U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1200
EUROWEB INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3696015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
445 Park Avenue, 15th Floor, New York, NY 10022
(Address of principal executive offices)
(212) 758-9870
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirement for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 par value 4,685,717 Shares
(Class) (Outstanding at September 30, 1997)
Transitional Small business Disclosures Format (Check one): Yes No X
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 December 31, 1996
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 294,282 $ 495,703
Accounts receivable 217,779 -
VAT refund receivable 7,317 74,412
Receivables from related parties 502,168 480,784
Prepaid and other current assets 95,962 101,564
Total current assets 1,117,508 1,152,463
Property and equipment, less accumulated
depreciation of $124,968 and $38,750,
respectively 331,608 65,586
Office condominium unit held for sale - 209,000
Construction in progress, net of $1,000,000
allowance for reduction to market value 3,743,202 3,527,090
Advances on acquisitions - 1,585,000
Investment in and advances to affiliate 193,806 218,344
Goodwill 1,638,861 -
Other 53,699 -
$ 7,078,684 $ 6,757,483
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to affiliate $ 350,000 $ -
Payable to owners of acquired business 237,174 400,000
Accounts payable and accrued expenses 747,852 259,996
Compensation payable to officers 46,000 96,000
Deposits payable 594,320 594,320
Total current liabilities 1,975,346 1,350,316
10% CONVERTIBLE DEBENTURES 220,000 485,000
PAYABLE TO FORMER OFFICER 1,031,891 895,719
Total liabilities 3,227,237 2,731,035
COMMITMENTS AND CONTINGENCIES
COMMON STOCK SUBJECT TO PUT OPTIONS;
$.001 PAR VALUE, SHARES ISSUED AND
OUTSTANDING 144,000 360,000 -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value - shares
authorized 5,000,000 (1997) and -0- (1996);
issued and outstanding - none
Common stock, $.001 par value - shares
authorized 15,000,000 (1997) and
10,000,000 (1996); issued and
outstanding 4,541,717 and 2,476,269,
respectively 4,542 2,476
Additional paid-in capital 19,463,157 17,681,947
Accumulated deficit (15,976,252) (13,657,975)
Total stockholders' equity 3,491,447 4,026,448
$ 7,078,684 $ 6,757,483
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUES
Internet $ 323,625 $ - $ 931,705 $ -
Other - - - 31,098
Total 323,625 - 931,705 31,098
EXPENSES(INCOME)
Network costs 152,305 - 381,736 -
Compensation and
related costs 172,811 51,516 558,928 350,918
Consulting and
professional fees 49,869 29,152 220,430 140,552
Foreign currency
(gain)loss (1,380) 6,220 74,381 110,297
Depreciation and
amortization of
property and equipment 31,950 9,017 86,218 21,700
Amortization of goodwill 98,000 - 289,000 -
Interest and dividend
income (12,796) (19,658) (53,007) (61,318)
Interest expense 105,492 - 960,009 -
Financing costs 17,144 - 150,847 -
Loss on sale of
office condominium
unit - - 75,000 -
Write-down of
construction in
progress to market value - 700,000 - 700,000
Other 140,814 64,812 506,440 214,993
Total 754,209 841,059 3,249,982 1,477,142
Loss before equity
in net loss of
unconsolidated
affiliate (430,584) (841,059) (2,318,277) (1,446,044)
Equity in net loss of
unconsolidated
affiliate - (180,000) - (362,000)
Net loss $ (430,584) $(1,021,059) $(2,318,277) $(1,808,044)
Net loss per share $ (.11) $ (.67) $ (.69) $ (1.19)
Weighted average number
of common shares
outstanding 4,015,695 1,518,290 3,347,238 1,518,290
See accompanying notes to consolidated financial statements.
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Balance, January 1, 1997 2,476,269 $2,476 $17,681,947 $(13,657,975)
Issuance of put options on
common stock issued in
connection with acquisitions (144,000) (144) (359,856) -
Compensation relating to the
extension of the period of
exercisability of former
officers' options - - 137,500 -
Issuance of shares on conversion
of debentures 2,209,448 2,210 1,153,566 -
Incremental interest from
revaluation of convertible
debentures - - 850,000 -
Net loss for the period - - - (2,318,277)
Balance, September 30, 1997 4,541,717 $4,542 $19,463,157 $(15,976,252)
NINE MONTHS ENDED SEPTEMBER 30, 1996:
Balance, January 1, 1996 1,518,290 $1,518 $14,645,998 $ (9,370,461)
Net loss for the period - - - (1,808,044)
Balance, September 30, 1996 1,518,290 $1,518 $14,645,998 $(11,178,505)
See accompanying notes to consolidated financial statements.
<EWEB>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,318,277) $(1,808,044)
Adjustments to reconcile net loss to
net cash provided by(used in) operating
activities:
Depreciation and amortization of property
and equipment 86,218 21,700
Write-off of construction in progress to
market value - 700,000
Amortization of goodwill 289,000 -
Amortization of imputed interest income (26,000) (39,000)
Options granted/extended as compensation 137,500 -
Incremental interest on revaluation of
convertible debentures 850,000 -
Interest on debentures paid in shares of
capital stock 40,775 -
Loss on sale of office condominium unit 75,000 -
Loss on disposal of property and equipment - 1,829
Foreign currency loss 74,381 110,297
Equity in net loss of unconsolidated affiliate - 362,000
Changes in operating assets and liabilities:
Increase in accounts receivable (217,779) -
Decrease in VAT refund receivable 67,095 152,166
(Increase)decrease in receivables from
related parties (21,384) 533,962
(Increase)decrease in prepaid and other assets (48,096) 41,487
Increase(decrease) in accounts payable and
accrued expenses 487,856 (351,654)
Decrease in compensation payable to officers (50,000) -
Increase in payables to related parties - 323,974
Increase in deposits payable - 594,320
Increase in payable to former officer 136,172 -
Net cash provided by(used in) operating activities (437,539) 643,037
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment
and construction in progress (568,352) (1,026,417)
Decrease in advances on acquisitions 1,585,000 -
Acquisition of goodwill (1,927,861) -
Payment to owners of acquired business (162,826) -
Proceeds from sale of building to HTCC - 315,000
Proceeds from sale of office condominium unit 134,000 -
(Increase)decrease in investment in and advances
to affiliate 50,538 (9,081)
Net cash used in investing activities (889,501) (720,498)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt 850,000 -
Proceeds from note payable to affiliate 350,000 -
Decrease in bank overdraft - (16,502)
Net cash provided by(used in) financing activities 1,200,000 (16,502)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (74,381) (110,297)
DECREASE IN CASH AND CASH EQUIVALENTS (201,421) (204,260)
Cash and cash equivalents at beginning of period 495,703 376,986
Cash and cash equivalents at end of period $ 294,282 $ 172,726
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock upon conversion of
debentures and accrued interest $1,155,775 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(Unaudited)
and accrued interest were converted into 263,979 shares of common stock
and during the nine months ended September 30, 1997, an additional
$1,115,000 of debentures and accrued interest were converted into
2,209,448 shares of common stock. During October 1997, another $70,000 of
debentures and accrued interest were converted into 204,219 shares of
common stock.
The incremental yield on the debentures relating to the convertibility of
the debentures into common stock at a 50% discount to the common stock's
market price resulted in interest charges of $850,000 to the consolidated
statement of loss for the nine months ended September 30, 1997. In
addition, the financing costs of $150,847 incurred in connection with the
sale of the debentures were charged to 1997 operations, since a
substantial portion of the debentures is expected to be converted to
common stock within a short period.
(b) In October 1996, the Company sold a private placement consisting of
550,000 shares of common stock and 550,000 common stock purchase warrants
exercisable at $2 per share at any time from October 1, 1997 until
September 30, 2001 for net proceeds of $972,450 after deducting placement
agent fees and offering expenses of $127,550. The warrants and the
underlying shares of common stock have been registered under the
Securities Act of 1933. The exercise price was reduced to $1.25 per
share on June 26, 1997.
10. Stock Option Plan and Warrants
Stock Options
On May 14, 1996, the Company's stockholders approved an increase in the
number of stock options available under the Stock Option Plan (the "Plan")
to 350,000. The Plan provides that incentive and nonqualified options may
be granted to officers and directors and consultants to the Company. The
Plan may be administered by either the Board of Directors or a committee of
three directors appointed by the Board (the "Committee").
Options granted under the Plan are exercisable for a period of up to ten
years from the date of grant. Options terminate upon the optionee's
termination of employment or consulting arrangement with the Company, except
that, under certain circumstances, an optionee may exercise an option within
the three-month period after such termination of employment. An optionee
may not transfer any options except that an option may be exercised by the
personal representative of a deceased optionee within the three-month period
following the optionee's death. Incentive options granted to any employee
who owns more than 10% of the Company's outstanding common stock immediately
before the grant must have an exercise price of not less than 110% of the
fair market value of all underlying stock on the date of the grant and the
exercise term may not exceed five years. The aggregate fair market value of
common stock (determined at the date of grant) for which any employee may
exercise incentive options in any calendar year may not exceed $100,000. In
addition, the Company will not grant a nonqualified option with an exercise
price less than 85% of the fair market value of the underlying common stock
on the date of the grant.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
The Company was organized on November 9, 1992. The Company was in the
development stage through December 31, 1993 and has been unprofitable to
date. Through its wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Rt.
("Teleconstruct") the Company is constructing for sale two luxury 14-unit
condominiums in Budapest.
In January 1997, the Company acquired three operating Internet service provider
businesses and has consolidated the three businesses under one roof. Revenues
from the Internet business for the nine months ended September 30, 1997 amounted
to $931,705.
Effective July 9, 1997, the Company changed its name to Euroweb International
Corp. and increased the authorized number of shares of capital stock from
10,000,000 shares of common stock to 15,000,000 shares of common stock and
5,000,000 shares of preferred stock. In addition, one of the three Internet
subsidiaries changed its name to Euroweb Kft. (a Limited Liability Company)
and the accounts of the three subsidiaries were consolidated into this company.
Euroweb Kft. then changed its name and corporate structure to Euroweb Rt.
(a Stock Corporation) in order to make possible a public offering of its
shares in Hungary. The Company has no present plans or intent to sell any
of the Euroweb Rt. shares in Hungary and has no current negotiations for such
sale with any investment bankers.
In February 1997, the Company's Chairman of the Board resigned as an officer,
director and employee, and agreed to a cancellation of his employment agreement
upon payment of $50,000, which represented the approximate amount owed to him
with respect to 1996 salary. In addition, 125,000 stock options which were
granted to him under his employment agreement will not terminate as a result
of the resignation, but will continue to be governed by the original terms of
the options. Compensation of $100,000 has been charged to the 1997 operations
relating to the period of exercisability of the options.
In February 1997, the former President of the Company was retained as a
consultant to the Company to oversee the Company's real estate interests and
Internet business. He agreed to render consulting services for a two-year
period for a fee of 100,000 five-year options exercisable at $2.00 per share.
The compensation relating to these options is being charged to operations over
a two-year period.
On August 26, 1997, the Board of Directors extended the term of the employment
agreement with its Chairman of the Board to December 31, 2005 and included a
provision in the contract to provide the Chairman with a split dollar life
insurance policy with a face amount of $2,000,000. The policy is to be
structured so that the premiums and other costs paid by the Company in
connection with the policy would be recovered by the Company out of the
proceeds of the policy.
For the nine months ended September 30, 1997, the Company incurred a net loss
of $2,318,277; the net loss for the nine months ended September 30, 1996
amounted to $1,808,044. The acquisition of the Internet business resulted in
goodwill of $1,927,861, which is being amortized over five years; amortization
for the nine months ended September 30, 1997 amounted to $289,000.
<PAGE>
The equity in net loss of unconsolidated affiliate of $362,000 for the nine
months ended September 30, 1996 represented the Company's share of HBC's
estimated loss. The Company's 9.7% interest in HBC was carried at equity
because the Company had the ability to exercise significant influence over
HBC. Effective October 1, 1996, the Company discontinued its use of the
equity method of accounting for its investment in HBC, since the Company no
longer had the ability to exercise significant influence over HBC. On
October 29, 1997, the Company, with the consent of HBC's underwriters,
sold its entire investment (250,000 shares of restricted stock) for $625,000,
Financing costs of $150,847 incurred in connection with the sale of convertible
debentures were charged to 1997 operations since a substantial portion of the
debentures are expected to be converted to common stock within a short period.
Interest expense of $960,009 in 1997 includes $850,000 of incremental interest
on the convertible debentures relating to the convertibility of the debentures
at a 50% discount to the Common Stock's market price. The balance of the
interest was primarily incurred on various borrowings.
The Company has entered into an agreement with MCI Global Resources, Inc.
("MCI") for certain communication services to be provided by MCI during a
three year period which is expected to begin approximately November 1, 1997
at a minimum charge of $17,888 per month.
Liquidity and Capital Resources
In November and December 1996, the Company sold $792,500 of 10% convertible
debentures due in September 1998 to foreign investors outside the United States
in private placements, receiving aggregate net proceeds of approximately
$693,500 afterdeducting placement agent fees and offering expenses of
approximately $99,000. During the nine months ended September 30, 1997, the
Company sold an additional $850,000 of 10% convertible debentures due from
January 1999 through September 1999, receiving $699,153 after deducting
financing costs of $150,847. No subsequent sales of 10% convertible debentures
were made during October 1997.
At December 31, 1996, $307,500 of debentures and accrued interest were converted
into 263,979 shares of common stock and during the nine months ended
September 30, 1997, an additional $1,115,000 of debentures and accrued
interest were converted into 2,209,448 shares of common stock. During
October 1997, another $70,000 of debentures and accrued interest were
converted into 204,219 shares of common stock.
On August 26, 1997 the Board of Directors approved an increase in the number of
shares of common stock to be available under the Company's 1993 Incentive Stock
Option Plan from 350,000 to 700,000. The Board also approved the establishment
of a 1998 Directors Stock Option Plan with the right to grant 300,000 shares to
the Company's Directors. Both of these actions are subject to approval of the
Company's shareholders at the next annual shareholder meeting to be held in
1998.
The Company believes that its revenues from operations, together with the funds
already raised and to be raised in 1997, will meet the Company's cash
requirements to the end of 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
New York, State of New York, on the th day of November 1998
EUROWEB INTERNATIONAL CORP.
By /s/ Frank R. Cohen
Frank R. Cohen
Chairman of the Board
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] SEP-30-1997
[CASH] 294,282
[SECURITIES] 0
[RECEIVABLES] 727,264
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1,117,508
[PP&E] 456,576
[DEPRECIATION] 124,968
[TOTAL-ASSETS] 7,078,684
[CURRENT-LIABILITIES] 1,975,346
[BONDS] 1,251,891
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 4,542
[OTHER-SE] 3,486,905
[TOTAL-LIABILITY-AND-EQUITY] 7,078,684
[SALES] 0
[TOTAL-REVENUES] 931,705
[CGS] 0
[TOTAL-COSTS] 2,289,973
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 960,009
[INCOME-PRETAX] (2,318,277)
[INCOME-TAX] 0
[INCOME-CONTINUING] (2,318,277)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (2,318,277)
[EPS-PRIMARY] (.69)
[EPS-DILUTED] (.69)
</TABLE>
