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 September 30, 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 23,692,569
(Class) (Outstanding at September 30, 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 balance sheets as of September 30, 2000 (unaudited)
and December 31, 1999 (audited) 2
Consolidated statements of operations and comprehensive loss
(unaudited) for the three months ended September 30, 2000 and 1999 and
the nine months ended September 30, 2000 and 1999 3
Consolidated statements of stockholders' equity (unaudited) for
the nine months ended September 30, 2000 and 1999 4
Consolidated statements of cash flows (unaudited) for the nine
months ended September 30, 2000 and 1999 5
Notes to consolidated 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 20
<PAGE>
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
September 30, 2000 December 31, 1999
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 4,164,996 $ 2,815,071
Certificate of deposit - 1,052,779
Investment in securities 14,115,652 -
Accounts receivable, net 374,727 210,086
Current portion of note receivable 161,391 152,817
Current portion of loan receivable 88,504 81,526
Receivable from Euroweb Rt. 35,388 35,388
Other receivables 439,316 56,600
Prepaid and other current assets 98,682 260,689
__________ __________
Total current assets 19,478,656 4,664,956
Property and equipment, net 971,564 411,768
Note receivable, less current portion 582,955 705,092
Loan receivable, less current portion 19,404 86,682
Investment in affiliate 861,434 822,505
Goodwill, net 8,572,501 4,443,007
Other non-current assets 52,953 2,956
___________ ___________
Total assets $30,539,467 $11,136,966
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $900,523 $1,067,884
Current portion of loan payable 101,989 53,796
Current portion of acquisition indebtedness 180,000 -
Deferred revenue 110,629 137,600
__________ __________
Total current liabilities 1,293,141 1,259,280
Loan payable, less current portion 31,298
Acquisition indebtedness, less current portion 360,000 -
Commitments & Contingencies
Minority interests - 3,296
__________ _________
Total liabilities 1,653,141 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
September 30, 2000, 60,000,000; issued and outstanding
23,692,569; December 31, 1999 shares authorized
20,000,000; issued and outstanding 10,497,681 23,619 10,423
Additional paid-in capital 47,523,689 26,915,816
Accumulated deficit
(18,466,435) (16,983,745)
Accumulated other comprehensive losses:
Foreign currency translation adjustment
(304,739) (99,402)
Unrealized gain (loss) on securities available for sale 110,192 -
____________ ____________
Total stockholders' equity 28,886,326 9,843,092
____________ ____________
Total liabilities and stockholders' equity $30,539,467 $11,136,966
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
__________ _________ __________ _________
Revenues $1,262,257 $ 418,254 $ 2,912,296 $ 489,782
Network Costs 608,482 194,256 1,326,453 236,256
_______ _______ _________ _______
Gross Margin 653,775 223,998 1,585,843 253,526
Expenses (Income)
Compensation and related costs 418,743 143,234 1,132,587 300,609
Consulting and professional fees 240,387 136,770 529,437 285,248
Directors fees - - 100,000 -
Rent 43,488 6,055 105,216 18,111
Bad debts 53,895 5,929 121,219 5,929
Depreciation and amortization 622,064 125,530 1,306,096 156,557
Interest income (243,776) (51,859) (707,307) (175,993)
Interest expense 14,327 878 23,998 878
Foreign currency (gain) loss 36,185 1,903 40,717 931
Equity in net income of Euroweb Rt. (88,229) ( 6,945) (169,650) (66,989)
Loss on equity adjustment by Euroweb Rt. 12,250 - 12,250
Gain on capital contribution parent of Euroweb Rt. - (147,000) - (147,000)
Realized loss on sale of securities - 126,841 - 126,841
Other income
(35,677) (2,791) (70,230) (2,791)
Other expense 167,704 140,029 598,578 203,454
_________ _______ _________ _______
Total Expenses 1,241,361 478,574 3,022,911 705,785
Loss from operations before income taxes and minority (587,586) (254,576) (1,437,068) (452,259)
interest
Provision for income taxes 9,275 16,690 50,672 18,829
Minority interests in subsidiaries (income) loss - (628) (5,050) (628)
__________ _________ ___________ _________
Net Loss from Continuing operations (596,861) (270,638) (1,482,690) (470,460)
Loss from Discontinued operations - (50,858) - (50,858)
Net loss (596,861) (321,496) (1,482,690) (521,318)
Other comprehensive (gain) loss 50,534 3,967 95,145 ( 96,044)
__________ _________ __________ _________
Comprehensive loss $ (647,395) $(325,463) $ (1,577,835) $(425,274)
=========== ========= ============= ==========
Net Loss per share, basic and diluted (.03) (.03) (.07) (.06)
Weighted average number of shares outstanding, basic 23,406,156 9,460,959 21,245,418 8,103,113
and diluted
</TABLE>
See accompanying notes to consolidated financial statements
3
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated Other
Comprehensive Gains (Losses)
____________________________
Foreign
Additional Currency Unrealized Gain Total
Common Stock Paid-in Accumulated Translation on Available for Stockholders'
Shares Amount Capital Deficit Adjustment Sale Securities Equity
________ _______ _________ ____________ ___________ _______________ ___________
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 18,073,830 - - - 18,085,634
Exercise of stock warrants 1,311,334 1,312 2,404,123 - - - 2,405,435
Exercise of stock options 80,000 80 129,920 130,000
Foreign currency translation loss - - - - (205,337) - (205,337)
Unrealized gain on securities available - - - - - 110,192 110,192
for sale
Net loss for the period - - - (1,482,690) - - (1,482,690)
__________ _______ __________ _____________ __________ ________ ___________
Balances, September 30, 2000 23,692,569 $23,619 $47,523,689 $(18,466,435) $(304,739) $110,192 $28,886,326
</TABLE>
See accompanying notes to consolidated financial statements
4
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
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<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
___________ __________
Cash flows from operating activities:
Net loss $(1,482,690) $ (521,318)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,306,096 156,557
Amortization of discount on note payable 7,395 -
Gain on capital contribution of parent company of Euroweb Rt. - (147,000)
Loss on equity adjustment by Euroweb Rt. 12,250
Equity in net income of Euroweb Rt. (169,650) (66,989)
Foreign currency loss 40,717 931
Minority interests (5,050) (628)
Loss on sale of securities - 126,841
(Increase) decrease in:
Accounts receivable, net (22,429) (12,089)
Receivable from Euroweb Rt. - 65,715
Prepaid and other assets 108,204 50,403
Increase (decrease) in:
Accounts payable and accrued expenses (16,171)
(369,995)
Deferred revenue (75,285) (5,524)
Net cash used in operating activities (650,437) (369,272)
_________ _________
Cash flows from investing activities:
Certificates of deposit 1,052,779 (33,422)
Investment in securities (14,005,460) -
Repayments of notes receivable 113,563 605,393
Repayments loan receivable 60,300 61,859
Proceeds of loan receivable - (250,000)
Acquisition of property and equipment (519,582) (23,935)
Proceeds of sale of securities - 38,446
Investments in Euroweb, Rt. - (59,100)
Acquisition of Internet companies net of cash acquired (5,145,903) (2,092,868)
____________ ___________
Net cash used in investing activities (18,444,303) (1,753,627)
Cash flows from financing activities:
Repayment of loan payable (85,100) (14,613)
Proceeds from issuance of common stock 20,621,069 3,143,687
__________ _________
Net cash provided by financing activities 20,535,969 3,129,074
Effect of foreign exchange rate changes on cash (91,305) (931)
__________ _________
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,349,924 1,005,244
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,815,071 1,688,280
__________ __________
CASH AND CASH EQUIVALENTS, END OF PERIOD $4,164,995 $2,693,524
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 16,603 $ 878
Income tax paid 50,672 18,829
NON-CASH TRANSACTIONS
Issuance of common stock for acquisition of subsidiaries - $2,000,000
----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
1. Organization and Business
EuroWeb International Corporation (the "Company") owns and operates Internet
service provider companies. The Company is a Delaware corporation organized on
November 9, 1992.
The Company's consolidated statements of operations include the equity in
net income of Euroweb Hungary, Rt., for the nine months ended September 30,
2000 and 1999. Operating data for Euroweb Hungary, Rt., are as follows:
September 30, 2000 September 30, 1999
(Unaudited) (Unaudited)
Revenues $3,614,240 $ 2,161,560
Network cost 1,530,978 1,029,008
__________ __________
Gross profit 2,083,262 1,132,552
Expenses 1,446,802 739,142
__________ __________
Net Income $ 636,460 $ 393,410
Company's 49% equity in net income 311,865 201,635
Amortization of goodwill related to
The Company's investment in Euroweb
Hungary, Rt. (142,215) (134,646)
__________ ___________
Equity in net income of Euroweb,Rt. $ 169,650 $ 69,989
During the period ended September 30, 2000 the Company acquired
all of the outstanding shares of Mediator, S.A., on June 14, 2000. Mediator's
name was changed to Euroweb Romania S.A., whom then acquired the Internet
related assets of Sumitkom Rokura S.A., effective July 1, 2000. The results
of operations for the Romanian companies were effective from July 1, 2000.
The following pro forma information presents the consolidated results of the
Company's operations as if the Romanian acquisitions had occurred on
January 1, 1999:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
_________ _________ ___________ _________
Revenues $1,262,257 $ 542,582 $ 3,252,407 $ 803,751
Net Loss 632,306 415,435 1,854,319 850,928
Net loss per share $ ( .03) ( .04 ) ( .09) ( .11 )
These unaudited pro forma results have been prepared for comparative
purposes only. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred
on January 1, 1999, or of future results of operations of the consolidated
entities.
During the period ended September 30, 2000 the Company acquired all
of the outstanding share capital of Stand, s.r.o., a company incorporated in
the Czech Republic on August 25, 2000. This acquisition was merged into
Luko Czech, which has incorporated the operating results of Stand s.r.o.,
effective from September 1, 2000.
6
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Euroweb International Corp.
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in
accordance with the instructions for Form 10-QSB and, therefore, do not include
all disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments which are, in the opinion of management,
of normal recurring nature and are necessary for a fair presentation of the
interim financial statements, have been included. The results of operations
for the periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the entire fiscal year or any other interim
period.
(b) Principles of Consolidation
The Accompanying unaudited consolidated financial statements include the
accounts of Euroweb International corporation, Inc., and subsidiaries. All
significant inter-company balances and transactions have been eliminated in
consolidation.
(c) 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.
(d) Fiscal Year
The Company's reporting period is the calendar year.
(e) Revenue Recognition
Revenues from monthly Internet services are recognized in the month in which
the services are provided to third parties exclusive of value added taxes. No
revenue is recognized if there are significant uncertainties regarding
recovery of the consideration due or the associated costs.
7
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(f) 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. 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.
The Company conducts business and maintains it accounts for Euroweb
Romania in the Romanian Lei ("ROL"). Romania is considered highly
inflationary and, therefore, the U.S. dollar is used as the functional
currency. The Company's financial statements presented in ROL are
re-measured into U.S. dollars using the following policies.
Monetary assets and liabilities are re-measured into the functional
currency using the exchange rate at the balance sheet date.
Non-monetary assets and liabilities are re-measured into the functional
currency using historical exchange rates.
Revenues, expenses, gains and losses are re-measured into the
functional currency using the average exchange rate for the
period, except for revenues and expenses related to non-monetary items that
are re-measured using historical exchange rates.
(g) 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.
(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.
8
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
(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.
(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 three and
nine months ended September 30, 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.
9
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Euroweb International Corp.
Notes to Consolidated Financial Statements
3. Cash Concentration
At September 30, 2000, cash and cash equivalents included $3,293,673 and
$296,813 on deposit with a money market fund and with a major money center bank,
respectively.
4. Investment in Securities
On February 15, 2000, the Company purchased Federal home loan Mortgage
Corporation debt security . The debt security has a face value of
$ 14,000,000 bears interest at 5.0% and was purchased for $ 14, 005,460.
5. Acquisition Indebtedness
In connection with the acquisition of Euroweb Romania S.A., the company assumed
indebtedness of $ 540,000 from a selling shareholder. The indebtedness is
payable in three yearly installments of $ 180,000, commencing June 1, 2001.
6. Stockholders' Equity
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.
On February 11, 2000, the Company sold 11,803,554 shares of common stock
to KPN. The proceeds of this placement amounted to $18,085,634 after
deducting private placement costs of $260,620.
During the first nine months of 2000, proceeds of $2,527,935 were
received for the exercise of 1,391,334 warrants and options for
1,391,334 shares of common stock exclusive of the KPN sale.
7. 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.
(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
esulting 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.
10
<PAGE>
Euroweb International Corp.
Notes to Consolidated Financial Statements
8. Acquisitions
The Company acquired in two separate purchases, 70% on August 9, 1999 and
30% on May 22, 2000 all of the outstanding shares of R-Net, an Internet
service provider in the Slovak Republic for a total cost of $986,044,
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 $965,228, 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 common
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. This acquisition
was accounted for using the purchase method of accounting. 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.
On April 21, 2000, the Company acquired all of the outstanding
shares of capital stock of Isternet SR, s.r.o., an Internet service provider
in the Slovak Republic, for a total cost of $1,029,299 consisting entirely of
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 $945,200 which is being amortized over
its estimated useful life of five years.
On May 19, 2000 the Company purchased 100% of the Internet related
assets of Sumitkom Rokura, S.R.L. an Internet service provider in Romania,
for $1,561,125 in cash. The acquisition has been accounted for as an asset
purchase on the books of Euroweb Romania, S.A. effective as of July 1, 2000.
The excess of the Company's cost over the fair value of the net assets
acquired (goodwill) is $1,150,000 which is being amortized over its estimated
useful life of five years.
On June 14, 2000, the Company acquired all of the outstanding shares
of capital stock of Mediator S.A., an Internet service provider in Romania
for a total cost of $2,835,569 consisting of $ 2,040,000 in cash and the
assumption of a liability to the former owner in the amount of $ 540,000
payable in yearly installments of $ 180,000 commencing on June 1, 2001. This
acquisition was accounted for using the purchase method of accounting.
Immediately after the purchase the name was changed to Euroweb Romania, S.A.
This acquisition is effective as of July 1, 2000. The excess of the Company's
cost over the fair value of the net assets acquired (goodwill) amounts to
$ 2,455,223 which will be amortized over the estimated useful
life of 5 years.
On August 25, 2000, the Company, through its subsidiary, Luko Czech,
acquired all of the outstanding shares of capital stock of Stand s.r.o., an
Internet service provider in the Czech Republic for a total cost of $280,735
paid in cash. This acquisition was accounted for using the purchase method
of accounting. This acquisition is effective as of September 1, 2000. The
excess of the Company's cost over the fair value of the net assets acquired
(goodwill) amounts to $ 263,243 which is being amortized over the
estimated useful life of 5 years.
11
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Euroweb International Corp.
Notes to Consolidated Financial Statements
9. 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, the Slovak Republic and in Romania.
Operations are managed and financial performance is evaluated by the Company's
chief operating decision maker 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.
10. Subsequent Events
On October 24, 2000, KPN Telecom B.V., exercised its option for
501,512 shares of the company's common stock at $ 1.38 per
share, in order to maintain its 51% equity interest in the Company.
The Company is currently seeking to acquire other Internet service
providers in Central and Eastern Europe.
12
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
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, of
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. This transaction provided the
Company with more than $ 18,000,000 in capital to fund future acquisitions.
On June 14, 2000, the Company acquired all of the outstanding shares of
capital stock of Mediator S.A., an Internet service provider in Romania for a
total cost of $2,835,569 consisting of $ 2,040,000 in cash and the assumption
of a liability to the former owner in the amount of $ 540,000 payable in yearly
installments of $ 180,000 commencing on June 1, 2001. This acquisition was
accounted for using the purchase method of accounting. Immediately after the
purchase the name was changed to Euroweb Romania, S.A. This acquisition is
effective as of July 1, 2000. The excess of the Company's cost over the fair
value of the net assets acquired (goodwill) amounts to $ 2,455,223 which will
be amortized over the estimated useful life of 5 years.
On August 25, 2000, the Company, through its subsidiary, Luko Czech,
acquired all of the outstanding shares of capital stock of Stand s.r.o., an
Internet service provider in the Czech Republic for a total cost of $280,735
paid in cash. This acquisition was accounted for using the purchase method
of accounting. This acquisition is effective as of September 1, 2000. The
excess of the Company's cost over the fair value of the net assets acquired
(goodwill) amounts to $ 263,243 which is being amortized over the
estimated useful life of 5 years.
The Company's consolidated statement of operations for the
quarter ended September 30, 2000 includes the results of operations of Luko
Czech, and the merged operations of Stand, s.r.o., located in the Czech
Republic, the results of operations of four Slovakian companies: EUnet
Slovakia s.r.o., Global Network Services a.s.c., Dodo s.r.o., and Insternet
Sr, s.r.o all of which were merged into Euroweb Slovakia s.r.o. in the first
quarter of 2000, and the results of operations of Mediator S.A., whose name
was changed to Euroweb Romania S.A., in the third quarter of 2000.
13
<PAGE>
Quarter and Nine Months Ended September 30, 2000 Compared to Quarter
and Nine Months Ended September 30, 1999
The third quarter ended September 30, 2000, had operating revenues
of $ 1,262,257. The third quarter ended September 30, 1999 had revenues from
operating activities of $ 418,254. Therefore, total revenues from Internet
activities for the quarter ended September 30, 2000 represents an increase of
$844,003, compared to the quarter ended September 30, 1999. For the nine
months ended September 30, 2000, total revenues from Internet activities were
$ 2,912,296. For the nine months ended September 30, 1999, total revenues
from Internet activities were $ 489,782. This represents an increase of
year to date revenues of $ 2,442,514 a 600% increase over the nine months
ended September 30, 1999.
Internet revenues for the nine months ended September 30, 2000 by
country, as follows:
Slovakia 1,730,435
Czech Republic 815,522
Republic of Romania 366,339
_________
$2,912,296
==========
While the Company's operations for the nine months ended September
30, 2000, showed an operating loss of $ 1,482,690, or $.07 per share,
non-cash amortization of goodwill relating to subsidiary acquisitions
contributed $ 1,041,735 to this loss or $.05 per share. This compares to a
similar $.05 per share loss, before amortization of goodwill, reported in
the nine months ended September 30, 1999.
The Company is encouraged by the profitability of its Czech
Republic subsidiary, Luko Czech, with a net profit for the nine months
ended September 30, 2000 of $ 45,051, and by the quarter to quarter revenue
growth of 20% by Euroweb Slovakia. The Company foresees the profitability
of Euroweb Slovakia in 2001 after it completes all the phases of the merger of
the four companies that comprise Euroweb Slovakia.
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 $ 18,085,634 after deducting private placement costs
of $260,620.
During the first nine months of 2000, proceeds of $ 2,527,935 were
received for the exercise of 1,391,334 warrants and options for
1,391,334 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 December 1999, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101), providing the staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. For companies
such as Euroweb International Corp., with fiscal years that begin between
December 16, 1999 and March 15, 2000, portions of SAB 101 become effective
for the fourth quarter of 2000. The company believes that adopting
these portions of SAB 101 will not have a material effect on the company's
financial position or overall trends in results of operations.
The Financial Accounting Standards Board ("FASB") Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement No. 133, an Amendment of FASB No. 133"
(Statement 137") was issued in June 1999. Statement 137 defers the effective
date of FASB 133, "Accounting for Derivative Instruments and Hedging
Activities (Statement 133) for one year. Statement 133 generally requires
that changes in fair value of a derivative be recognized currently
in earnings unless specific hedge accounting criteria ar met. The company
does not expect the adoption of Statement of 133 to have a significant impact
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
16
<PAGE>
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,
19972
(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 S 3
(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)
________________________
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
17
<PAGE>
(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, 19974
(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
Corporation 8
(z) Financial Consulting Agreement between Registrant and J.W. Barclay
& Co., Inc.9
(aa)Mergers and Acquisitions Agreement between Registrant and J.W.
Barclay 10
(bb)Placement Agreement between Registrant and J.P. Carey, Inc. and
form of Placement Agent Warrants issued in connection with private
placement financing 11
_____________________
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
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
18
<PAGE>
(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, 1999 19
(kk)Acquisition Agreement between Registrant and Slavia Capital,
O.C.P.,a.s. dated July 2, 1999 20
(ll)Acquisition Agreement between Registrant and Eunet Slovakia s.r.o.
dated July 14, 1999 21
(mm)Acquisition Agreement between Registrant and shareholders of Dodo,
s.r.o. dated August 5, 1999 22
(nn)Acquisition Agreement between Registrant and shareholders of
Mediator S.A. dated May 17, 2000 27 and Amendment thereto on August 28,
2000 28.
(16) (a) Letter on Change in Certifying Accountant 23
(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
_____________________
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.
27 Filed with Form 8-K on June 27, 2000.
28 Filed with Form 8-K/A on August 28, 2000.
19
<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 14th day of
November 2000.
EUROWEB INTERNATIONAL CORP.
By _/s/Frank R. Cohen
Frank R. Cohen
Chairman of the Board
Pursuant to the requirements of the Securities Exchange of 1934,
as amended, this Report has been signed below by the following persons in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
_________ ______ _____
/s/Frank R. Cohen Chairman of the Board, Secretary
_________________ Treasurer (CFO)
Frank R. Cohen Director November 14, 2000
/s/Robert Genova President, and
_________________ Chief Executive Officer November 14, 2000
Robert Genova (CEO), Director
/s/Csaba Toro Vice President, International November 14, 2000
________________ Managing Director (COO) of all
Csaba Toro European Operations
Director
20
