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 June 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 23,342,569
(Class) (Outstanding at June 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 condensed balance sheets as of June 30, 2000 (unaudited)
and December 31, 1999 (audited) 2
Consolidated condensed statements of operations and comprehensive loss
(unaudited) for the three months ended June 30, 2000 and 1999 and the
Six months ended June 30, 2000 and 1999 3
Consolidated condensed statements of stockholders' equity (unaudited) for
The six months ended June 30, 2000 and 1999 4
Consolidated condensed statements of cash flows (unaudited) for the six
months ended June 30, 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 12
PART II. Other Information 15
Signature 18
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, 2000 December 31, 1999
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 3,892,674 $ 2,815,071
Certificate of deposit - 1,052,779
Investment in securities 14,044,652 -
Accounts receivable, net 273,722 210,086
Current portion of note receivable 158,480 152,817
Current portion of loan receivable 86,114 81,526
Receivable from Euroweb Rt. 35,388 35,388
Other receivables 434,794 56,600
Prepaid and other current assets 106,175 260,689
__________ __________
Total current assets 19,031,999 4,664,956
Property and equipment, net 753,348 411,768
Note receivable, less current portion 624,410 705,092
Loan receivable, less current portion 42,447 86,682
Investment in Euroweb Rt., at equity 847,966 822,505
Goodwill, net 5,196,087 4,443,007
Prepaid investment in pending acquisitions 4,220,838 2,956
___________ ___________
Total assets $30,717,095 $11,136,966
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 769,027 $ 1,067,884
Current portion of loan payable 101,276 53,796
Current portion of acquistion indebtedness 180,000 -
Deferred revenue 210,573 137,600
___________ ___________
Total current liabilities 1,260,876 1,259,280
Loan payable, less current portion 31,298
Acquistion indebtedness, less current portion 360,000 -
Commitments & Contingencies
Minority interests - 3,296
_________ _________
Total liabilities 1,620,876 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
23,342,569; December 31, 1999 shares authorized
20,000,000; issued and outstanding 10,497,681 23,268 10,423
Additional paid-in capital 47,086,539 26,915,816
Accumulated deficit (17,869,574) (16,983,745)
Accumulated other comprehensive losses:
Foreign currency translation adjustment (183,206) (99,402)
Unrealized gain (loss) on investment securities 39,192 -
__________ ___________
Total stockholders' equity 29,096,219 9,843,092
___________ ___________
Total liabilities and stockholders' equity $30,717,095 $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>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
________ ________ ___________ _________
Revenues $899,823 $71,528 $1,650,039 $71,528
________ ________ ___________ _________
Expenses (Income)
Compensation and related costs 377,957 83,903 713,844 157,375
Network costs 354,799 42,000 717,971 42,000
Consulting and professional fees 131,904 78,001 289,050 148,478
Directors fees - - 100,000 -
Rent 30,724 6,000 61,728 12,056
Bad debts 44,931 - 67,324 -
Depreciation and amortization 392,631 31,027 684,032 31,027
Interest income (279,414) (66,272) (463,531) (124,134)
Interest expense 7,531 - 9,671 -
Foreign currency (gain) loss 4,532 (972) 4,532 (972)
Equity in net income of Euroweb Rt. 8,276 (26,934) (81,421) (60,044)
Other expense 212,265 60,426 430,874 63,425
Other income (22,481) - (34,553) -
__________ _______ _________ _________
Total 1,263,655 207,179 2,499,521 269,211
Loss from operations
before income taxes and minority
interest (363,832) (135,651) (849,482) (197,683)
Provision for income taxes 14,469 2,139 41,397 2,139
Minority interests in subsidiaries
(income) loss (1,794) - (5,050) -
_________ ________ _________ _________
Net Loss (376,507) (137,790) (885,829) (199,822)
Other comprehensive (gain) loss,
net (16,280) 95,021 44,611 123,133
_________ ________ ________ _________
Comprehensive loss $ (360,227) $ (232,811) $ (930,440) $ (322,955)
=========== =========== =========== ===========
Net Loss per share, basic and
diluted (.02) (.02) (.04) (.03)
Weighted average number of shares
outstanding, basic and diluted 23,305,878 8,339,881 20,157,361 7,412,937
</TABLE>
See accompanying notes to consolidated financial statements
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated Other
Comprehensive Gains(Losses)
___________________________
Foreign
Additional Currency Other Total
Common Stock Paid-in Accumulated Translation unrealized Stockholders'
Shares Amount Capital Deficit Adjustment Gain(loss) Equity
______ _______ __________ ___________ __________ __________ ____________
THREE MONTHS ENDED JUNE 30, 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 18,081,330 - - - 18,093,134
Issuance of shares for warrants 1,041,334 1,041 2,089,393 - - - 2,090,434
Foreign currency translation loss - - - - (83,804) - (83,804)
Unrealized loss on securities held for
sale - - - - - 9,192 39,192
Net loss for the period - - - (885,829) - - (885,829)
__________ _______ ___________ _____________ _________ ________ _____________
Balances, June 30, 2000 23,342,569 $23,268 $47,086,539 $(17,869,574) $(183,206) $39,192 $29,092,219
========== ======= =========== ============= ========= ======== =============
</TABLE>
See accompanying notes to consolidated financial
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EUROWEB INTERNATIONAL CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
2000 1999
____________ ____________
Cash flows from operating activities:
Net loss $ (885,829) $ (199,822)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 684,032 31,027
Equity in net income of Euroweb Rt. (81,421) (60,044)
Foreign currency loss 4,532 (972)
Minority interests (5,050) -
(Increase) decrease in:
Accounts receivable, net 48,513 -
Receivable from Euroweb Rt. - 65,715
Prepaid and other assets (182,996) 33,186
Decrease (increase) in:
Accounts payable and accrued expenses (379,104) (91,983)
Deposits payable - -
Deferred revenue 24,659 -
__________ ___________
Net cash provided by (used in) operating activities (772,664) (222,893)
Cash flows from investing activities:
Certificates of deposit 1,052,779 (21,713)
Investment in securities (14,005,460) -
Prepaid investment in pending acquisitions (3,677,882) -
Repayments of notes receivable 75,019 557,950
Repayments loan receivable 39,647 40,672
Proceeds of loan receivable - (150,000)
Acquisition of property and equipment (330,058) (4,222)
Acquisition of Internet companies net of cash acquired (1,373,690) (669,647)
Investments in Euroweb, Rt. - (59,100)
___________ ____________
Net cash provided by (used in) investing activities (18,219,645) (306,060)
Cash flows from financing activities:
Proceeds from issuance of common stock 20,183,568 3,143,687
Repayment of loan payable (85,813) -
___________ __________
Net cash provided by (used in) financing activities 20,097,755 3,143,687
Effect of foreign exchange rate changes on cash (27,843) 972
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,077,603 2,615,706
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,815,071 1,688,280
__________ __________
CASH AND CASH EQUIVALENTS, END OF YEAR $3,892,674 $4,303,986
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 9,671 $ 5,945
Income tax paid 41,397 14,398
NON-CASH TRANSACTIONS
Issuance of common stock for acquisition of subsidiaries $ - $ 2,000,000
</TABLE>
See accompanying notes to consolidated financial statements.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
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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.
Euroweb Slovakia, s.r.o., ("EWEB Slovakia"), is a newly formed
subsidiary in the Slovak Republic, through the merger of four wholly
owned subsidiaries, EUnet Slovakia, s.r.o., ("Eunet"), DoDo,s.r.o.,
("R-Net"), Global Network Services, a.s., ("SKNET") and Isternet SR,
s.r.o.
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.
The operations of DoDo s.r.o. ("R-Net") were acquired as a 100% owned
subsidiary by the purchase of 70% of equity of the Company on August
9, 1999 and the remaining 30% on May 22, 2000. 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.
The operations of Isternet SR, s.r.o. were acquired as a 100% owned
subsidiary by the purchase of 100% of its outstanding shares of
capital stock on April 21,2000.
The operations of Isternet SR, s.r.o. has been included effective May
1, 2000.
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.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
(d)Revenue Recognition
Revenues from monthly Internet services are recognized in the month
in which the services are provided.
(e)Foreign Currency Translation
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The Company uses the local currencies, the Hungarian forint for
Euroweb Rt., Czech koruna for Luko Czech and the Slovak koruna for
EWEB Slovakia 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.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
(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 six months
ended June 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
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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.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
The Company's consolidated statements of operations include the equity
in net income of Euroweb Hungary, Rt., for the six months ended June 30,
2000 and 1999. Operating data for Euroweb Hungary, Rt., are as follows:
June 30, 2000 June 30, 1999
_____________ _____________
(Unaudited) (Unaudited)
Revenues $2,333,580 $ 1,353,000
Expenses 1,973,925 1,047,270
__________ ___________
Net Income $ 359,655 $ 305,730
Company's 49% equity in net income 176,231 149,808
Amortization of goodwill related to
The Company's investment in Euroweb
Hungary, Rt. (94,810) (89,764)
__________ __________
Equity in net income of Euroweb,Rt. $ 81,421 $ 60,044
========== ==========
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
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August 9, 1999 and 70% of SKNET on September 23, 1999, and the remaining
30% on November 16, 1999. Through June 30, 2000 the Company acquired the
remaining 30% of R-Net on May 22, 2000 and 100% of Isternet SR, s.r.o.,
on April 21, 2000. The Company merged the operations of EUnet, SKNET,
R-Net and Isternet into Euroweb Slovakia, a newly formed 100% owned
subsidiary which reports results of operations for all of the
Slovakian subsidiaries effective January 1, 2000.
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.
During the second quarter of 2000, the Company purchased 100% of the
capital shares of a Romanain company, Mediator S.A., and the internet
related assests and customer base of another Romanian company Sumikom
Rokura. The results of operation for the Romanian companies will be
effective beginning with the July 1, 2000 reporting period.
3. Interim periods
The accompanying consolidated condensed financial statements for the six
months ended June 30, 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 for a full year.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
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.
5. Cash Concentration
At June 30, 2000, cash and cash equivalents included $3,499,923 and
$140,612 on deposit with a money market fund and with a 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. Acquistion Indebtedness
A liability was assumed to the former owner of Mediator as part of the
purchase price in the amount of $ 540,000, payable in three yearly
installemnts of $ 180,000 each commencing June 1, 2001.
8. Capital Stock, Stock Options and Warrants
On February 11,2000, the Company's stockholders approved an increase in
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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 $18,081,330 after
deducting private placement costs of $253,120.
During the first six months of 2000, proceeds of $2,089,393 were received
for the sale of 1,041,334 warrants for 1,041,334 shares of common stock
exclusive of the KPN sale.
9. 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 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.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
10. 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.
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
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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. 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 will be operationally
effective as of July 1, 2000. The excess of the Company's cost over the
fair value of the net assets acquired (goodwill) is estimated to be
$1,411,000 which will be amortized over its estimated useful life of
five years.
Euroweb International Corp.
Notes to Consolidated Condensed Financial Statements
On June 15, 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 $2,549,365 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 will be operationally 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 $ 2,481,421 which will be amortized
over the estimated useful life of 5 years.
11. 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.
12. Subsequent Events
The Company is currently seeking to acquire other Internet service
providers in Central and Eastern Europe.
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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, 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.
As of this filing, the Company has closed on two acquisitions
effective from the second quarter 2000, and two additional
acquisitions effective from July 1, 2000. The first was the
purchase of Isternet, in the Slovak Republic for approximately
$1,029,000 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 $356,000. The third acquisition was
the purchase of the Internet related assets of Sumikom Rokura an
Internet service provider in Romania on May 19,2000 for
approximately $ 1,561,000. The fourth acquisition was the purchase
of Mediator S.A., for approximately $2,480,000, also in Romania
on June 15, 2000. The operations for the Romanian acquistions
will become operationally effective on July 1, 2000 and will be
consolidated from that date.
The Company's consolidated statement of operations for the quarter
ended June 30, 2000 includes the results of operations of Luko
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Czech, located in the Czech Republic and the results of operations
of four the 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.
Quarter and Six Months Ended June 30, 2000 Compared to Quarter and Six Months
Ended June 30, 1999
The second quarter ended June 30,1999 had revenues from
operating activities of $ 71,528, as a result of the purchase of
Luko Czech on June 11, 1999. The second quarter ended June 30,
2000, had operating revenues from four additional wholly owned
subsidiaries in the Slovak Republic, which were merged into a new
operating company Euroweb Slovakia. Therefore, total revenues
from Internet activities for the quarter ended June 30, 2000
represent an increase of $828,295, compared to the quarter ended
June 30, 1999.
Internet revenues for the six months ended June 30, 2000 by country, are as
follows:
Slovakia 1,083,284
Czech Republic 566,755
$1,650,039
While the Company's operations for the six months ended June 30,
2000, showed an operating loss of $ 885,829, or $.04 per share,
non-cash amortization of goodwill relating to subsidiary
acquisitions contributed $ 549,678 to this loss or $.03 per share.
This compares to the $.03 per share loss reported in the six months
ended June 30, 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 $ 18,093,133 after deducting
private placement costs of $253,120.
During the first six months of 2000, proceeds of $2,090,434 were
received for the exercise of 1,041,334 warrants for 1,041,334 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.
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.
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<PAGE>
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.
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.
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<PAGE>
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,
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
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<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
Corporation8
(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
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<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
(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.
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<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 9th day of
August 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 August 9, 2000
/s/Robert Genova President, and
_________________ Chief Executive Officer August 9, 2000
Robert Genova (CEO), Director
/s/Csaba Toro Vice President, International August 9, 2000
________________ Managing Director (COO) of all
Csaba Toro European Operations
Director
