U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
|_| 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 23,255,218
(Class) (Outstanding at March 31, 2000)
Transitional Small Business Disclosures Format (Check one): Yes No X
<PAGE>
EUROWEB INTERNATIONAL CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated condensed balance sheets as of March 31, 2000 (unaudited)
and December 31, 1999 (audited) 2
Consolidated condensed statements of operations and comprehensive loss
(unaudited) for the three months ended March 31, 2000 and 1999 3
Consolidated condensed statements of stockholders' equity (unaudited) for the
three months ended March 31, 2000 and 1999 4
Consolidated condensed statements of cash flows (unaudited) for the three
months ended March 31, 2000 and 1999 5
Notes to consolidated condensed financial statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. Other Information 16
Signature 19
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
March 31, 2000 December 31, 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,591,321 $ 2,815,071
Certificate of deposit - 1,052,779
Investment in securities 14,004,750 -
Accounts receivable net 304,108 210,086
Current portion of note receivable 155,623 152,817
Current portion of loan receivable 83,789 81,526
Receivable from Euroweb Rt. 35,388 35,388
Other receivables 214,667 56,600
Prepaid and other current assets 98,096 260,689
___________ ___________
Total current assets 23,487,742 4,664,956
Property and equipment, net 495,495 411,768
Note receivable, less current portion 665,118 705,092
Loan receivable, less current portion 64,867 86,682
Investment in Euroweb Rt., at equity 869,056 822,505
Goodwill, net 4,200,734 4,443,007
Prepaid investment in pending acquisitions 794,117 2,956
____________ ____________
Total assets $30,577,129 $11,136,966
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,031,141 $ 1,067,884
Current portion of loan payable 43,709 53,796
Deferred revenue 171,998 137,600
____________ ____________
Total current liabilities 1,246,848 1,259,280
Loan payable, less current portion 21,013 31,298
Commitments & Contingencies
Minority interests - 3,296
___________ ____________
Total liabilities 1,267,861 1,293,874
Stockholders' Equity
Preferred stock, $.001 par value - shares authorized
5,000,000; no shares issued or outstanding - -
Common stock, $.001 par value - shares authorized
March 31, 2000, 60,000,000; issued and outstanding
23,255,218; December 31, 1999 shares authorized
20,000,000; issued and outstanding 10,497,681 23,181 10,423
Additional paid-in capital 46,939,407 26,915,816
Accumulated deficit (17,493,027) (16,983,745)
Accumulated other comprehensive losses:
Foreign currency translation adjustment (159,583) (99,402)
Unrealized loss on investment securities (710) -
______________ ____________
Total stockholders' equity 29,309,268 9,843,092
______________ ____________
Total liabilities and stockholders' equity $30,577,129 $11,136,966
</TABLE>
See accompanying notes to consolidated financial statements.
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
Three Months Ended March 31,
<S> <C> <C>
2000 1999
______________ ___________
Revenues $ 750,216 $ -
______________ ___________
Expenses (Income)
Compensation and related costs 335,887 73,472
Network costs 363,172 -
Consulting and professional fees 157,146 70,477
Directors fees 100,000 -
Rent 31,004 6,056
Bad debts 22,393 -
Depreciation and amortization 291,401 -
Interest income (184,117) (57,862)
Interest expense 2,140 -
Equity in net income of Euroweb Rt. (89,697) (33,110)
Other expense 218,609 2,999
Other income (12,072) -
___________ ___________
Total 1,235,866 62,032
Loss from operations
before income taxes and minority
interest (485,650) (62,032)
Provision for income taxes 26,928 -
Minority interests in subsidiaries (income) loss (3,296) -
___________ ___________
Loss (509,282) (62,032)
Other comprehensive loss, net 60,891 (28,112)
____________ ___________
Comprehensive loss $ (570,173) $ (90,144)
____________ ___________
Loss per share, basic and diluted (.03) (.01)
Weighted average number of common shares
outstanding, basic and diluted: 17,075,862 6,475,694
</TABLE>
See accompanying notes to consolidated financial statements
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
Accumulated Other
Comprehensive Gains(Losses)
<S> <C> <C> <C> <C> <C> <C> <C>
Foreign
Additional Currency Other Total
Common Stock Paid-in Accumulated Translation unrealized Stockholders'
Shares Amount Capital Deficit Adjustment Gain(loss) Equity
______ __________ ____________ ____________ ____________ ___________ ____________
THREE MONTHS ENDED MARCH 31, 2000:
Balances, December 31, 1999 10,497,681 $10,423 $26,915,816 $(16,983,745) $(99,402) $ -0- $9,843,092
Issuance of shares for cash 11,803,554 11,804 18,078,829 - - - 18,090,633
Issuance of shares for warramts 953,983 954 1,944,762 - - - 1,945,716
Foreign currency translation gain - - - - (60,181) - (60,181)
(loss)
Unrealized loss on securities held
for sale - - - - - (710) (710)
Net loss for the period - - - (509,282) - - (509,282)
__________ __________ ____________ ______________ __________ ___________ ____________
Balances, March 31, 2000 23,255,218 $23,181 $46,939,407 $(17,493,027) $(159,583) $(710) $29,309,268
</TABLE>
See accompanying notes to consolidated financial
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months Ended
March 31,
2000 1999
______________ ______________
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (509,282) $ (62,032)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 291,401 -
Equity in net income of Euroweb Rt. (89,697) (33,110)
Foreign currency loss 4,004 -
Minority interests (3,296) -
(Increase) decrease in:
Accounts receivable, net (94,022) -
Receivable from Euroweb Rt. - 65,715
Prepaid and other assets 7,482 17,209
Decrease (increase) in:
Accounts payable and accrued expenses 36,743 (29,016)
Deposits payable - 200,000
Deferred revenue (34,398) -
_____________ ___________
Net cash provided by (used in) operating activities (391,065) 158,766
Cash flows from investing activities:
Certificates of deposit 1,052,779 (9,915)
Investment in securities (14,004,750) -
Prepaid investment in pending acquisitions (794,115) -
Repayments of notes receivable 37,168 534,559
Repayments loan receivable 19,552 20,058
Proceeds of loan receivable - (150,000)
Acquisition of property and equipment (132,858) -
_____________ _________
Net cash provided by (used in) investing activities (13,822,224) 394,702
Cash flows from financing activities:
Proceeds from issuance of common stock 20,036,349 90,000
Repayment of loan payable (20,372) -
___________ _________
Net cash provided by (used in) financing activities 20,015,977 90,000
Effect of foreign exchange rate changes on cash (26,438) -
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,776,250 643,468
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,815,071 1,688,280
__________ ___________
CASH AND CASH EQUIVALENTS, END OF YEAR $8,591,321 $2,331,748
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 2,140 $ 5,945
Income tax paid 14,056 14,398
NON-CASH TRANSACTIONS
Issuance of common stock for acquisition of subsidiaries $ - $2,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
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Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
1. Summary of Significant Accounting Policies
(a)Principles of Consolidation
The consolidated condensed financial statements include the accounts of
Euroweb International Corp. (the "Company") and its subsidiaries.
The operations of Luko Czech-Net, s.r.o. (Luko Czech) were acquired
as a wholly-owned subsidiary by the purchase of 100% of its registered
capital stock on June 11, 1999. The operations of Luko Czech have been
included effective from June 1, 1999.
The operations of Euroweb Slovakia, s.r.o., (EWEB Slovakia), a newly
formed subsidiary in the Slovak Republic, by the merger of two wholly
owned subsidiaries, Global Network Services, a.s., (SKNET) and Eunet
Slovakia, s.r.o., (Eunet)have been included effective January 1, 2000.
The operations of EUnet were acquired as a wholly-owned subsidiary by
the purchase of 100% of its outstanding shares of capital stock on July
15, 1999. The operations of EUnet have been included effective from
August 1, 1999 through December 31, 1999.
The operations of DoDo s.r.o. ("R-Net") were acquired as a 70% owned
subsidiary by the purchase of 70% of equity of the Company on August 9,
1999. The operations of R-Net have been included effective from August
1, 1999.
The operations of SKNET were acquired as a 100% owned subsidiary by the
purchase of 70% of the outstanding shares of stock on September 23, 1999
and the remaining 30% on November 16, 1999. The operations of SKNET have
been included effective from October 1, 1999 through December 31, 1999.
All of the acquired companies are Internet service providers.
All material intercompany balances and transactions have been
eliminated.
(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)Fiscal Year
The Company's reporting period is the calendar year.
(d)Revenue Recognition
Revenues from monthly Internet services are recognized in the month in
which the services are provided.
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Euroweb International Corp.
Notes to Consolidated Financial Statements
Quarter ended March 31, 2000
(e)Foreign Currency Translation
The Company uses the local currencies, the Hungarian forint for Euroweb
Rt., Czech koruna for Luko Czech and the Slovak koruna for EWEB
Slovakia, and R-Net as the functional currencies for measuring their
respective accounts. It translates all assets and liabilities at
exchange rates in effect at the balance sheet date and all
income and expense accounts at average rates for the period included in
these financial statements, and records adjustments resulting from the
translation in a separate component of stockholders' equity.
(f)Cash Equivalents and Investment in Securities
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. Investments in
marketable debt securities are classified as available-for-sale and are
recorded at fair value with any unrealized holding gains or losses
included as a component of earnings and other comprehensive income.
(g)Fair Value of Financial Instruments
The carrying values of cash equivalents, certificates of deposit,
investment in debt securities, notes and loans receivable, accounts
payable, loans payable and accrued expenses approximate fair values.
(h)Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
expensed when incurred. Depreciation is computed over the estimated
useful lives of depreciable assets using the straight line method.
(i)Goodwill
Purchased goodwill results from business acquisitions and represents
the excess of the purchase price over the fair value of assets acquired.
Amortization is computed over the estimated useful life of five years
using the straight line method.
(j)Investment in Euroweb Rt.
The Company's 49% equity interest in Euroweb Rt. is accounted for using
the equity method, under which the Company records as income its share
of the earnings of Euroweb Hungary Rt., net of the amortization of
goodwill. Dividends are credited against the investment account when
declared. The excess of the carrying value of the Company's investment
over its equity in the fair value of the underlying net
assets (goodwill) of approximately $586,000 at the acquisition date is
amortized over an estimated remaining useful life of three years.
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<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
March 31, 2000
(k)Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share," ("SFAS No. 128"), 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 the effect of common shares issuable
upon exercise of stock options and warrants in periods in
which they have a dilutive effect. The Company had potentially dilutive
common stock equivalents for the quarter ended March 31,2000 and the
year ended December 31,1999, which were not included in the computation
of diluted net loss per share because they were antidilutive for those
periods.
(l)Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130") which established 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, and distributions to,
owners. Among other disclosures, SFAS No.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.
(m)Segment Information
The Company adopted Statement of Financial Accounting Standards No.
131., "Disclosures about segments of an enterprise and related
information," ("SFAS No. 131"), effective for financial statements
issued for periods ending after December 15, 1997. This statement
establishes standards for the reporting of information about operating
segments in annual and interim financial statements, operating segments
are defined as components of an enterprise for which separate financial
information is available that is evaluated regularly by
the chief operating decision maker(s) in deciding how to allocate
resources and in assessing performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major
customers.
2. Organization and Business
The Company is a Delaware corporation which was organized on November 9,
1992.
On January 2, 1997, the Company acquired three Hungarian Internet
Service companies and had operated them through Euroweb Hungary Rt., a
wholly-owned subsidiary, through November 20, 1998, on which date the
Company sold a 51% interest in Euroweb Rt.
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<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
March 31, 2000
The Company's consolidated statements of operations include the equity
in net income of Euroweb Hungary, Rt., for the three months ended March
31, 2000 and 1999. Operating data for Euroweb Hungary, Rt., are as
follows:
March 31,2000 March 31,1999
(Unaudited) (Unadited)
______________ _______________
Revenues $1,084,237 $625,718
Expenses 804,436 $466,551
_____________ _______________
Net Income $ 279,801 $159,167
Company's 49% equity in net income 137,102 77,992
Amortization of goodwill related to
The Company's investment in Euroweb
Hungary, Rt. (47,405) (44,882)
______________ ______________
Equity in net income of Euroweb,Rt. $ 89,697 $ 33,110
During 1999 the Company acquired four Central European Internet service
companies. In the Czech Republic the Company acquired 100% of Luko Czech
on June 11, 1999. In the Slovak Republic the Company acquired 100% of
EUnet on July 15, 1999, 70% of R-Net on August 9, 1999 and 70% of SKNET
on September 23, 1999, and the remaining 30% on November 16, 1999. The
Company merged the operations of EUnet and SKNET on January
1, 2000, into Euroweb Slovakia, a newly formed 100% owned subsidiary.
On February 11, 2000, a special meeting of the shareholders was held and
two proposals were approved. Proposal number one approved the amendment
of the Company's certificate of incorporation increasing the number of
shares of common stock that is authorized for issuance by the company
from 20,000,000 shares of common stock to 60,000,000 shares of
common stock. Proposal number two approved the issuance and sale by the
Company to KPN, Telecom B.V. ("KPN"), a Netherlands Limited Liability
Company, 10,286,742 shares at $1.58 per share and rights to shares equal
to all other outstanding warrants, options and other securities at $1.38
per share. At closing KPN exercised its option to purchase 1,516,812
shares at $1.38 per share in addition to the 10,286,742 shares
at $1.58 per share. These approvals gave KPN control of 51% of the
Company's common stock, representing voting control of the Company.
3. Interim periods
The accompanying consolidated condensed financial statements for the
three months ended March 31, 2000 and 1999 are unaudited but, in the
opinion of management, include all adjustments, consisting mainly of
normal recurring accruals necessary for fair presentation. Results for
the interim periods are not necessarily indicative of the result of a
full year.
4. Incorporation by Reference
Reference is made to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31,1999 and to the notes to the consolidated
financial statements included therein, which are incorporated herein by
reference.
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Euroweb International Corp.
Notes to Consolidated Comdensed Financial Statements
March 31, 2000
5. Cash Concentration
At March 31, 2000, cash and cash equivalents included $8,064,960 and
$281,973 on deposit with a money market fund and major money center
bank, respectively.
6. Investment in Securities
On February 15,2000, the Company purchased $ 14,005,460 of 5.0% Federal
home loan Mortgage Corporation debt securities, rated AAA by Moody's
investor services.
7. Capital Stock, Stock Options and Warrants
On February 11, 2000, the Company sold 11,803,554 shares of common stock
to KPN. The proceeds of this placement amounted to $18,090,634 after
deducting private placement costs of $255,620.
During the first quarter of 2000, proceeds of $1,945,715 were received
for the exercise of 953,983 warrants for 953,983 shares of common stock
exclusive of the KPN sale.
On February 11,2000, the Company's stockholders approved an increase in
the authorized shares of capital stock to 65,000,000 shares consisting
of 60,000,000 shares of common stock and 5,000,000 shares of preferred
stock. The increase was effective on February 11,2000.
8. Commitments and Contingencies
(a)Employment Agreements
Employment agreements with the three officers of the Company provide for
aggregate annual compensation of $646,000 through December 31, 2005.
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Euroweb International Corp.
Notes to Consolidated Financial Statements
March 31, 2000
(b)Legal Proceedings
In May 1999 a statement of claim was filed against Luko Czech, a wholly
owned subsidiary, alleging damages in the amount of approximately
$132,000 resulting from the Company's cancellation of a contract with a
data network provider. The Company claims that the contract was
terminated in accordance with its terms and conditions.
The Company has presented documents in support of its position and
believes the Company's position will prevail.
9. Acquisitions
On June 11, 1999, the Company acquired all of the participation
interests of Luko Czech, an Internet service provider in the Czech
Republic for a total cost of $1,887,654, consisting of 450,000 shares of
the Company's common stock valued at $2 per share, issued June 11, 1999,
and the balance paid in cash. This acquisition was accounted for using
the purchase method of accounting. The excess of the Company's
cost over the fair value of the net assets acquired (goodwill) amounted
to $1,734,996, which is being amortized over its estimated useful life
of five years.
On July 15, 1999, the Company acquired all of the outstanding shares of
capital stock of EUnet, an Internet service provider in the Slovak
Republic, for a total cost of $813,299 consisting of 237,040 shares of
the Company's common stock valued at $1.6875 per share issued July 19,
1999 and the balance paid in cash. This acquisition was accounted for
using the purchase method of accounting. The excess of the Company's
cost over the fair value of the net assets acquired (goodwill) amounted
to $726,213 which is being amortized over its estimated useful life of
five years.
On August 9, 1999, the Company acquired 70% of the equity of R-Net, an
Internet service provider in the Slovak Republic for a total cost of
$630,234, consisting of 145,455 shares of the Company's common stock
valued at $1.375 per share issued August 13, 1999 and the balance paid
in cash. This acquisition was accounted for using the purchase
method of accounting. The excess of the Company's cost over the fair
value of the net assets acquired (goodwill) amounted to $607,663 which
is being amortized over its estimated useful life of five years.
The Company acquired in two separate purchases, 70% on September 23,
1999 and 30% on November 16, 1999 all of the outstanding shares of
Global Network Services, a.s., an Internet service provider in the
Slovak Republic for a total cost of $1,633,051, consisting of 355,568
shares of the Company's stock valued at $1.406 per share, 250,000
issued October 1, 1999 and 105,568 shares issued October 18, 1999 and
the balance paid in cash. The excess of the Company's cost over fair
value of the assets acquired (goodwill) amounted to $1,776,532 which is
being amortized over its estimated useful life of five years.
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Euroweb International Corp.
Notes to Consolidated Financial Statements
March 31, 2000
10. Segment Disclosures
The Company operates in a single industry segment, Internet services.
The Company's operations involve providing access to the Internet,
hosting servers and developing content for web sites. The Company
provides its services in the Czech Republic and the Slovak Republic. The
Company's chief operating decision maker monitors the revenue
streams by the various services provided, operations are managed and
financial performance is evaluated based on the delivery of Internet
services over leased telecommunications networks. Substantially all of
the Company's operating assets are located in Central Europe and all of
its revenues are generated in Central Europe.
11. Subsequent Events
On October 19, 1999, the Company entered signed letters of intent to
purchase all of the outstanding stock of Isternet SR s.r.o., an Internet
service provider located in the Slovak Republic for $1,100,000 in cash.
The Company has received clearance from a Slovakian Antitrust Commission
to close on this purchase which was completed on April
10,2000. All satisfactory due diligence procedures were completed and
the closing took place on April 20, 2000.
On March 1, 2000 the Company agreed to purchase 100% of the Internet
related assets of Sumitkom Rokura, S.R.L. an Internet service provider
in Bucharest, Romania, for approximately $1,530,000 in cash of which a
$ 750,000 deposit on contract has been made. The closing of the purchase
is subject to due diligence procedures to be performed. The anticipated
closing date is early June, 2000.
On March 20, 2000, the Company entered signed letters of intent to
purchase 100% of the shares of Mediator S.A., a leading Internet service
provider in Romania, for $3,000,000 in cash. This acquisition is subject
to completion of satisfactory due diligence procedures and is expected
to close in the early part of June, 2000.
On April 20, 2000, the Company excersied its option to purchase the
remaining 30% of R-Net that it did not own for $350,000.
The acquisitions discussed above will be accounted for as purchase
transactions and the acquired companies' results of operations for
future periods commencing with the acquisition dates will be included in
the Company's consolidated financial statements.
Any excess of the costs of these acquisitions over the underlying net
assets will be recorded as goodwill and amortized over the useful lives.
The Company is currently seeking to acquire other Internet service
providers in Central and Eastern Europe.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Through its wholly-owned Hungarian subsidiary, Teleconstruct Epitesi Rt.
("Teleconstruct"), the Company built for sale 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 sold 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"), the Company's former president. The second building was
completed in March 1998. The Company received some rental income from
unaffiliated persons from April to December 1998 when it sold the shares of
Teleconstruct to M&A. With the sale of Teleconstruct, the Company has
exited the construction business and, accordingly, the construction
operations have been classified as discontinued operations for all periods
presented.
In January 1997, the Company acquired three ISP businesses in Hungary and
consolidated the three Hungarian ISPs under one roof under the name of Euroweb
Rt. On November 20, 1998, the Company sold a 51% interest in EUroWeb Rt.
On June 11, 1999, the Company acquired all of the participating interests in
Luko Czech, an ISP operating in the Czech Republic. The Company also
acquired in 1999 all or a majority of the respective interests in three ISPs
operating in Slovakia. The three acquisitions in Slovakia include: (1) all of
the outstanding shares of capital stock of EUnet Slovakia, (2) 70% of the
equity of R-Net, a subsidiary of Dodo s.r.o. and (3) all of the outstanding
shares of Global Network Services, a.s.c., which was owned by Slavia Capital
o.c.p., a.s.
On February 11, 2000, a special meeting of the shareholders was held and
two proposals were approved. Proposal number one approved the amendment of
the Company's certificate of incorporation increasing the number of shares
of common stock that is authorized for issuance by the Company from
20,000,000 shares of common stock to 60,000,000 shares of common stock.
Proposal number two approved the issuance and sale by the Company to KPN,
Telecom B.V. ("KPN"), a Netherlands Limited Liability Company,
10,286,742 shares at $1.58 per share and rights to shares equal to all
other outstanding warrants, options and other securities a t $1.38 per share.
At closing KPN exercised its option to purchase 1,516,812 shares at $ 1.38
per share in addition to the 10,286,742 shares at $1.58 per share. These
approvals gave KPN control of 51% of the Company's common stock, representing
voting control of the Company. This transaction provided the Company with more
than $ 18,000,000 in capital to fund future acquisitions. And, as of this
filing, the Company has closed on two additional acquisitions effective
from April 20, 2000. The first was the purchase of Isternet, in the Slovak
Republic for approximately $1,100,000 and the second was the purchase of the
remaining 30% of R-Net that the Company did not own, also in the Slovak
Republic for $350,000. Two pending acquisitions of Internet service
providers in Romania are scheduled to close in the early part of June 2000.
They are the purchase of the assets of Sumikom Rokura for approximately
$ 1,530,000 and the purchase of Mediator S.A., for approximately $3,000,000.
The Company's consolidated statement of operations for the quarter ended
March 31, 2000 includes (1) the results of operations of Luko Czech, located
in the Czech Republic and the results of operations of three the Slovakian
companies: EUnet Slovakia s.r.o., Global Network Services a.s.c., (which
two companies were merged into Euroweb Slovakia s.r.o.) and Dodo s.r.o.
- 13 -
<PAGE>
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
The first quarter ended March 31,1999 did not have any revenues from operating
activities as a result of the sale of Euroweb Hungary, Rt., on November 20,
1998, and not having, until June 11, 1999, any other operating subsidiaries.
Therefore, total revenues from Internet activities for the quarter ended
March 31, 2000 represents a total increase of $750,216 compared to the quarter
ended March 31, 1999. However, on a comparitive basis the Company reported
income for the quarter ended March 31, 1999, from its equity interest in
Euroweb Hungary Rt., of $33,110. This compares to income from its equity
interest in Euroweb Hungary, Rt., of $89,697 reported for the quarter ended
March 31, 2000. This represents a 170% increase over the quarter ended March
31, 1999.
Internet revenues for the quarter ended March 31, 2000 by country, are
the following:
Slovakia 476,938
Czech Republic 273,278
$750,216
While the Company's operations for the quarter ended March 31, 2000, showed an
operating loss of $ 509,282, or $.03 per share, non-cash amortization of
goodwill relating to subsidiary acquisitions contributed $291,401 to this
loss or $.02 per share. The first quarter 2000 also had a non-recurring
charge of $100,000 paid to two retiring directors of the Company as
requested by KPN as a condition of their investment in the Company.
Excluding these two items the net loss for the quarter would have been
$117,881 or $.01 per share. This compares to the $.01 per share loss
reported in the quarter ended March 31, 1999.
Liquidity and Capital Resources
In February, 2000, KPN purchased 11,803,554 shares of common stock representing
a 51% interest in the Company, paying $18,346,254. The proceeds amounted to
$ 18,090,633 after deducting private placement costs of $255,620.
During the first quarter 2000, proceed of $1,945,716 were received for the
exercise of 953,983 warrants for 953,983 shares of common stock, exclusive of
the KPN sale.
The Company has sufficient cash on hand to meet its anticipated working
capital requirements for at least twelve months. The Company plans to make
future acquisitions of Internet service providers in Central and Eastern
Europe. The excess cash on hand to be used to finance such future
acquisitions is currently invested in U.S. Government securities.
- 14 -
<PAGE>
Effect of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." ("SFAS No. 133"), which requires
companies to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. The Company does not presently enter into any transactions involving
derivative financial instruments and, accordingly, does not anticipate the
new standard will have any material effect on its financial statements.
Forward-Looking Statements
When used in this Form 10-QSB, in other filings by the Company with the SEC,
in the Company's press releases or other public or stockholder communications,
or in oral statements made with the approval of an authorized executive
officer of the Company, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar
expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, are based
on certain assumptions and expectations which may or may not be valid or
actually occur, and which involve various risks and uncertainties,
including but not limited to the risks set forth below. See "Risk Factors."
In addition, sales and other revenues may not commence and/or continue as
anticipated due to delays or otherwise. As a result, the Company's actual
results for future periods could differ materially from those anticipated or
projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such statement.
- 15 -
<PAGE>
PART II
Item 1. Legal Proceedings
In May 1999, a statement of claim was filed against Luko Czech, one of the
Company's wholly-owned subsidiaries in the Czech Republic. The claim
involves alleged damages in the amount of approximately $132,000 resulting
from the Company's cancellation of a contract with a data network provider.
The Company claims that the contract was terminated in accordance
with its terms and conditions, and has presented documents in support of
its position. The Company is not a party to any other material legal
proceedings as of the date of this report.
Item 2. Changes in Securities
By a vote of the Company's stockholders, on February 11, 2000, the
authorized shares of capital stock was increased from 25,000,000 to
65,000,000 representing a 40,000,00 increase in the authorized shares of
common stock. This change was effective on that date.
Item 3. Defaults upon senior securities
None
Item 4. Submission of matters to a vote of security holders
On February 11, 2000, a special meeting of the shareholders was held and
two proposals were approved. Proposal number one approved the amendment of
the Company's certificate of incorporation increasing the number of
shares of common stock that is authorized for issuance by the Company from
20,000,000 shares of common stock to 60,000,000 shares of common
stock. Proposal number two approved the issuance and sale by the Company to
KPN, Telecom B.V. ("KPN"), a Netherlands Limited Liability Company,
10,286,742 shares at $1.58 per share and rights to shares equal to all
other outstanding warrants, options and other securities a t $1.38 per share.
At closing KPN exercised its option to purchase 1,516,812 shares at $ 1.38
per share in addition to the 10,286,742 shares at $1.58 per share. These
approvals gave KPN control of 51% of the Company's common stock, representing
voting control of the Company.
ITEM 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits (numbers below reference Regulation S-B, Item 601)
(2) Subscription Agreement and Option Agreement with KPN(23)
(3) (a) Certificate of Incorporation filed November 9, 1992(1)
(b) Amendment to Certificate of Incorporation filed July 9,
1997 2
(c) By-laws(2)
(4) (a) Form of Common Stock Certificate(2)
(b) Form of Underwriters' Warrants to be sold to
Underwriters(2)
(c) Placement Agreement between Registrant and J.W.
Barclay & Co., Inc. and form of Placement Agent Warrants
issued in connection with private placement financing(2)
(d) Form of 10% Convertible Debenture used in connection
with offshore private placement financing pursuant to
Regulation S3
________________________
1 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 10-QSB for quarter ended June 30, 1998.
3 Filed with Form 8-K as of February 17, 1994
- 16 -
<PAGE>
(e) Form of Common Stock Purchase Warrant in connection with private
placement financing under Section 506 of Regulation D(4)
(10) (a) Consulting agreement between Registrant and Klenner Securities Ltd.
(2)
(b) Consulting agreement between Registrant and Robert Genova(2)
(c) Consulting agreement between Registrant and Laszlo Modransky(2)
(d) 1993 Incentive Stock Option Plan(2)
(e) Sharing agreement for space and facilities between Registrant and
Hungarian Telephone and Cable Corp.(2)
(f) Articles of Association (in English) of Teleconstruct Building
Corp. (2)
(g) Articles of Association (in English) of Termolang Engineer and
Construction Ltd. (2)
(h) Letter of intent between Teleconstruct Building Corp. and
Pilistav(2)
(i) Employment agreement between Registrant and Robert Genova and
termination agreement dated February 5, 1997 4
(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 as amended(4)
(k) Employment agreement between Registrant and Frank R. Cohen(2) and
modification of employment agreement(4)
(l) Letter of Intent agreement between Registrant and Raba-Com Rt. (4)
(m) Letter of Intent agreement between Registrant and Kelet-Nograd Rt(4)
(n) Letter of Intent agreement between Registrant and 3 Pilistav
villages for installation of cable in those areas(4)
(o) Lease agreement between Registrant's subsidiary EUNET Kft. and
Varosmajor Passage, Kft. for office space(4)
(p) Acquisition agreement between Registrant and KFKI Computer Systems
Corp. dated December 13, 1996(4)
(q) Acquisition agreement between Registrant and E-Net Hungary(4)
(r) Acquisition agreement between Registrant and MS Telecom Rt. (4)
(s) Employment Agreement between Registrant and Imre Kovats(4)
(t) Employment Agreement between Registrant and Csaba Toro(4)
(u) Promissory Note from Registrant to HBC(4)
(v) Communication Services Agreement between Registrant and MCI Global
Resources, Inc.5
(w) Lease and Option Agreement for Building B as of April 1, 1998 with
Hafisa Kft.6
(x) License Agreement between Gric Communications, Inc. and EuroWeb
International Corp.(5)
(y) Consulting Agreement between Registrant and Eurus Capital
Corporation and Rescission Agreement7
(y)(i)Agreement rescinding Option Agreement with Eurus Capital
Corporation8
_______________________
4 Filed with Form 10-KSB for year ended December 31, 1996
5 Filed with Form 10-QSB for quarter ended September 30, 1997.
6 Filed with Form 10KSB for year ended December 31, 1997.
7 Filed with Amendment No. 1 to Registration Statement 333-52841
8 Filed with Amendment No. 2 to Registration Statement 333-52841
- 17 -
<PAGE>
(z) Financial Consulting Agreement between Registrant and J.W. Barclay
& Co., Inc.9
(aa)Mergers and Acquisitions Agreement between Registrant and J.W.
Barclay10
(bb)Placement Agreement between Registrant and J.P. Carey, Inc. and
form of Placement Agent Warrants issued in
connection with private placement financing11
(cc)Private Placement Agreement between Registrant and Peter E.
Klenner12
(dd)Employment Agreement between Registrant and Csaba Toro13
(ee)Employment Agreement between Registrant and Robert Genova14
(ff)Employment Agreement between Registrant and Frank R. Cohen15
(gg)Placement Agreement between Registrant and JP Carey Securities
Inc. and Warrant Agreement in connection with private
placement financing16
(hh)Private Placement Agreement between Registrant and M&A Management17
(ii)Form of Subscription Agreement in connection with private offering
of common stock and Warrants pursuant to Rule 506
of Regulation D under Section 4(2) of the Securities Act of 193318
(jj)Acquisition Agreement between Registrant and Luko Czech Net, 5.1.0.
dated June 11, 199919
(kk)Acquisition Agreement between Registrant and Slavia Capital, O.C.P.,
a.s. dated July 2, 199920
(ll)Acquisition Agreement between Registrant and Eunet Slovakia s.r.o.
dated July 14, 199921
(mm)Acquisition Agreement between Registrant and shareholders of Dodo,
s.r.o. dated August 5, 199922
(16) (a)Letter on Change in Certifying Accountant23
(b)Letter by Former Accountant Agreeing with Company's Statements.(24)
(22) (a)Proxy Statement for Special Meeting of Stockholders.24
(b)Press Release on Adjournment of Special Meeting.25
(c)Press Release on Results of Vote.26
_________________________
9 File with Amendment No. 1 to Registration Statement 333-52841
10 Filed with Amendment No. 1 to Registration Statement 333-52841
11 Filed with Form 8-K as of October 14, 1998
12 Filed with Form 8-K as of October 14, 1998
13 Filed with Form 8-K as of October 14, 1998
14 Filed with Form 8-K as of October 14, 1998
15 Filed with Form 8-K as of October 14, 1998
16 Filed with Form 8-K as of April 21, 1999
17 Filed with Form 8-K as of April 21, 1999
18 Filed with Form 8-K as of April 21, 1999
19 Filed with Form 8-K as of June 11, 1999
20 Filed with Form 10-QSB for quarter ended June 30, 1999
21 Filed with Form 10-QSB for quarter ended June 30, 1999
22 Filed with Form 10-QSB for quarter ended June 30, 1999
23 Filed with Form 8-K on December 21, 1999.
24 Filed with Form DEF 14A on December 14, 1999.
25 Filed with Form 8-K on January 12, 2000.
26 Filed with Form 8-K on February 14, 2000.
- 18 -
<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 12th day of May 2000.
EUROWEB INTERNATIONAL CORP.
By _/s/Frank R. Cohen
Frank R. Cohen
Chairman of the Board
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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