year of
the policy. The Company would execute an endorsement of $1,000,000 out of the
death benefit to a family trust of Mr. Cohen (the "Trust") which would pay the
term cost of the policy annually. The Company will provide such a policy after
the completion of this offering.
The Agreement provides that, if employment is terminated other than for
willful breach by the employee or for cause or in the event of a change in
control of the Company, then the employee has the right to terminate the
agreement. In the event of any such termination, the employee will be entitled
to receive the payment due on the balance of his employment agreement and to
have the insurance policy fully funded.
The Company intends to enter into six year employment agreements with
Robert Genova, a director of the Company, and with Csaba Toro, managing
director of operations, on the completion of this offering that will provide
that Mr. Genova will serve as president of the Company at a salary of $72,000
per year and Mr. Toro will serve as vice president and as managing director of
the Company subsidiaries at a salary of $96,000 per year.
The Company has no pension or profit sharing plan or other contingent
forms of remuneration with any officer, director, employee or consultant. The
Company does not have "key person" life insurance policies on its executive
officers or key employees.
OPTIONS/GRANTS IN LAST FISCAL YEAR
The Company's 1993 Stock Option Plan permits the grant of options to
employees of the Company, including officers and directors, who are serving in
such capacities. There were no options granted in the 1997 fiscal year under
the plan to the chief executive officer named above or to any employee,
director, or officer of the Company.
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OPTIONS EXERCISED IN LAST FISCAL YEAR AND YEAR-END VALUES
No options were exercised by Frank R. Cohen or by any employee,
director or officer of the Company during the fiscal year ended December 31,
1997. The following table contains information concerning the number and value
at December 31, 1997 of unexercised options held by Mr. Cohen:
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised "In-the-
Acquired on Value Options held at Money" Options held at Fiscal
NAME EXERCISE REALIZED FISCAL YEAR-END YEAR-END(1)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Frank R. Cohen 0 0 110,000 0 $0 $0
</TABLE>
(1) Fair market value of underlying securities (the closing price of the
Company's Common Stock on the NASDAQ Small Cap system as of December
31, 1997, minus the exercise price).
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments. fines, amounts paid in settlement, and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its
stockholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the DGCL as currently in effect, this provision
limits a director's liability except where such director (i) breaches his duty
of loyalty to the Company or its stockholders, (ii) fails to act in good faith
or engages in intentional misconduct or a knowing violation of law, (iii)
authorizes payment of an unlawful dividend or stock purchase or redemption as
provided in Section 174 of the DGCL, or (iv) obtains an improper personal
benefit. This provision does not prevent the Company or its stockholders from
seeking equitable remedies, such as injunctive relief or rescission. If
equitable remedies are found not to be available to stockholders in any
particular case, stockholders may not have any effective remedy against actions
taken by directors that constitute negligence or gross negligence.
ANTI-TAKEOVER PROVISIONS
The Company is governed by the provisions of DCCL Section 203, an
anti-takeover law enacted in 1988 In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. "Business combination"
is defined to include mergers, asset sales and certain other transactions
resulting in a financial benefit to the stockholders. An "interested
stockholder" is defined as a person who, together with affiliates or
associates, owns (or, within the prior three years, did own) 15% or more of the
outstanding voting stock of the Company. An interested stockholder may be
discouraged from attempting to effect an acquisition transaction with the
Company as a result of the anti-takeover law, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to such
transactions.
STOCK OPTION PLAN AND STOCK OPTIONS
In 1993, the Company adopted a Stock Option Plan (the "Plan"). An
aggregate of 350,000 shares of Common Stock are authorized for issuance under
the Plan all of which have been granted and are currently outstanding under the
plan. The Plan provides that qualified and non-qualified options may be granted
to officers, directors, employees and consultants to the Company for the
purpose of providing an incentive to those persons to work for the Company.
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options
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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.
In addition, the Company will not grant a non-qualified option with an exercise
price less than 85% of the fair market value of the underlying Common Stock on
the date of the grant. Options to purchase an aggregate of 350,000 shares of
Common Stock have been granted under the Plan, including options to directors
Cohen, Genova, Roberton, Maresca and Krasnow to purchase 105,000, 30,000,
50,000, 30,000, and 10,000 shares, respectively. No options were exercised in
1997 by any holder.
The Company has no pension or profit sharing plan or other contingent
forms of remuneration.
PRINICPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Common Stock as of the date of this prospectus, and as
adjusted to reflect the sale of the Units offered hereby (assuming (1) no
exercise of the Underwriter's over-allotment option, and (2) the Preferred
Shares included in the Units had been immediately and fully converted as of the
date of this Offering at the rate of ___ shares of Common Stock for each
Preferred Share by (i) each person known by the Company to own beneficially
more than 5% of the outstanding Common Stock; (ii) each director of the
Company; and (iii) all directors and officers as a group. Except as otherwise
indicated below, each of the entities or persons named in the table has sole
voting and investment powers with respect to all shares of Common Stock
beneficially owned by it or him as set forth opposite its or his name.
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
NUMBER PERCENT NUMBER PERCENT(7)
Robert Genova(1)(2) 210,000 3.94% 210,000
227 Route 206, Unit 11
Flanders, NJ 07836
Frank R. Cohen(1)(3) 150,000 2.82% 150,000
445 Park Avenue
New York, NY 10022
Donald K. Roberton(1)(4) 50,000 * 50,000 *
3350 Charles MacDonald Drive
Sarasota FL 34240
Richard Maresca(1)(5) 30,000 * 30,000 *
1111 Wyoming Drive
Mountainside, NJ 07082
Hershel Krasnow(1)(6) 10,000 * 10,000 *
1111 Kane Concourse
Suite 501
Bay Harbor Island FL 33154
All Officers and Directors as a 450,000 8.22% 450,000
Group (5 Persons)
- --------------------------------------------
* less than 1%
(1) For purposes of this table, a person or group of persons is deemed to have
beneficial ownership of any shares
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which such person has the right to acquire within 60 days after the date
of this Prospectus. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above on
the date of this prospectus, any security which such person or group of
persons has the right to acquire within 60 days after such date is deemed
to be outstanding for the purpose of computing the percentage ownership
for such person or persons, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Includes 155,000 currently exercisable options to purchase 125,000 shares
at $1 per share and 30,000 shares at $1.625 per share.\
(3) Includes 140,000 currently exercisable options to purchase 35,000 shares
at $1 per share and 105,000 shares at prices ranging from 1.25 to at
$1.625 per share.
(4) Includes 50,000 currently exercisable options to purchase 50,000 shares at
prices ranging from $1.25 to $1.625 per share.
(5) Includes 30,000 currently exercisable options to purchase 30,000 shares at
prices ranging from $1.25 to $1.625 per share.
(6) Includes 10,000 currently exercisable options to purchase 10,0000 shares
at $1.625 per share.
(7) For purposes of computing this percentage, it has been assumed that after
the offering, the 1,000,000 preferred shares could be converted into
3,000,000 shares of common stock.
CERTAIN TRANSACTIONS
On November 28, 1994, the Company entered into a loan agreement with
Hungarian Broadcasting Corp. ("HBC") which provided for the Company to lend HBC
$800,000 at 6% interest per annum, repayable the earlier of December 31, 1995
or the completion of an initial public offering of securities by HBC. At that
time, HBC was affiliated with the Company since the Company was a principal
stockholder of HBC and had three common directors, Messrs. Cohen, Genova and
Klenner). The agreement provided for the following additional consideration to
the Company: (1) issuance of 100,000 shares of HBC's common stock; (2) an
option exercisable until April 30, 1995 to purchase an additional 150,000
shares of HBC's common stock at $3 per share; and (3) a three years right of
first refusal to act as general contractor for all broadcast facilities to be
built by companies controlled by HBC. The Company exercised its option and
purchased the 150,000 shares at $3 per share in March 1995. On January 2, 1996,
HBC repaid $400,000 of the loan receivable together with accrued interest of
$24,000. In February 1997, the Company borrowed $350,000 at 6% per year
interest from HBC collateralized by the remainder due on the note from HBC to
the Company. On October 29, 1997, the Company sold the 250,000 of HBC shares it
owned for $649,000.
The Company built two luxury 14-unit condominium buildings in Budapest.
During 1996 and 1997, the Company sold one of the apartments in the first
building ("Building A") to a third party and agreed to sell the remaining 13
apartments prior to its completion to M&A Corp. ("M&A"), a corporation wholly
owned by Peter Klenner ("Klenner"), its former president. It was agreed that
the closing of the sale would take place on the completion of the second
building ("Building B"). Klenner agreed to loan the Company funds to complete
Building B, which loans were to be applied against his purchase price of
Building A. The Company completed Building B in March 1998. The Company leased
Building B to an unaffiliated person for a five year term commencing April 1,
1998 at a net rental of $22,000 per month with an option to purchase the
building for $2,000,000. The sale of Building A was recognized for accounting
purposes in the three months ended March 31, 1998. The Company has no intention
at the present time to commence new construction. (See "Certain Transactions")
In October 1996, Mr. Klenner agreed to resign as president and as a
director and agreed to a cancellation of his employment agreement (which
provided for a $168,000 salary per annum until February 1999), upon payment of
$372,000. It was further agreed that the term of the 250,000 stock options
which were granted to him under his employment agreement and pursuant to the
Company's Incentive Stock Option Plan of 1993 would not terminate but would
continue through the original term. .
In February 1997, the Company's Chairman of the Board, Robert Genova,
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 his 1996 salary. In addition,
the Company agreed that 125,000 stock options which were granted to him under
his employment agreement would not terminate as a result of the resignation,
but would continue to be governed by the original terms of the options. In
February 1998, Mr. Genova was appointed a director of the Company. In April
1998, Mr. Genova agreed to serve as treasurer and chief financial
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officer of the Company until the completion of this offering. He was granted
30,000 options under the Stock Option Plan. Mr. Genova also agreed to be
employed by the Company as President after the completion of this offering
under a six year employment agreement at a salary of $72,000 per year.
In February 1997, Mr. Klenner 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 for the period from February
1999 to February 2002. The compensation relating to these options which was
valued at $50,000 is being charged to operations over a two-year period.
The Board approved on July 15, 1998 a grant of 100,000 six year options to
each of Frank R. Cohen, Robert Genova, and Csaba Toro to be issued after
completion of this offering at the exercise price of the Common Stock Purchase
Warrants in this offering.
The Company believes that each of the foregoing transactions were on terms
no less favorable than those which could have been obtained from unaffiliated
third parties. All future material transactions between the Company and its
affiliates will be on terms no less favorable to the Company than those that
can be obtained from unaffiliated third parties. In addition, all future
material affiliated transactions and loans, and any forgiveness of loans, must
be approved by a majority of the issuer's independent directors who do not have
an interest in the transactions and who had access, at the Company's expense,
to the Company's or independent legal counsel.
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 15,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of Preferred
Stock, par value $.001 per share, which may be issued in one or more series. As
of the date of this Prospectus, the Company had 5,336,750 shares of Common
Stock outstanding and no shares of Preferred Stock outstanding. The following
summary description of the Units, Common Stock, Preferred Stock and Series A
Preferred Stock are qualified in their entirety by reference to the Company's
Certificate of Incorporation, as amended.
UNITS
Each of the 1,000,000 Units offered hereby consists of one share of Series
A Convertible Cumulative Redeemable Preferred Stock and two Common Stock
Purchase Warrants. The components of the Units will not be separately
transferable until ______________ 1999, or such earlier date after
______________, 1998 as may be determined by the Underwriter (the "Separation
Date").
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by Stockholders. The holders of shares of Common Stock
are entitled to dividends when and as declared by the Board of Directors from
funds legally available therefor, and, upon liquidation, are entitled to share
pro rata in any distribution to stockholders after payments to creditors and
after paying, or providing for, any liquidation preferences of any outstanding
Preferred Stock. There are no conversion or redemption privileges, nor sinking
fund provisions with respect to the Common Stock, and stockholders have no
preemptive rights to acquire shares of Common Stock issued by the Company in
the future. All of the outstanding shares of Common Stock are validly issued,
fully paid and non-assessable.
The Common Stock is traded on NASDAQ SmallCap Market under the symbol
EWEB.
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PREFERRED STOCK
The Preferred Stock may be issued in one or more series, to be determined
and to bear such title or designation as may be fixed by resolution of the
Board of Directors prior to the issuance of any shares thereof. Each series of
Preferred Stock will have such voting powers, if any, preferences, and other
rights as determined by the Board of Directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the Board of
Directors adopted prior to the issuance of any shares of such series of
Preferred Stock.
The Preferred Shares being offered hereby are the first series of
Preferred Stock designated by the Board of Directors. The Company may not,
without the affirmative vote of the holders of at least a majority of the
outstanding Preferred Shares offered hereby, amend, alter or repeal any of the
provisions of the Certificate of Incorporation or the Certificate of
Designation for the Preferred Shares, or authorize any reclassification of the
Preferred Shares so as to adversely affect the preferences, special rights or
privileges or voting power of the Preferred Shares or authorize or create any
class of stock ranking prior to the Preferred Shares as to dividends or
distribution of assets, or create or issue any shares of any series of the
Company's authorized preferred stock ranking prior to the Preferred Shares as
to dividends or distribution on liquidation. The Board has no present plans to
issue any other series of Preferred Stock. However, purchasers of the Preferred
Shares offered hereby should be aware that subject to the foregoing
restrictions, the holders of any series of the Preferred Stock which may be
issued in the future could have voting rights, rights to receive dividends or
rights to distribution in liquidation superior to those of holders of the
Preferred Shares or Common Stock, thereby adversely affecting rights of the
holders of the Preferred Shares or Common Stock.
Because the terms of each series of Preferred Stock may be fixed by the
Company's Board of Directors without shareholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the
market price of the Preferred Shares, the publicly held Warrants, and the
Common Stock. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company.
SERIES A CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED STOCK
The Board of Directors has filed a Certificate of Designation designating
1,500,000 shares of Preferred Stock as "Series A Convertible Cumulative
Redeemable Preferred Stock" (the "Preferred Shares"). The Company is offering
1,000,000 Preferred Shares as part of the Units offered hereby. The Preferred
Shares have the following rights, preferences, and privileges:
Conversion. Unless previously redeemed by the Company, the holders of the
Preferred Shares are entitled beginning on the Separation Date, to convert each
Preferred Share into ___ (__) shares of Common Stock subject to adjustment
described below. In lieu of issuing fractional shares of Common Stock upon
conversion, the Company may pay an equivalent amount in cash. If any holder
surrenders a Preferred Share for conversion after the close of business on the
record date for the payment of a dividend and prior to the opening of business
on the next dividend payment date, then, notwithstanding such conversion, the
dividend payable on such dividend date will be paid to the registered holder of
such share on such record date. In such event, such share, when surrendered for
conversion, must be accompanied by payment of an amount equal to the dividend
payable on such dividend payment date on the share so converted. In the case of
Preferred Shares called for redemption, conversion rights will expire at the
close of business on the redemption date.
The conversion rate is subject to adjustment upon the occurrence of
certain events, including the issuance of stock of the Company as a dividend or
distribution on the Common Stock but not as dividends on the Preferred Shares;
sub-divisions and combinations of Common Stock; certain reclassifications,
consolidations, mergers and sales of property of the Company; the issuance to
all holders of Common Stock of certain rights or warrants; and the distribution
to all holders of Common Stock of evidence of indebtedness of the Company or of
assets (excluding cash dividends or distributions from retained earnings).
Except as stated above, the Conversion Price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock, or carrying the right to purchase any of the foregoing, in
exchange for cash, property or services.
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Dividends. Each Preferred Share is entitled to cumulative annual dividends
of $.36 payable on April 30 of each year commencing April 30, 1999. Unpaid
dividends will accumulate and be payable prior to the payment of dividends on
the Common Stock. The Company may, at its option, pay dividends in shares of
Common Stock, in lieu of cash. Shares used for such purpose will be valued at
the average closing bid price during the ten trading days ending on the tenth
day before the dividend payment date, subject to certain conditions. For the
foreseeable future, the Company expects to make dividend payments on the
Preferred Shares in shares of Common Stock.
Redemption. The Preferred Shares are redeemable after the Separation Date
at the option of the Company, on not less than 30 days' written notice to
registered holders at the redemption price of $7.20 per share plus accumulated
dividends, provided the Company may not redeem the Preferred Shares unless the
closing price of the Common Stock equals or exceeds $_ per share for at least
20 of the 30 consecutive trading days ending within five trading days prior to
the date the redemption notice is mailed.
Voting Rights. Preferred Shares are entitled to one vote per share voting
together with the Common Stock as one class, except as otherwise provided by
the Delaware General Corporation Law provided, however, that if dividends
payable on the Preferred Shares shall have been unpaid for two dividend
periods, the holders of the Preferred Shares, voting as a class, shall be
entitled to elect two directors to the Board of Directors.
Preference on Liquidation. Preferred Shares will be entitled to a
preference on liquidation equal to $6 per share, plus accumulated unpaid
dividends.
No Sinking Fund. The Company is not required to provide for the
retirement or redemption of the Preferred Shares through the operation of a
sinking fund.
COMMON STOCK PURCHASE WARRANTS
The Company is offering 2,000,000 (2,300,000 if the Underwriter's
over-allotment option is exercised in full) Common Stock Purchase Warrants (the
"Warrants") as part of the Units offered hereby. Each Warrant entitles the
holder to purchase until __________ one share of Common Stock at an exercise
price of $___. The Warrants offered hereby are subject to redemption at any
time after the Separation Date, on 30 days notice at $.__ per Warrant provided
that the closing sale price, or if none, the closing bid price of the Common
Stock exceeds $____ per share on at least 20 days of the 30 trading days ending
within 15 days of the date on which the notice of redemption is mailed. Holders
of Warrants shall have exercise rights until the close of the business day
preceding the date fixed for redemption.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends and distributions, stock splits, recapitalizations, mergers and
consolidations. No adjustment exists for the issuance of shares of Common
Stock, among other circumstances, upon exercise of any of the Warrants or
options granted under any stock option plan or the Underwriter's Unit Warrants.
The Company is not required to issue fractional shares. The holder of a Warrant
does not possess any rights as a stockholder of the Company unless he exercises
his Warrant and obtains Common Stock. The Warrants have been issued in
registered form under a Warrant Agreement dated as of the date of this
prospectus between the Company and American Stock Transfer & Trust Company as
Warrant Agent. The shares of Common Stock issued upon exercise of a Warrant,
will be fully paid and non-assessable.
A Warrant may be exercised upon the surrender of a duly completed warrant
certificate on or prior to its expiration, accompanied by cash or certified
bank check for the exercise price.
UNDERWRITER'S WARRANTS
The Company sold to J.W. Barclay & Co., Inc. (one of the underwriters in
its public offering of securities on July 29, 1993 and the Underwriter in this
Offering) at a price of $.001 per Warrant, 62,000 warrants (the "1993
Underwriter's Warrants") to purchase a like number of shares of Common Stock of
the Company. The 1993 Underwriter's Warrants were exercisable at a price of
$13.20 per share until July 29, 1998 at which time they expired.
35
<PAGE>
Subject to the sale of the securities offered hereby, the Company will
sell to the Underwriter of this offering for a nominal consideration, 100,000
Unit warrants to purchase a like number of Units at an exercise price of $9.90
per unit.
OUTSTANDING OPTIONS AND WARRANTS
As of the date of this Prospectus, there are outstanding warrants to
purchase an aggregate of 575,000 shares of Common Stock at prices ranging from
$1.25 to $14.75 per share, outstanding non-plan stock options to purchase
510,000 shares of Common Stock at prices ranging from $1.00 to $2 per share and
options outstanding under the Option Plan to purchase 350,000 shares of Common
Stock at prices from $1.00 to 3 3/8 per share.
The Company intends to file one or more registration statements under the
Securities Act to register all shares of Common Stock subject to outstanding
stock options and warrants and such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject in certain
cases to lock-up restrictions.
LOCK-UP AGREEMENTS
The directors and officers of the Company own an aggregate of 65,000
shares of Common Stock and options to purchase an additional 385,000 shares of
Common Stock and have agreed not to directly or indirectly sell, assign,
transfer, encumber, contract to sell, grant an option to purchase of otherwise
dispose of any shares of Common Stock or any other security convertible into or
exchangeable for shares of Common Stock which they beneficially own for a
period of 12 months after the date of this Prospectus without the prior written
consent of the Underwriter.
TRANSFER AGENT
The transfer agent for the Common Stock and for the Preferred Shares is
American Stock Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm and intends to furnish other reports as it may determine or may
be required by law.
APPLICATION FOR LISTING
It is anticipated that after this Offering, the Units will be quoted on
the NASDAQ Small-Cap Market under the symbol EWEBU. The Common Stock is
currently being quoted on the NASDAQ Small-Cap Market under the symbol "EWEB"
No assurance can be given that a trading market for the Company's Units will
develop or be sustained.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 5,336,750 shares
of Common Stock outstanding. 5,271,750 of these shares are freely tradeable and
65,000 are restricted securities as that term is defined under Rule 144 under
the Securities Act of 1933 (the "Act") and may not be resold except in
compliance with the registration requirements of the Securities Act, or
pursuant to Rule 144 or pursuant to some other exemption from registration.
See "Certain Transactions."
36
<PAGE>
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated under the terms of Rule
144), who has beneficially owned restricted shares of Common Stock for at least
one year is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the total number of outstanding
shares of the same class, or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least the three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least two years is entitled to sell such shares under Rule 144 without regard
to the volume limitations described above.
UNDERWRITING
Subect to the terms and conditions in the underwriting agreement between
EuroWeb and the Underwriters named below, for which J.W. Barclay is acting as
Representative, a copy of which agreement is filed as an exhibit to the
Registration Statement of which this Propsectus forms a part, EuroWeb has
agreed to sell to each of the Underwriters named below, and each of such
Underwriters has severally agreed to purchase, the number of Units set forth
opposite its name. All 1,000,000 Units must be purchased by the several
Underwriters if any are purchased.
UNDERWRITERS NUMBER OF UNITS
J.W. Barclay & Co., Inc...........................
Total.................. 1,000,000
The Representative has advised the Company that the Underwriters proposes
to offer the Units to the public at the offering price set forth on the cover
page of this Prospectus and that the Underwriters may allow certain dealers who
are members in good standing of the National Association of Securities Dealers,
Inc. ("NASD") a concession of $__ per Unit. After the initial public offering,
the public offering price and concessions may be changed by the Underwriters.
The Company has granted the Underwriters an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 150,000 Units at the
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriters may exercise this option solely to
cover over-allotments in the sale of the Units.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the gross proceeds of the Units sold in the offering
(including the over-allotment option), of which $30,000 has been paid.
The Company has agreed to enter into an agreement with the Representative
retaining the Representative as financial consultant for a period of two years
from the date hereof, pursuant to which the Underwriter will receive a fee of
$37,500 per year payable in full at the closing of the Offering. The Company
has agreed with the Underwriter to pay a finder's fee, ranging from 7% of the
first $1,000,000 down to 2 1/2% of the excess over $9,000,000 of the
consideration involved in any transaction (including mergers and acquisitions)
consummated by the Company in which the Representative introduced the other
party to the Company during the five year period commencing on the closing
date.
The Company will pay the Representative commencing one year from the date
hereof, a commission equal to ten percent of the exercise price of the Warrants
exercised, provided that (i) at the time of exercise the market price of the
Common Stock is greater than the exercise price of the Warrants, and (ii) the
exercise of the Warrants was solicited by a member of the NASD and the NASD
member is designated in writing by the Warrant Holder, (iii) the Warrants
exercised are not held in discretionary accounts, (iv) disclosure of the
compensation arrangements has been made both at the time of the offering and at
the time of exercise of the Warrant, and (v) the solicitation of the exercise
of the Warrants is not in violation applicable rules under the Securities
Exchange Act of 1934 (the "Exchange Act"). A portion of such commission may be
reallocated to any dealer who solicited such exercise. In addition, unless
granted
37
<PAGE>
an exemption by the Commission from applicable rules under the Exchange Act,
the Represenetaive will be prohibited from engaging in any market activity or
solicited brokerage activities until the later of the termination of such
solicitation of activity or the termination by waiver or otherwise of any right
the Representative may have to receive a fee for the exercise of the Warrants
following such solicitation. Such a prohibition, while in effect, could impair
the liquidity and market price of the Securities.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933.
The Company has agreed to sell to the Underwriters or its designees, at a
price of $.001 per warrant, a total of 100,000 Units (the "Underwriters' Unit
Warrants") to purchase a like number of Units. The Underwriters' Unit Warrants
will be exercisable at a price of $9.90 per Unit for a period of five years
commencing on the date hereof. The Underwriter's Unit Warrants and the
underlying Units will be restricted from sale, transfer, assignment or
hypothecation for a period of one year from the date hereof except to the
Underwriters and selected dealers and officers and partners thereof. Any profit
realized upon any resale of the Underwriter's Unit Warrants may be deemed to be
additional underwriters' compensation. The Company has agreed to register (or
file a post-effective amendment with respect to any registration statement
registering) the Underwriter's Unit Warrants and their underlying securities
under the Securities Act at its expense on one occasion, and at the expense of
the holders thereof on another occasion, upon the request of a majority of the
holders thereof. The Company has also agreed to certain "piggy-back"
registration rights for the holders of the Underwriter's Unit Warrants and
their underlying securities.
The Underwriters has informed the Company that they do not expect sales of
Units to be made to discretionary accounts to exceed 2% of the Units offered
hereby.
Certain current Common Stock and option holders, of the Company, have
agreed that they will not, directly or indirectly, offer to sell, contract to
sell, sell, transfer, assign, encumber, grant an option to purchase, pledge or
otherwise dispose of any beneficial interest in such securities, for a period
of twelve months following the date hereof, without the prior written consent
of the Underwriter.
The Underwriting Agreement provides that the Representative has the right,
for a period of five years from the date of the closing of the Offering, to
designate one person to attend Board of Directors meetings. Such person shall
be entitled to attend all such meetings and to receive all notices and other
correspondence and communications sent by the Company to members of its Board
of Directors. The Company shall reimburse the designee of the Representative
for his out-of-pocket expenses incurred in connection with his attendance at
such meetings. As of the date of this Prospectus, the Representative has not
designated such person.
The Company has agreed that for a period of six months from the date
hereof, it will not issue any securities not contemplated by this Prospectus
without the prior written consent of the Representative.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Units at levels above those which otherwise might prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the Units. A syndicate-covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with this
offering. A penalty bid means an arrangement that permits the Underwriter to
reclaim a selling concession from a syndicate member in connection with this
offering when shares of Units sold by the syndicate member are purchased in
syndicate-covering transactions. Such transactions may be effected on the
NASDAQ Stock Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Units (including the Preferred Shares and the Common
Stock Purchase Warrants) offered hereby will be passed upon for the Company by
Cohen & Cohen, 445 Park Avenue, New York, New York 10022. Frank R. Cohen, a
partner in Cohen & Cohen, owns 10,000 shares of the Common Stock and holds
options to purchase an additional 140,000 shares of Common Stock. He is also
Chairman of the Board and President of the Company. Certain matters of
Hungarian law will be passed upon for the Company by Dr. Istvan L. Fekete,
Budapest 4. sz Ugyvedi Iroda, 1077 Budapest, Kiraly u. 67. Certain legal
matters in connection with this Offering are being passed upon for the
Underwriter by Henry C. Malon, Esq., 1 Battery Park Plaza, New York, NY 10004.
38
<PAGE>
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
39
<PAGE>
- -------------------------------------------------------------------------------
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets as of December 31, 1997 and
June 30, 1998 (unaudited) F-3
Statements of loss for the years ended
December 31, 1996 and 1997 and the six months
ended June 30, 1997 (unaudited) and 1998 (unaudited) F-4
Statements of stockholders' equity for the years ended
December 31, 1996 and 1997 and six months ended
June 30, 1998 (unaudited) F-5
Statements of cash flows for the years ended
December 31, 1996 and 1997 and six months
ended June 30, 1997 (unaudited) and 1998 (unaudited) F-6
Notes to consolidated financial statements F-7 - F-23
F-1
<PAGE>
- -------------------------------------------------------------------------------
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
EuroWeb International Corp.
New York, New York
We have audited the accompanying consolidated balance sheet of EuroWeb
International Corp. (formerly Hungarian Teleconstruct Corp.) as of December 31,
1997, and the related consolidated statements of loss, stockholders' equity,
and cash flows for each of the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall 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 financial position of EuroWeb
International Corp. as of December 31, 1997, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 10, 1998
F-2
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, December 31, 1997 June 30, 1998
ASSETS (unaudited)
CURRENT:
Cash and cash equivalents (Note 3) $ 697,948 $ 263,089
Accounts receivable, less allowance
of $39,216 and $37,293 for doubtful
accounts 172,437 194,903
Receivables from Hungarian Broadcasting
Corporation (Note 4(a)) 546,053 556,372
Prepaid and other 103,073 79,165
TOTAL CURRENT ASSETS 1,519,511 1,093,529
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $102,402 AND $148,594 240,887 224,060
CONDOMINIUM BUILDING - HELD FOR SALE (NOTE 5(C)) - 1,590,000
CONSTRUCTION-IN-PROGRESS (NOTE 5(A)) 3,279,900 -
GOODWILL, LESS ACCUMULATED AMORTIZATION OF
$383,000 AND $577,000 (NOTE 10) 1,529,912 1,364,707
OTHER 70,094 205,018
$6,640,304 $4,477,314
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable to Hungarian Broadcasting
Corporation (Note 4(c)) $ 368,456 $ 378,954
Payable to former owners of acquired
businesses (Note 10) 191,000 76,000
Accounts payable and accrued expenses 789,623 632,618
TOTAL CURRENT LIABILITIES 1,349,079 1,087,572
10% CONVERTIBLE DEBENTURES (NOTE 6(A)) 150,000 -
DEFERRED REVENUE (NOTE 5(B)) 1,589,653 46,000
TOTAL LIABILITIES 3,088,732 1,133,572
COMMITMENTS (NOTES 5 AND 8)
STOCKHOLDERS' EQUITY (NOTE 7):
Preferred stock, $.001 par value -
shares authorized 5,000,000; no shares
outstanding - -
Common stock, $.001 par value - shares
authorized 15,000,000; issued and outstanding
4,949,936 and 5,306,750 4,950 5,307
Additional paid-in capital 18,755,225 18,916,550
Deficit (15,172,703) (15,549,807)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (35,900) (28,308)
TOTAL STOCKHOLDERS' EQUITY 3,551,572 3,343,742
$ 6,640,304 $ 4,477,314
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
- --------------------------------------------------------------------------------
STATEMENT OF LOSS
Year ended Six months ended
December 31, June 30,
1996 1997 1997 1998
(unaudited) (unaudited)
REVENUES:
Internet $ - $1,270,135 $608,080 $840,000
Construction (Note 5(b)) - - - 1,724,468
Rent income - - - 66,000
- 1,270,135 608,080 2,630,468
EXPENSES (INCOME):
Cost of construction - - - 1,723,870
Compensation and related
costs (Notes 8 and 9(a) 1,364,550 810,543 386,117 316,945
Network costs - 525,530 194,493 453,269
Consulting and
professional fees 190,330 234,042 203,362 93,124
Rent 5,716 117,531 55,193 65,593
Depreciation and
amortization 29,352 497,362 245,268 250,192
Interest - net
(Note 6(a)) 287,677 370,166 338,306 (11,733)
Financing costs
(Note 6(a)) 99,000 153,965 133,703 -
Foreign currency loss 150,917 28,654 75,761 6,148
Write-down of
construction-in-
progress to estimated
market value (Note 5(a)) 1,000,000 350,000 - -
Gain on sale of
investment in affiliate
(Note 4(b)) - 524,000 - -
Other 379,472 713,570 387,570 110,164
3,517,014 3,277,363 2,019,773 3,007,572
LOSS BEFORE
EQUITY IN
NET LOSS OF
UNCONSOLIDATED
AFFILIATE 3,517,014 2,007,228 (1,411,693) (377,104)
EQUITY IN NET LOSS OF
UNCONSOLIDATED AFFILIATE
(NOTE 4(B)) 278,000 - - -
NET LOSS 3,795,014 2,007,228 (1,411,693) (377,104)
OTHER COMPREHENSIVE
INCOME(LOSS) - FOREIGN
CURRENCY TRANSLATION
ADJUSTMENT - (35,900) - 7,592
COMPREHENSIVE LOSS $(3,795,014) $(2,043,128) $(1,411,693) (369,512)
======================= ============ ============ ============ ========
NET LOSS PER SHARE -
BASIC AND DILUTED $ (2.26) $ (.54) $ (.47) $ (.07)
======================= ============ ============ =========== =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 1,681,000 3,728,000 3,007,469 5,118,892
======================= ============ ============ =========== =========
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
- -----------------------------------------------------------------------------
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1997 and six months ended June 30, 1998
<TABLE>
<CAPTION>
Accumulated
Additional other
paid-in comprehensive
Common stock capital loss Deficit
Shares Amount
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 1,518,290 $1,518 $14,645,998 $ - $ -
Issuance of shares
for cash (Note 6(b) 550,000 550 972,450 - -
Compensation relating
to the extension
of the period of
exercisability of
former officer's
options (Note 9(a)) - - 600,000 - -
Issuance of shares for
businesses to be
acquired (Note 10) 144,000 144 359,856 - -
Issuance of shares on
conversion of
debentures and
accrued interest
(Note 6(a)) 263,979 264 311,143 - -
Incremental interest
from revaluation of
convertible debentures
(Note 6(a)) - - 300,000 - -
Net loss for the year - - - - 3,795,014
BALANCE,
DECEMBER 31, 1996 2,476,269 2,476 17,189,447 - (13,165,475)
Compensation relating
to the extension
of the period of
exercisability of
former officer's
options and issuance of
options to consultant
(Note 8) - - 170,000 - -
Issuance of shares on
conversion of
debentures and
accrued interest
(Note 6(a)) 2,413,667 2,414 1,224,838 - -
Exercise of put
options on common
stock issued in
connection with
acquisitions 60,000 60 (156,060) - -
Incremental interest
from revaluation of
convertible debentures
(Note 6(a)) - - 327,000 - -
Foreign currency
translation adjustment - - - (35,900) -
Net loss for the year - - - - (2,007,228)
BALANCE,
DECEMBER 31, 1997 4,949,936 4,950 18,755,225 (35,900) (15,172,703)
Issuance of shares on
conversion of
debentures (unaudited) 356,814 357 161,325 - -
Foreign currency
translation adjustment
(unaudited) - - - 7,592 -
Net loss for the period
(unaudited) - - - - (377,104)
BALANCE, JUNE 30, 1998
(UNAUDITED) 5,306,750 $5,307 $18,916,550 $(28,308) $(15,549,807)
======================== ========= ====== =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
1996 1997 1997 1998
(unaudited) ( unaudited)
- ----------------------------------------------------- ------------ ------------ ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net loss $(3,795,014) $(2,007,228) $(1,411,693) $(377,104)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 29,352 497,362 245,268 250,192
Amortization of imputed interest income - - (26,000) -
Gain on sale of investment - (524,000) - -
Options granted/extended as compensation 600,000 170,000 125,000 -
Stock issued for accrued interest 3,907 42,252 20,435 11,682
Incremental interest on revaluation of
convertible debentures 300,000 327,000 304,000 -
Provision for loss on construction-in-progress 1,000,000 350,000 - -
Equity in net loss of unconsolidated affiliate 278,000 - - -
Provision for doubtful accounts - 39,216 - -
Loss on sale of property 9,090 75,000 75,000 247
(Increase)decrease in:
Accounts receivable - (70,849) (219,133) 67,534
Vat refund receivable 146,804 74,412 19,396 -
Receivables from related parties 85,962 (65,269) 616 -
Prepaid and other assets (9,881) 82,329 (65,030) (103,424)
Increase (decrease) in:
Accounts payable and accrued expenses (227,283) (59,449) 345,728 (157,005)
Payable to former owners/officers - - 125,059 (115,000)
Deferred revenue 1,490,039 99,614 - 46,000
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 88,624 (969,610) (461,354) (376,878)
CASH FLOWS FROM INVESTING ACTIVITIES:
Receivable from HBC, net 376,323 (65,269) 16,084 179
Acquisition of Internet service companies, net of
cash acquired (825,000) (501,986) (458,629) -
Acquisition of property and equipment and
construction-in-progress (1,429,992) (243,890) (477,023) (29,365)
Acquisition of intangibles - - - (28,795)
Proceeds from sale of investment in HBC - 649,000 - -
Proceeds from sale of property 320,510 134,000 134,000 -
NET CASH USED IN INVESTING ACTIVITIES (1,558,159) (28,145) (785,568) (57,981)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debt 792,500 850,000 780,000 -
Proceeds from HBC loan - 350,000 350,000 -
Proceeds from issuance of common stock 973,000 - - -
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,765,500 1,200,000 1,130,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 118,717 202,245 (116,922) (434,859)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 376,986 495,703 495,703 697,948
CASH AND CASH EQUIVALENTS, END OF PERIOD $495,703 $697,948 $378,781 $263,089
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid - - - $6,000
Noncash transactions:
Issuance of common stock upon
conversion of debentures and accrued
interest $307,000 $1,185,000 $605,435 $161,682
Issuance of common stock as advances on
acquisition 360,000 - - -
Payable to stockholders of acquired 400,000 191,000 - -
companies
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
1 SUMMARY OF (a) Principles of Consolidation
SIGNIFICANT ACCOUNTING
POLICIES The consolidated financial
statements include the
accounts of EuroWeb
International Corp., formerly
Hungarian Teleconstruct Corp.
(the "Company") and its
wholly-owned subsidiaries.
All material intercompany
balances and transactions
have been eliminated. Certain
1996 items have been
reclassified to conform to
the 1997 presentation.
(b) Use of Estimates and Assumptions
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) Interim Financial Statements
The consolidated financial
statements as of June 30, 1998
and for the six months ended
June 30, 1998 and 1997 are
presented as unaudited. In the
opinion of management, these
financial statements include
all adjustments necessary to
present fairly the information
set forth therein. These
adjustments consist solely of
normal recurring accruals. The
interim results of operations
for the six months ended June
30, 1998 and 1997 are not
necessarily indicative of the
results to be expected for the
full year or for any other
interim period.
(d) Fiscal Year
The Company's reporting period
is the fiscal year ending
December 31.
(e) Revenue Recognition
Revenues from monthly Internet
service are recognized in the
month in which the services are
provided. Sale of constructed
condominium apartments is
recognized when collection of
sales price is assured.
(f) Foreign Currency Translation
F-7
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------------------
The Company's Hungarian
subsidiary, EuroWeb Rt, uses
the local currency, the
Hungarian forint, as the
functional currency and
translates all assets and
liabilities at year-end
exchange rates and all income
and expense accounts at
average rates, and records
adjustments resulting from
the translation in a separate
component of stockholders'
equity. The Company uses the
U.S. dollar as the functional
currency for its Hungarian
subsidiary, Teleconstruct
Epitesi Rt ("Teleconstruct").
Accordingly, monetary assets
and liabilities of
Teleconstruct were remeasured
at year-end exchange rates,
nonmonetary assets and
liabilities were remeasured
at historical rates, and
income and expense accounts
were remeasured at the
average rates in effect
during the year.
Remeasurement adjustments and
transaction gains or losses
are reflected in the
consolidated statements of
loss.
(g) 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.
(h) Fair Value of Financial
Instruments
The carrying values of cash
equivalents, accounts
receivable, receivables from
and loan payable to Hungarian
Broadcasting Corporation
("HBC"), payable to former
owners of acquired
businesses, accounts and
accrued expenses payable and
convertible debentures
approximate fair values.
F-8
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
- -------------------------------------------------------------------------------
(i) Equity in Net Loss of
Unconsolidated Affiliate
The Company's 9.7% equity
interest in HBC was accounted
for using the equity method
through September 30, 1996
since the Company had the
ability to exercise
significant influence over
HBC. Beginning 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 (see Note 4(b)). On
October 29, 1997, the Company
sold its interest in HBC.
(j) Property, Equipment and
Depreciation
Property and equipment are
stated at cost. Depreciation
is computed using the
straight-line method over the
estimated useful lives of the
assets of 3-5 years. During
1996, the Company sold its
office condominium at a net
loss of $75,000, which is
included in other expenses.
(k) Goodwill
Goodwill is amortized on a
straight-line basis over its
estimated useful life of 5
years. The Company
periodically evaluates
goodwill based upon the
expected undiscounted cash
flow from the acquired
businesses.
(l) Stock-Based Compensation
In October 1995, the
Financial Accounting
Standards Board ("FASB")
issued Statement of Financial
Accounting Standards ("SFAS")
No. 123, "Accounting for
Stock-Based Compensation"
("SFAS No. 123") which
establishes a fair value
method of accounting for
stock-based compensation,
through either recognition or
disclosure. The Company
adopted the disclosure option
for employee stock-based
compensation provisions of
SFAS No. 123. However, since
the pro forma net loss and
net loss per share amounts
assuming the fair value
method was adopted January 1,
1995 did not differ
materially from the
comparable amounts reported
on the consolidated
statements of loss, no such
pro forma amounts have been
disclosed.
F-9
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
(m) Income Taxes
The Company accounts for
income taxes in accordance
with SFAS No. 109,
"Accounting for Income Taxes"
("SFAS No. 109"). This
statement requires a
liability approach for
measuring deferred taxes
based on temporary
differences between the
financial statement and
income tax bases of assets
and liabilities existing at
the balance sheet date using
enacted rates for the years
in which the taxes are
expected to be paid or
recovered.
(n) Comprehensive Income
In June 1997, the FASB issued
SFAS No. 130, "Reporting
Comprehensive Income", which
establishes standards for
reporting and display of
comprehensive income, its
components and accumulated
balances. Comprehensive
income is defined to include
all changes in equity except
those resulting from
investments by owners and
distributions to owners.
Among other disclosures, SFAS
130 requires that all items
that are required to be
recognized under current
accounting standards as
components of comprehensive
income be reported in a
financial statement that is
displayed with the same
prominence as other financial
statements. SFAS No. 130
became effective for
financial statements for
periods beginning after
December 15, 1997 and
requires comparative
information for earlier
periods. The Company adopted
SFAS No. 130 as of January 1,
1998.
F-10
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------------------
(o) Net Loss Per Share
During 1997, the FASB issued
SFAS No. 128 ("SFAS No.
128"), "Earnings per Share,"
which provides for the
calculation of "basic" and
"diluted" earnings per share.
This statement became
effective for financial
statements issued for periods
ending after December 15,
1997. Basic earnings per
share include no dilution and
are computed by dividing
income available to common
stockholders by the weighted
average number of common
shares outstanding for the
period. Diluted earnings per
share reflect, in periods in
which they have a dilutive
effect, the effect of common
shares issuable upon exercise
of stock options. Although
SFAS No. 128 requires that
all periods presented be
restated to comply with the
provisions of this statement,
no restatement was required
since the Company's basic net
loss per share and primary
net loss per share for the
year ended December 31, 1996
were the same.
(p) Recent Accounting
Pronouncements
In June 1997, the FASB issued
SFAS No. 131, "Disclosures
About Segments of an
Enterprise and Related
Information", which
supersedes SFAS No. 14,
"Financial Reporting for
Segments of a Business
Enterprise". SFAS 131
establishes standards for the
way that public companies
report information about
operating segments in annual
financial statements and
requires reporting of
selected information about
operating segments in interim
financial statements issued
to the public. It also
establishes standards for
disclosures regarding
products and services,
geographic areas and major
customers. SFAS 131 defines
operating segments as
components of a company about
which separate financial
information is available that
is evaluated regularly by the
chief operating decision
maker in deciding how to
allocate resources and in
assessing performance.
F-11
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
SFAS 131 is effective for
financial statements for
periods beginning after
December 15, 1997 and
requires comparative
information for earlier years
to be restated. Because of
the recent issuance of this
standard, management has been
unable to fully evaluate the
impact, if any, it may have
on future financial statement
disclosures. Results of
operations and financial
position, however, will be
unaffected by implementation
of this standard.
2. ORGANIZATION AND The Company is a Delaware corporation
BUSINESS which was organized on November 9,
1992. Its wholly-owned Hungarian
subsidiary, Teleconstruct, was
organized on March 19, 1993.
Teleconstruct is currently building
in Budapest, Hungary two luxury
14-unit condominium buildings for
sale (see Note 5). On January 2,
1997, the Company acquired three
Hungarian Internet service companies
and is operating them through its
wholly-owned subsidiary, EuroWeb Rt.
3. CASH CONCENTRATION At December 31, 1997
and June 30, 1998, cash of
approximately $537,000 and $129,000,
respectively, denominated in U.S.
dollars, was on deposit with a money
market fund and major money center
bank in the United States. In
addition, at December 31, 1997 and
June 30, 1998, approximately $161,000
and $134,000, respectively, were on
deposit in Hungarian banks.
4. ADVANCES TO, PAYABLE (a) At December 31, 1997, receivable FROM AND
INVESTMENT from HBC represents loans, advances IN HBC and accrued interest
receivable.
The receivable was due June 30, 1997.
The Company expects repayment of this
receivable during 1998 from a
convertible debt offering by HBC.
Upon repayment, it will pay the loan
payable to HBC.
F-12
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
-------------------------------------------------------------------
(b) The Company's investment in HBC (a
public company), represented by
250,000 shares of common stock, was
subject to a lock-up agreement
through February 7, 1999. On
October 29, 1997, the Company sold the
250,000 shares for $649,000 to the
then three principals of HBC's
underwriter on its previous two public
offerings. The sales price was
approximately 55% of the market price
of HBC's common stock as of the
date of the agreement to sell, and
approximately 40% at the time of the
closing of the sale. The Company
recognized a gain of $524,000 based on
a carrying value of $125,000.
(c) In February 1997, the Company
borrowed $350,000 from HBC. The loan,
which is evidenced by a promissory
note with interest at 6% per
annum, is payable on the earlier to
occur of (1) June 30, 1997, (2) the
closing of any offering by the Company
of its securities, or (3) sale of any
assets by the Company. The
loan is secured by the balance of the
loan owed by HBC to the Company and
the proceeds of a debt owed by a
company controlled by the Company's
former President (see Note 9(a)).
5. CONSTRUCTION-IN- (a) Construction-in-progress of two luxury
PROGRESS AND 14-unit condominium buildings held
CONDOMIUM BUILDING - HELD-FOR for sale includes the cost of land
SALE ($885,000) and construction costs
incurred through December 31, 1997,
net of a provision of $1,350,000
($350,000 and $1,000,000 provided in
1997 and 1996, respectively), to
write down to estimated net
realizable value. The provision was
required based on the real estate
market conditions in Budapest.
(b) As of December 31, 1997, deposits of
approximately $1,724,00 out of a
total sales price
of $1,679,653 were received
for all of the apartments in
one of the condominium
buildings with the balance
received in April 1998. All
the deposits for the
apartments with the exception
of one for $200,000 were
received from the Company's
former President. Construction was
completed in March 1998 and the sale
of the apartments was recognized
in the first quarater 1998.
The sales price of
these apartments approximated
the cost of the apartments
net of the allocated
provision for write-down of
approximately $631,000.
F-13
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
(c) The second condominium
building for which move-in
permits have also been
obtained in 1998, has been
leased under a net lease
which provides for a monthly
rental of $22,000 for a
period of five years. The
lessee has the right to
purchase the leased building
for $2,000,000 during the
lease period. The condominium
building is carried at cost,
net of a provision of
approximately $719,000 to
write down to estimated net
realizable value. It is being
depreciated on a straight line
basis over an estimated useful
life of 40 years. At June 30,
1998 accumulated depreciation
amounted to $10,000.
6. RIVATE PLACEMENTS (a) In 1996 and 1997, the Company sold
$792,500 and $850,000 of 10%
convertible debentures due 2 years
from the date of sale to foreign
investors outside the United
States in private placements
receiving aggregate net proceeds of
approximately $693,500 and
$696,000, respectively, after
deducting placement agent fees
and offering expenses of
approximately $99,000 and
$154,000, respectively.
Commencing 45 days after issuance, the
original principal amount of the
debentures is convertible into the
Company's shares of common
stock at a conversion price
of 50% of the market price, as
defined, of the Company's
common stock. In the case of the
occurrence of one or more
"events of default" as described in
the debenture, the debentures
may be immediately due and
payable. During 1996 and 1997,
debentures of $307,500 and
$1,185,000 and accrued interest
of $3,907 and $42,252,
respectively, have been converted
into 263,979 and 2,413,667
shares of common stock, respectively.
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 an interest
charge of $300,000 and $327,000 to
the consolidated statements of
loss for the years ended December 31,
1996 and 1997, respectively.
In addition, financing costs of
approximately $99,000, $154,000
and $134,000 incurred in
connection with the sale of
the debentures have been charged to
operations during the years 1996
and 1997 and the six months
ended June 30, 1997, respectively,
since substantially all of
the debentures were converted
to common stock within a short
period after issuance.
F-14
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------------------
The unconverted debentures of $150,000 at
December 31, 1997 are due as follows:
-------------------------------------------------------------------------------
January 1999 $ 50,000
April 1999 100,000
$150,000
================================================================================
During the six months ended
June 30, 1998 the outstanding
debentures of $150,000 and
accrued interest of $11,682
shares converted into 356,814
shares of common stock. There
were no debentures
outstanding at June 30, 1998.
(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, reduced to $1.25
per share on June 26, 1997,
at any time from October 1,
1997 until September 30, 2001
for net proceeds of $973,000
after deducting placement
agent fees and offering
expenses of $127,000. The
warrants and the underlying
shares of common stock have
been registered under the
Securities Act of 1933.
F-15
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
7. STOCK OPTION PLAN AND (a) Stock Options
WARRANTS
The Company has a Stock
Option Plan (the "Plan"). An
aggregate of 100,000 shares
of common stock is authorized
for issuance under the Plan.
On May 14, 1996, the
stockholders approved an
increase in the number of
stock options available under
the Plan to 350,000. At
December 31, 1997, 90,000
stock options were available
under the Plan, which were
granted to the Company's
officers and directors in
April 1998. The Plan provides
that incentive and
nonqualified options may be
granted to officers and
directors and consultants to
the Company for the purpose
of providing an incentive to
those persons to work for 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 the
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.
F-16
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------------------
SFAS No. 123 requires the
Company to provide, beginning
with 1995 grants, pro forma
information regarding net
income and net income per
common share as if
compensation costs for the
Company's stock option plans
had been determined in
accordance with the fair
value based method prescribed
in SFAS No. 123. Such pro
forma information has not
been presented because
management has determined
that the compensation costs
associated with options
granted in 1997 and 1996 are
not material to net loss or
net loss per common share.
F-17
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
Transactions involving options
granted are summarized below:
1996 1997
Weighted Weighted
average average
exercise exercise
Shares price Shares price
Outstanding, January 1, 560,000 $2.32 775,000 $1.71
Granted 240,000 3.01 240,000 1.77
Cancelled (25,000) 9.60 (195,000) 2.33
Outstanding, December 31, 775,000 1.71 820,000 1.39
===============================================================================
Exercisable, December 31, 725,000 $1.62 720,000 $1.32
===============================================================================
The following table summarizes
information about stock options
outstanding under the Plan at
December 31, 1997:
Options outstanding Options exercisable
Weighted
Number average Weighted Number Weighted
Range of outstanding at remaining average exercisable at average
exercisable December 31, contractual exercisable December 31, exercisable
prices 1997 life price 1997 price
$1.00 - $3.38 820,000 2.6 $1.39 720,000 $1.32
===============================================================================
F-18
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
In April 1998, the Company
also granted 90,000 options
to its officers and directors
exercisable at $1.625 per
share for a period of five
years
(b) Stock Warrants
The following table summarizes
information about stock warrants at
December 31, 1997:
Warrants outstanding
and exercisable
Number Weighted
outstanding at average
December 31, remaining
Range of exercise prices 1997 contractual life
$ 1.25 - $ 4.00 555,700 4.8
$13.20 - $14.75 87,000 1.7
642,700 4.4
===============================================================================
8 COMMITMENTS (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
to June 1, 2000 by two additional
years on October 23, 1995, and another
two additional years on December 23,
1996. The amended 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
$1.00 per share with vesting
over a five-year period (20%
per year).
On October 30, 1996, the Company
entered into a termination agreement
with its Peter Klenner, then
President, which provided,
among other things, for (1)
his resignation as an officer,
director and employee and (2) the
cancellation of his employment
agreement upon payment of $372,000
which amount is to be deducted from
the amount owed by a company
controlled by him in connection
with the purchase of one of the
Company's condominium buildings. Mr.
Klenner retained his rights
as a stock optionee with respect to his
285,000 (subsequently reduced to
250,000) options under his
employment agreement and pursuant to
the Company's Incentive Stock Option
Plan of 1993. Unless he exercises
his options within 5 years of
the date the options were granted, the
options will expire. A compensation
expense of $972,000 has been charged
to 1996 operations as a result of
cancelling the President's employment
agreement and extending the
termination date of his options
(see Note 9(a)).
On December 23, 1996, the Board of
Directors extended the employment
contracts with Robert Genova, then
Chairman of the Board and Frank Cohen,
then Treasurer, to December 31, 2001
and increased their annual
compensation to $144,000 and $120,000,
respectively.
F-19
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE MONTHS ENDED
JUNE 30, 1997 AND 1998)
In February 1997, Peter Klenner,
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 of $50,000 is being
charged to operations over a two-year
period.
F-20
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
Also in February 1997, Robert
Genova, the Company's then
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 did not terminate
as a result of the
resignation, but continues to
be governed by the original
terms of the options.
Compensation of $100,000 has
been charged to the 1997
operations relating to the
extension of the period of
exercisability of the
options. Mr. Cohen, the
Company's Treasurer, was
appointed Chairman of the
Board with an increase in
compensation to $150,000
effective July 1, 1997 and
the term of his employment
contract was extended to
December 31, 2005. The
Company will also provide Mr.
Cohen with a split dollar
life insurance policy in the
face amount of $1,000,000 to
be structured so that the
premium and other costs paid
by the Company would be
recovered by the Company out
of the insurance proceeds.
(b) Lease Commitment
The Company leases office
space in Budapest, Hungary,
which provides for future
minimum annual lease payments
of approximately $114,000
through March 31, 2002.
(c) Service Agreements
The Company has entered into
various communications
service agreements with terms
in excess of one year in
connection with the Internet
business which provide for
aggregate minimum annual
payments by the Company as
follows:
1998 $ 424,000
1999 424,000
2000 424,000
2001 190,000
2002 190,000
$1,652,000
===============================================================================
9 RELATED PARTY TRANSACTIONS (a) Transactions with Former President
On October 30, 1996, the
Board of Directors approved
the sale of one of the
condominium buildings under
construction to a company
controlled by Peter Klenner,
the Company's President and
Chief Executive Officer. The
building to be sold contained
the four units for which
deposits for the full sales
price have been received by
the Company (see Note 5(b)).
The purchaser agreed to
purchase all of the
apartments in the building,
except for one, for $1,479,653.
F-21
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
On October 30, 1996, Mr. Klenner
also resigned as an officer, director
and employee and agreed to a
cancellation of his employment
agreement (which provided for
$168,000 salary per annum until
February 1999), upon payment of
$372,000. The $372,000,
together with an additional
amount of approximately
$1,017,000 owed Mr. Klenner,
was used as a deposit with
$90,000 being owed by him on
the above purchase at
December 31, 1997. The sale
was recognized during the six
months ended June 30, 1998.
It was further agreed that
250,000 stock options which
were granted to Mr. Klenner
under his employment agreement
and pursuant to the Company
Incentive Stock Option Plan of 1993
will not terminate but will continue
to be governed by the original terms
of the options. Compensation and
related costs for the year
ended December 31, 1996 on
the statement of loss include
$372,000 in connection with
the cancellation of Mr. Klenner's
employment agreement and $600,000
relating to the extension of
the period of exercisability
of his options.
(b) The Company paid legal fees
to Frank Cohen, the
Secretary/Treasurer and current
Chairman of the Board, of $112,000
and $24,000 for the years ended
December 31, 1996 and 1997,
respectively.
10 ACQUISITIONS On January 2, 1997, the Company acquired
three Hungarian Internet service companies
for a purchase price of approximately
$1,913,000, consisting of $1,225,000 in
cash ($825,000 paid in 1996), 204,000
shares of common stock of the Company
(144,000 issued in 1996), assumption
of $128,000 of liabilities, and $356,000
in notes, of which $191,000 is still owed
at December 31, 1997 and is payable at
various dates through October 31, 1998.
These acquisitions have been accounted for
using the purchase method of accounting.
The cost in excess of net assets acquired
(goodwill) of approximately $1,900,000
resulting from these acquisitions is being
amortized over 5 years using the
straight-line method.
The Company's consolidated statement of
loss for the year ended December 31, 1997
includethe results of operations of the
Internet service companies from the
acquisition date. The pro forma results of
operations are based on the historical
financial statements of the Company and
the Internet providers. The following pro
forma results are unaudited and are not
necessarily indicative of what the actual
results of operations of the Company would
have been, assuming the transactions had
been completed as of January 1, 1996, nor
necessarily indicative of the results
of operations for future periods.
Year ended December 31, 1996 (unaudited)
Net revenues $ 948,000
Net loss (4,600,000)
Net loss per share (2.44)
===============================================================================
F-22
<PAGE>
EUROWEB INTERNATIONAL CORP.
(FORMERLY HUNGARIAN TELECONSTRUCT CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH
PERIODS ENDED JUNE 30, 1998 AND 1997)
------------------------------------------------------------------
The above unaudited pro forma results
have been adjusted to reflect the
amortization of goodwill generated by
the acquisitions, over a 5-year
period, and additional interest
expense.
11 SUBSEQUENT EVENTS Resolutions approved by the Board of
Directors
On July 15, 1998, the Board of Directors
approved the following resolutions:
1. To increase the authorized number of
shares of stock from 20,000,000 to
30,000,000 shares, consisting of
25,000,000 shares of common stock
and 5,000,000 shares of preferred
stock. Such resolution is subject to
approval by the shareholders.
2. To increase the number of shares of
common stock to be available under the
1993 Stock Option Plan from
350,000 to 700,000. Such resolution is
subject to approval by the
shareholders.
3. To appoint Robert Genova as
Treasurer and Chief Financial
Officer until the pending
public offering has been completed.
At that time, he will resign the latter
position and will assume the position
of President at a salary of $72,000 per
year for six years.
4. To enter into an employment agreement
after the completion of the pending
public offering) with Csaba Toro, Vice
President and Managing Director of
Hungarian operations at a salary
of $96,000 per year for six years.
5. To grant 100,000 six year common stock
options each (after completion of the
proposed public offering) to the
Chairman of the Board, the President
and the Vice President. The options
will be exercisable at the price
established for the common stock in the
proposed public stock offering.
F-23
<PAGE>
-----------------------------------------------------
No person is authorized to give
any information or to make any
representation other than those
contained in this Prospectus, and
if given or made, such information
or representation must not be relied
upon as having been authorized by the
Company or any Underwriter. This
Prospectus does not constitute an
offer to sell or a solicitation of
an offer to buy any security other
than the Units offered by this
Prospectus, or an offer to sell or a
solicitation of an offer to buy the
Units or from any person in any
jurisdiction in which such offer
or solicitation would be unlawful.
Neither the delivery of this Prospectus
nor any sale made hereunder shall, under
any circumstances, create any implication
that there has been no change in the
business or affairs of the Company 1,000,000 Units
since the date hereof or that the
information in this Prospectus is correct
as of any time subsequent to the date
hereof.
TABLE OF CONTENTS
PAGE
Prospectus Summary............. 4
Summary of Financial Information. 8
Risk Factors..................... 9
Price Range of Securities....... 14
Capitalization................. 15 EuroWeb
Dividend Policy................ 15 International Corp.
Use of Proceeds................ 15
Selected Financial Information. 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations..... 18 Prospectus
Business....................... 22
Management..................... 29
Principal Stockholders......... 32
Certain Transactions........... 33 J.W. Barclay & Co., Inc.
Description of Securities...... 34
Shares Eligible for Future Sale 37
Underwriting................... 38
Legal Matters.................. 39
Experts........................ 40 August , 1998
Index to Financial Statements... F-1
F-24
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides, in general, that a corporation incorporated under the laws
of the State of Delaware, such as registrant, may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than a derivative action by or in
the right of the corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonable believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such
director, officer, employee or agent of the corporation person's conduct was
unlawful. In the case of a derivative action, a Delaware corporation may
indemnify any such person against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses. Section 10 of the Company's Certificate of
Incorporation, and Article X of the Company's By-laws provide that the Company
shall indemnify its officers, directors, employees and agents to the extent
permitted by the DGCL. In addition, Section 9 of the company's Certificate of
Incorporation provides, in general, that no director of the Company shall be
personally liable to the Company or its stockholders for monetary damages for
beach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL (which provides
that under certain circumstances, directors may be jointly and severally liable
for willful or negligent violations of the DGCL provisions regarding the
payment of dividends or stock repurchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the registrant, other than underwriting discounts and
commissions, to be incurred in connection with the issuance and distribution of
the securities being registered hereby are estimated to be as follows:
Securities and Exchange Commission Registration Fee............ 3,950
NASD registration fee.......................................... 1,839
The NASDAQ SMALL-CAP Market listing fee........................ 1,000
Printing and engraving expenses*............................... 20,000
Accounting fees and expenses*.................................. 25,000
Legal Fees and expenses*....................................... 100,000
Blue Sky fees and expenses*.................................... 50,000
Underwriters' Expense Allowance................................ 180,000
Transfer agent fees and expenses*.............................. 3,000
Miscellaneous*....................................... . 15,211
--------
Total*......................................................... 400,000
=======
* Estimated
F-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold securities to a
limited number of persons, as described below. Except as indicated, there were
no underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith. The purchasers of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transactions. All purchasers of
securities in each such transaction had adequate access to information about
the Registrant.
(1) In October 1996, Registrant sold to 7 persons an
aggregate of 22 units (the "Units"), each Unit consisting of 25,000 shares of
Common Stock (aggregate 550,000) and 25,000 five year Common Stock Purchase
Warrants (aggregate 555,000) exercisable at $2 per share (reduced to $1.25 per
share on June 27, 1997) for a purchase price of $50,000 per Unit, or an
aggregate of $1,100,000. In connection with the financing, the Registrant paid
a selling commission of $100,000 to an unaffiliated finder. Each of the
purchasers signed a letter indicating an agreement to hold the shares for
investment. The issuance of such securities was exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D
promulgated thereunder. The names of the persons purchasing units pursuant to
the private placement are as follows:
Number of Number of Amount
NAME SHARES WARRANTS PAID
- ---- ------------ ----------- --------
Mr. Steve Altman..... 50,000 50,000 $100,000
Mr. Kenneth S. Grossman..... 25,000 25,000 $50,000
Mr. Edward S. Gutman......... 50,000 50,000 $100,000
Hudson Investment Partners... 25,000 25,000 $50,000
Mr. Augustus La Rocca and
Mr. Joseph La Rocca....... 250,000 250,000 $500,000
Mr. Joel Stuart............. 50,000 50,000 $100,000
Mr. George Szakacs.......... 100,000 100,000 $200,000
(2) From November 1996 to March 1997, the Registrant sold
$1,642,500 of two year 10% convertible debentures to 11 foreign investors
outside the United States pursuant to Regulation S. The notes were convertible
into shares of Common Stock at a discount of 50% from the average closing bid
price of the shares on NASDAQ for the 5 day period prior to the date of the
Notice of Conversion. Prior to the date of this prospectus, all of the notes
had been converted into 3,034,460 shares of Common Stock of the Company. Sales
of these notes were effected in Europe through an unaffiliated finder who
received a 10% commission. Each of the purchasers signed a letter indicating an
agreement to hold the shares for investment. The issuance of these securities
were considered exempt from registration under Section 4(2) of the Securities
Act of 1933, and the Regulation S promulgated thereunder. The names of the
investors and the number of shares purchase and the amounts paid are as
follows:
I-2
<PAGE>
Amount of
Note Shares Received
COMPANY NAME $ ON CONVERSION*
------------ --- --------------
Dreyton Investment Ltd. 125,000 217,955
First National Funding Corp. 435,000 832,861
(Montreal)
R. Wagli & Cie A.G. 245,000 351,714
Consult SL 130,000 221,239
Beresford Overseas Corp. 130,000 162,512
West Ventures Ltd. 17,500 18,667
Intergalatic Growth Fund, Inc. 150,000 265,566
Mutual Indemnity 200,000 438,333
Contiglia Ltd. 40,000 114,285
First Nat
National Fund Corp. 100,000 207,109
(Bahamas)T.L.T. Investments Ltd 70,000 204,219
-------- ----------
TOTAL $1,642,500 3,034,460
========= =========
(3)(a) In February 1994, the Company issued non-qualified options to
purchase 410,000 shares for five years exercisable at $1 per share. Such
options were issued to Peter E. Klenner (250,000), Robert Genova (125,000) and
Frank R. Cohen (35,000), then officers and directors of the Company. In July
1988, Peter E. Klenner exercised 30,000 of his 250,000 options leaving 380,000
of such options still outstanding, which 380,000 options expire in February
1999.
(b) In February 1997, The Company issued non-qualified options to
purchase 100,000 shares for five years exercisable at $2 per share to Peter E.
Klenner, then a consultant to the Company and no longer an officer or director
of the Company.
(c) Between February 1997 and April 1998, the Company issued
qualified five year options to purchase 350,000 shares to employees and
directors under its 1993 Stock Option Plan as follows:
DATE OF NAME POSITION NUMBER OF EXERCISE PRICE
GRANT OPTIONS
02/06/97 Csaba Toro Employee 50,000 $2.00
02/06/97 Imre Kovats Employee 45,000 $2.00
05/06/97 Laszlo Josa Employee 10,000 $1.50
05/06/97 Crista Hollo Employee 10,000 $1.50
10/30/96 John B. Ryan Director 10,000 $3.375
10/30/97 Donald K. Roberton Director 40,000 $1.25 } Reduced from $3.375
10/30/97 Frank R. Cohen Employee 75,000 $1.25 } Reduced from $3.375
10/30/96 Richard G. Maresca Director 20,000 $1.25 } Reduced from $3.375
04/20/98 Frank R. Cohen Employee 30,000 $1.625
04/20/98 Robert Genova Director 30,000 $1.625
04/20/98 Donald K. Roberton Director 10,000 $1.625
04/20/98 Richard G. Maresca Director 10,000 $1.625
04/20/98 Hershel Krasnow Director 10,000 $1.625
Exemption is claimed on such securities since the transactions did not
involve a public offering under Section 4(2) of the Act. Further, no
underwriter was involved in such sales, there was no underwriting discounts or
commissions and each of the recipients agreed to take the securities for
investment and without a view to distribution or resale thereof and to have an
appropriate restrictive legend placed on their securities. Also, the Company
did not engage in general advertising or general solicitation with respect to
the aforementioned transactions; the investors who acquired securities were
provided with all information requested by them and were
II-3
<PAGE>
afforded continuing access to information and such investors had such knowledge
and experience in financial and business matters that they were capable of
evaluation of the merits and risks of such investment and were able to bear the
economic risk thereof. The Company registered the Stock Option Plan and the
Management Options under which the aforementioned options were granted on Form
S-8 Registration Statement on December 9, 1996.
(4) In January 1997, the Company issued 84,000 shares of common stock
to Peter Maros in exchange for 100% of the outstanding shares of MS Telecom RT,
an Internet Service Provider, and in January 1997 and in 1998, the Company
issued 120,000 shares of common stock to Global Net Hungary Kft (60,000) and
Darol RT (60,000) both Hungarian Corporations that owned 100% of the
outstanding shares of E-Net Hungary Telecommunications and Multimedia Kft,
("E-Net"), in exchange for 100% of the outstanding shares of E-Net, an Internet
Service Provider.
All of such shares were acquired for investment purposes only and the
certificates representing the shares have had restrictive legends imprinted
thereon.
Registration of the above sales was not required since the issuance of
the securities was exempt as an issuance not constituting a public offering
under Section 4(2) of the Securities Act of 1933. No underwriter was involved
in the transaction.
- ----------------
ITEM 27. EXHIBITS
A. Exhibits* (numbers below reference Regulations S-B)
(1) (a) Revised Form of Agreement Among Underwriters, Underwriting
Agreement, and Selected Dealer Agreement(7)
(a)(i) Amended form of Underwriting Agreement(8)
(3) (a) Certificate of Incorporation filed November 9, 1992(1)
(b) Amendment to Certificate of Incorporation filed July 9,
1997
(c) By-laws(1)
(d) Revised Proposed Certificate of Designation Relating to the
Series A Convertible Preferred Stock(8)
(4) (a) Form of Common Stock Certificate(1)
(b) Form of Underwriters' Warrants to be sold to
Underwriters(1)
(c) Placement Agreement between Registrant and J.W. Barclay &
Co., Inc. and form of Placement Agent Warrants issued in
connection with private placement financing(1) (d) Form of
10% Convertible Debenture used in connection with private
placement financing pursuant to Regulation S(3)
(e) Form of Common Stock Purchase Warrant in connection with
private placement financing under Section 506 of Regulation
D(3)
(f) Revised Form of Warrant Agreement including Form of Common
Stock Purchase Warrant Certificate(7)
(g) Form of Series A Preferred Stock Certificate(7) (h) Revised
Form of Underwriter's Unit Warrant(7) (i) Form of Unit
Certificate(7) (j) Form of Common Stock Purchase Warrant
Certificate(7)
(5) (a) Opinion of Cohen & Cohen as to legality of shares being offered(7)
(10) (a) Consulting agreement between Registrant and Klenner Securities
Ltd.(1)
(b) Consulting agreement between Registrant and Robert Genova(1)
(c) Consulting agreement between Registrant and Laszlo
Modransky(1) (d) 1993 Incentive Stock Option Plan(1)
(e) Sharing agreement for space and facilities between
Registrant and Hungarian Telephone and Cable Corp.(1)
(f) Articles of Association (in English) of Teleconstruct Building
Corp.(1) (g) Articles of Association (in English) of Termolang
Engineering and Construction Ltd.(1) (h) Letter of intent
between Teleconstruct Building Corp. and Pilistav(1)
II-4
<PAGE>
(i) Employment agreement between Registrant and Robert
Genova(2) and termination agreement dated February 5,
1997(3)
(j) Employment agreement between Registrant and Peter E.
Klenner(2) and termination agreement dated October 30,
1996, and agreement for sale of condominium unit to M&A(3)
(k) Employment agreement between Registrant and Frank R.
Cohen(2) and modifications of employment agreement(3)
(1) Letter of Intent agreement between Registrant and Raba-Com
Rt.(3) (m) Letter of Intent agreement between Registrant and
Kelet-Nograd Rt.(3)
(n) Letter of Intent agreement between Registrant and 3
Pilistav villages for installation of cable in those
areas(3)
(o) Lease agreement between Registrant's subsidiary EUNET Kft.
and Varosmajor Passage, Kft. for office space(3)
(p) Acquisition agreement between Registrant and KFKI
Computer Systems Corp. dated December 13, 1996(3)
(q) Acquisition agreement between Registrant and E-Net
Hungary(3)
(r) Acquisition agreement between Registrant and MS Telecom
Rt.(3)
(s) Employment Agreement between Registrant and Imre Kovats(3)
(t) Employment Agreement between Registrant and Csaba Toro(3)
(u) Promissory Note from Registrant to HBC(3)
(v) Communication Services Agreement between Registrant and MCI
Global Resources, Inc.(4)
(w) Lease and Option Agreement for Building B as of April 1,
1998 with Hafisa Kft.(5)
(x) License Agreement between GRIC Communications, Inc. and
EuroWeb Internet Service Provider Co.(5)
(y) Consulting Agreement between Registrant and Eurus Capital
Corporation and Rescission Agreement(7)
(y)(i) Agreement rescinding Option Agreement with Eurus Capital
Corporation(8)
(z) Financial Consulting Agreement between Registrant and J.W.
Barclay & Co., Inc.(7)
(aa) Mergers and Acquisitions Agreement between Registrant and
J.W. Barclay(7)
(21) Subsidiaries of the Registrant(7)
(23) (a) Consent of Cohen & Cohen (included in their opinion filed
as Exhibit 5(a))(7)
(b) Consent of BDO Seidman(7)
(c) Consent of Dr. Istvan L. Fekete(8)
(25) Power of Attorney (included on signature page)
- ----------------
(1) 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)
(2) Filed with Form 8-K as of February 17, 1994
(3) Filed with Form l0-KSB for year ended December 31, 1996
(4) Filed with Form 10-QSB for quarter ended September 30, 1997.
(5) Filed with Form 10-KSB for year ended December 31, 1997
(6) Filed with Registration Statement 333-52841
(7) Filed with Amendment No. 1 to Registration Statement 333-52841
(8) Filed with Amendment No. 2 to Registration Statement 333-52841
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:
(i) to include any Prospectus required by Section 10(a)(3)
of the Securities Act; (ii) to reflect in the Prospectus
any facts or events which individually or together,
represent a fundamental change in the information in the
registration statement; and (iii)to include any additional
or changed material on the plan of distribution.
II-5
<PAGE>
(2) That, for determining any liability under the Securities
Act, it will treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering;
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the Offering.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
1) For determining any liability under the Securities Act it will
treat the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time it was declared effective.
2) For determining any liability under the Securities Act, it will
treat each post-effective amendment that contains a form of Prospectus as
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time as the initial
bona fide offering of these securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2, and authorized this Amendment
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on August 19, 1998.
EUROWEB INTERNATIONAL CORP.
By: /S/FRANK R. COHEN
Frank R. Cohen, Chairman of the Board
Each of the undersigned does hereby appoint Robert Genova and Frank R.
Cohen and, each of them severally, its or his true and lawful attorneys to
execute on behalf of the undersigned any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. Each of such attorneys shall have the power
to act hereunder with or without the other.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
/S/FRANK R. COHEN Chairman of the Board, August 19, 1998
Frank R. Cohen President, Principal
Executive Officer, Secretary
/S/ROBERT GENOVA Director, Treasurer, Principal August 19, 1998
Robert Genova Accounting Officer
/S/RICHARD G. MARESCA Director August 19, 1998
Richard G. Maresca
/S/DONALD K. ROBERTON Director August 19, 1998
Donald K. Roberton
/S/HERSHEL KRASNOW Director August 19, 1998
Hershel Krasnow
II-7
<PAGE>
EXHIBIT 23(B)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
EuroWeb International Corp.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 10, 1998, relating to the
consolidated financial statements of EuroWeb International Corp. and
subsidiaries, which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/BDO SEIDMAN, LLP
BDO Seidman, LLP
New York, New York
May 15, 1998
<PAGE>
EXHIBIT 23(C)
EuroWeb International Corp. formerly
Hungarian Teleconstruct Corp. formerly
Hungarian Infrastructure Development
CONSENT OF HUNGARIAN COUNSEL
We hereby consent to the reference to our firm under the caption "Experts"
appearing in the Prospectus which is part of this Registration Statement No.
333-52841, filed with the United States Securities and Exchange Commission.
/S/DR. ISTVAN L. FEKETE
Dr. Istvan L. Fekete
Attorney at Law
Member Of the Budapest Bar Association
Budapest Law Firm No.4.
Budapest, Hungary
Dated: July 28, 1998
Dr. Fekete Istvan Laszlo
Budapest 4.sz Ugyvedi Iroda
1077 Budapest, Kiraly . 67.
Tel./Fax: 36 1 351 1748
Mobile: 06 20 342 301
<PAGE>
