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, 2004
[] 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.)
1138 Budapest, Vaci ut 141. Hungary
(Address of principal executive offices)
+36-1-8897000 +36-1-8897100
Issuer's telephone number Issuer's facsimile 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 5,342,533
(Class) (Outstanding at June 30, 2004)
Transitional Small Business Disclosures Format (Check one): Yes ______ No X
EUROWEB INTERNATIONAL CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of June 30, 2004 (unaudited)
and December 31, 2003 (audited) 2
Consolidated statements of operations and comprehensive loss (unaudited)
for the three months ended June 30, 2004 and 2003 and six months ended
June 30, 2004 and 2003 3
Consolidated statements of stockholders' equity for the six months ended
June 30, 2004 (unaudited) and twelve months ended December 31, 2003 4
Consolidated statements of cash flows (unaudited) for the six months
ended June 30, 2004 and 2003 5
Notes to interim (unaudited) Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Controls and Procedures 21
PART II. Other Information 21
Signature 23
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2004 December 31, 2003
(audited, restated
(Unaudited) see Note 8)
------------ -------------------
ASSETS
Current Assets
Cash and cash equivalents $ 5,335,210 $ 3,043,703
Investment in securities - 11,449,669
Trade accounts receivable, net 3,235,831 1,305,268
Related party receivables 1,052,927 1,145,069
Current portion of note receivable 73,502 173,911
Prepaid and other current assets 2,597,188 1,604,424
------------ -------------------
Total current assets 12,294,658 18,722,044
Property and equipment, net 6,757,324 2,782,239
Assets under construction 42,122 47,853
Intangibles - customer contracts 2,368,115 -
Goodwill 6,274,022 566,000
------------ -------------------
Total assets $27,736,241 $ 22,118,136
============ ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 3,732,013 $ 1,323,747
Related party payables 915,708 1,962,152
Related party loan payable - short term portion 469,438 235,679
Overdrafts and current portion of bank loans 826,350 -
Current portion of notes payable 1,047,289 -
Other current liabilities 1,130,111 903,275
Accrued expenses 1,565,061 619,821
Deferred IRU revenue 46,000 46,000
Deferred other revenue 1,014,068 1,007,464
------------ -------------------
Total current liabilities 10,746,038 6,098,138
Non-current portion of deferred IRU revenue 820,334 843,334
Non-current portion of related party loan payable 704,157 942,715
Non-current portion of bank loans 683,042 -
Non-current portion of notes payable 349,094 -
Non-current portion of lease obligations 177,752 228,686
------------ -------------------
Total liabilities 13,480,417 8,112,873
Stockholders' Equity
Preferred stock, $.001 par value - Authorized 5,000,000 shares;
no shares issued or outstanding - -
Common stock, $.001 par value - Authorized 35,000,000 shares;
Issued and outstanding 5,342,533 and 4,665,332 shares respectively 24,807 24,129
Additional paid-in capital 50,742,486 48,227,764
Accumulated deficit (35,348,024) (33,105,716)
Accumulated other comprehensive losses: (48,033) (25,502)
Treasury stock - 175,490 common shares, at cost (1,115,412) (1,115,412)
------------ -------------------
Total stockholders' equity 14,255,824 14,005,263
------------ -------------------
Commitments and contingencies
Total liabilities and stockholders' equity $27,736,241 $ 22,118,136
============ ===================
See accompanying notes to consolidated financial statements.
2
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Three months ended Six months ended
June 30 June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenues
Third party revenues 6,059,519 4,188,393 $10,982,106 $8,690,734
Related party revenues 1,946,661 1,526,811 3,437,428 2,745,464
----------- ----------- ------------ -----------
Total Revenues 8,006,180 5,715,204 14,419,534 11,436,198
Cost of revenues
Third party cost of revenues 3,851,287 2,317,232 6,654,994 4,743,514
Related party cost of revenues 1,417,931 1,202,488 2,669,285 2,408,777
----------- ----------- ------------ -----------
Total Cost of revenues 5,269,218 3,519,720 9,324,279 7,152,291
----------- ----------- ------------ -----------
Gross profit 2,736,962 2,195,484 5,095,255 4,283,907
Operating expenses
Compensation and related costs 1,113,457 1,014,247 1,989,694 1,877,934
Consulting and professional fees 526,714 498,491 937,893 854,450
Other selling, general and administrative expenses 857,668 371,066 1,573,862 1,099,452
Depreciation and amortization 342,844 450,134 632,925 879,244
----------- ----------- ------------ -----------
Total operating expenses 2,840,683 2,333,938 5,134,374 4,711,080
Loss from operations (103,721) (138,454) (39,119) (427,173)
Net interest expense (48,259) 73,281 (40,418) 140,333
Gain from sale of subsidiaries 28,751 109,421 28,751 109,421
Income (Loss) before income taxes (123,229) 44,248 (50,786) (177,419)
----------- ----------- ------------ -----------
Provision for income taxes (14,436) 55,578 (46,019) 55,578
----------- ----------- ------------ -----------
Net loss (137,665) (11,330) (96,805) (232,997)
----------- ----------- ------------ -----------
Other comprehensive loss 1,116 57,377 22,531 108,978
----------- ----------- ------------ -----------
Comprehensive loss (138,781) (68,707) $ (119,336) $ (341,975)
=========== =========== ============ ===========
Net loss per share, basic and diluted (.03) (.01) (.02) (.05)
Weighted average number of shares outstanding, basic and 4,815,821 4,665,332 4,740,576 4,665,332
diluted
See accompanying notes to consolidated financial statements
3
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Treasury Stockholders'
Shares Amount Capital Deficit Gains(Losses) Stock Equity
----------- --------- ------------- -------------- ---------- ------------- --------------
Balances, December 31, 2002 4,665,332 $24,129 $48,227,764 $(31,314,687) $236,142 $(1,115,412) $ 16,057,936
=========== ========= ============= ============== ========== ============= ==============
Foreign currency translation loss - - - - (45,237) - (45,237)
Unrealized loss on securities - - - - (216,407) - (216,407)
available for sale
Net loss for the period - - - (1,791,029) - - (1,791,029)
----------- --------- ------------- -------------- ---------- ------------- --------------
Balances, December 31, 2003 4,665,332 $24,129 $48,227,764 $(33,105,716) $(25,502) $(1,115,412) $ 14,005,263
=========== ========= ============= ============== ========== ============= ==============
Foreign currency translation loss - - - - 6,274 - 6,274
Realized gain on securities - - - - (28,805) - (28,805)
Deemed distribution (Note 8) - - - (2,145,503) - - (2,145,503)
Compensation charge on share 28,048 28,048
options issued to consultants
Issuance of shares (Elender 677,201 678 2,486,674 2,487,352
acquisition)
Net loss for the period - - - (96,805) - - (96,805)
----------- --------- ------------- -------------- ---------- ------------- --------------
Balances, June 30, 2004 5,342,533 $ 24,807 $ 50,742,486 $ (35,348,024) $ (48,033) $ (1,115,412) $ 14,255,824
=========== ========= ============= ============== ========== ============= ==============
See accompanying notes to consolidated financial statements
4
EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2004 2003(restated)
------------ -------------
Cash flows from operating activities:
Net profit (loss) (96,805) $(232,997)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 632,925 879,244
Amortization of discount on acquisition indebtedness - 5,232
Foreign currency gain (26,341) (37,946)
Compensation expense booked to equity (options issued to consultants) 28,048 -
Realized gain on sale of securities (28,805) (7,113)
Unrealized interest income on securities - (183,804)
Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable 39,579 (211,445)
Prepaid and other assets (582,236) (388,870)
Accounts payable, other current liabilities and accrued expenses (1,115,909) 749,013
Deferred revenue (75,396) 190,540
------------ -------------
Net cash (used in) provided by operating activities (60,468) 761,854
------------ -------------
Cash flows from investing activities:
Maturity of securities 11,464,000 499,632
Collection on notes receivable 100,409 93,323
Acquisition of 100% of Elender Rt. net of cash and transaction costs (6,629,100) -
Acquisition of 51% of Euroweb Rt. (2,142,000) -
Acquisition of property and equipment (516,668) (75,690)
------------ -------------
Net cash provided by (used in) investing activities 2,276,641 (382,735)
------------ -------------
Cash flows from financing activities:
Overdraft drawdown 141,463 -
Repayment of loans - (129,945)
Principal payments under capital lease obligations (22,577) (399,608)
------------ -------------
Net cash provided by (used in) financing activities 118,886 (529,553)
------------ -------------
Effect of foreign exchange rate changes on cash (43,552) 38,556
------------ -------------
Net increase (decrease) in cash and cash equivalents 2,291,507 (111,878)
Cash and cash equivalents, beginning of period 3,043,703 2,666,526
------------ -------------
Cash and cash equivalents, end of period $5,335,210 $2,554,648
============ =============
Significant non-cash items:
Issuance of shares as part of Elender Rt. acquisition 2,487,352
Assignment of loan to the Company (Elender Rt. acquisition) 1,065,230
See accompanying notes to consolidated financial statements.
5
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
1. Organization and Business
EuroWeb International Corp. (the "Company") is a Delaware corporation which was
organized on November 9, 1992. The largest shareholder of Euroweb International
Corp. as at June 30, 2004 was KPN Telecom B.V., a Netherlands corporation, with
a 43.6% shareholding at June 30, 2004.
The Company owns and operates Internet service providers in the Czech Republic,
Hungary, Slovakia and Romania. The Company operates in one business segment.
The Hungarian operations conducted through Euroweb Hungary Rt. were accounted
for under the equity method in prior years as the Company owned a 49% interest,
however, in February 2004, the remaining 51% of Euroweb Hungary Rt. was
purchased from Pantel Rt. and is fully consolidated in the current period
financial statements. The consideration paid by the Company for the 51% interest
comprised EUR 1,650,000 (USD 2,105,000) in cash, guarantees for amounts owed to
Pantel Rt., and a guarantee that Euroweb Hungary Rt. will purchase at least HUF
600 million (approximately $3 million) worth of services from Pantel Rt. in each
of the three years ending December 31, 2006.
As the acquisition was made from an entity under common control (both Pantel Rt.
and the Company were majority owned by KPN Telecom B.V. at the time of
acquisition in February 2004), the transaction was accounted in a manner similar
to a pooling-of-interest in accordance with generally accepted accounting
principles in the United States of America, with all prior periods being
restated as if the entities were combined for all periods presented (see note 2
(a) below).
In order to augment the operations of Euroweb Rt., on February 23, 2004, the
Company signed a Share Purchase Agreement ("SPA") in connection with its
acquisition of all of the outstanding shares of Elender Business Communications
Ltd. ("Elender Rt."), an ISP in Hungary. Consideration of USD 9,121,571 consists
of USD 6,500,000 in cash and 677,201 of the Company's common shares valued at
$2,487,352 net of registration cost, and $134,219 in transaction costs
(consisting primarily of professional fees incurred related to attorneys,
accountants and valuation advisors). The closing occurred on June 9, 2004 and
the results of Elender Rt. for the 20 days ended June 30, 2004 (and the balance
sheet as at June 30, 2004) have been consolidated into the financial statements.
In accordance with the purchase method of accounting prescribed by SFAS No. 141
"Business Combinations" ("SFAS 141"), the Company allocated the Consideration to
the tangible net assets and liabilities and intangible assets acquired, based on
their estimated fair values.
The Consideration has been allocated as follows:
Transferable shareholders loan 1,065,230
Fair value of Elender's recorded assets acquired and
liabilities assumed (64,440)
Identified intangibles - customer contracts 2,412,759
--------------
Excess purchase price over allocation to identifiable
assets and liabilities (Goodwill) $ 5,708,022
==============
6
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
The purchase price allocation is preliminary and a final determination of the
purchase accounting adjustments will be made upon the completion of a final
analysis of the total purchase cost. The Company expects to finalize these
matters by the end of 2004. The transferable shareholder loan relates to certain
loans owed by Elender Rt. to former shareholders, who under the SPA, assigned
the loans to the Company at closing.
In performing this preliminary purchase price allocation of acquired intangible
assets, the Company considered its intention for future use of the assets,
analyses of historical financial performance and estimates of future performance
of Elender's services, among other factors. Acquired identifiable intangible
assets obtained in the Company's acquisition of Elender relate to customer
contracts which are being amortized over the useful life of 3 years.
The Company determined the fair values of the identified intangibles - customer
contracts using the "income" valuation approach and discount rates ranging from
16% to 18%. The discount rates selected were based in part on the Company's
weighted average cost of capital and determined after consideration of the
Company's rate of return on debt and equity, and the risk associated with
achieving forecasted cash flows.
The excess of the purchase price over the fair value of the identifiable
tangible and intangible net assets acquired was assigned to goodwill. In
accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"), goodwill will not be amortized but will be tested for impairment at least
annually. The operating results of Elender have been included in the Company's
consolidated financial statements from the date of acquisition.
Although the selling parties will also receive Euroweb International shares
during the acquisition of Elender Rt., each of them will have less than 10% of
ownership in Euroweb International Corporation, so they are not categorized as
related parties and those transactions are shown as third party transactions in
the interim consolidated financial statements of the Company.
The following table presents unaudited summarized combined results of operations
of the Company and Elender Rt., on a pro forma basis, as though the companies
had been combined as of January 1, 2003:
Three months ended Three months ended Six months ended June Six months ended
June 30, 2004 June 30, 2003 30, 2004 June 30, 2003
---------------------- ------------------------ ----------------------- ---------------------
Revenues $ 12,437,951 $ 10,752,157 $ 24,611,106 $ 21,655,977
------------------------- ---------------------- ------------------------ ----------------------- ---------------------
Net loss $ (370,470) $ (231,132) $ (240,481) $ (778,310)
------------------------- ---------------------- ------------------------ ----------------------- ---------------------
Net loss per share $ (0.07) $ (0.04) $ (0.05) $ (0.15)
------------------------- ---------------------- ------------------------ ----------------------- ---------------------
The above unaudited pro forma summarized results of operations are intended for
informational purposes only and, in the opinion of management, are neither
indicative of the financial position or results of operations of the Company had
the acquisition actually taken place as of January 1, 2003, nor indicative of
the Company's future results of operations. In addition, the above unaudited pro
forma summarized results of operations do not include potential cost savings
from operating efficiencies or synergies that may result from the Company's
acquisition of Elender Rt.
7
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
2. Summary of Significant Accounting Policies
(a) Principles of consolidation and basis of presentation
The consolidated financial statements comprise the accounts of the
Company and its controlled subsidiaries. All material inter-company
balances and transactions have been eliminated upon consolidation. The
purchase of the remaining 51% of Euroweb Hungary Rt. has been
accounted in a manner similar to a pooling-of-interest with prior
periods being restated (See Note 8).
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America.
(b) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America,
requires management 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 the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Significant estimates made by the Company include the
period of benefit and recoverability of goodwill and other intangible
assets.
(c) Fair value of financial instruments
The carrying values of cash equivalents, investment in debt
securities, notes and loans receivable, accounts payable, loans
payable and accrued expenses approximate fair values.
(d) Revenue recognition
Revenues from Internet services are recognized in the month in which
the services are provided, either based on monthly traffic or on fixed
monthly fees (leased lines). Revenue for other services, are
recognized as the service is performed.
In 2002, the Company entered into an agreement to provide transmission
capacity to a customer pursuant to an indefeasible rights-of-use
agreement ("IRU") that management believes qualifies as an operating
lease under Financial Accounting Standards Board Interpretation No.
13, "Accounting for Leases" ("FAS 13"), since the IRU agreement
provides rights to use a specific subject asset for a defined period.
Revenue attributable to the lease is recognized on a straight-line
basis over the term of the 20-year lease agreement.
Under Financial Accounting Standards Board Interpretation No. 43,
"Real Estate Sales, an interpretation of FASB Statement No. 66" ("FIN
43"), leases of fiber and capacity that are deemed integral equipment
are required to be accounted for in the same manner as leases of real
estate. If fiber and equipment are considered integral to the related
real estate, a lease must include a provision transferring title of
such integral equipment to the lessee in order for that lease to be
accounted for as a sales-type lease. Failure to satisfy the title
transfer requirements results in operating lease treatment, and
recognition of the related lease income over the lease term. The
Company's IRU does not involve a transfer of title.
8
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
IRUs generally require the customer to make a down payment upon
execution of the agreement, with the balance due upon delivery and
acceptance of the fiber. This has resulted in a substantial amount of
deferred revenue being recorded on the balance sheet. The Company is
obligated under the fiber IRU to maintain its network in efficient
working order and in accordance with industry standards. Customers are
obligated for the term of the agreement to pay for their allocable
share of the costs for operating and maintaining the network. The
Company recognizes this revenue monthly as services are provided.
Accounting practice and guidance with respect to the treatment of
fiber sales and IRU agreements continues to evolve. Any changes in the
accounting treatment could affect the way the Company accounts for
revenue and expenses associated with these transactions in the future.
(e) Cost of revenues
Cost of revenues comprise principally of telecommunication network
expenses, costs of content services and cost of leased lines.
(f) Foreign currency translation
The Company considers the United States Dollar ("US$") to be the
functional currency of the Company and unless otherwise stated, the
respective local currency to be the functional currency of its
subsidiaries. The reporting currency of the Company is the US$ and
accordingly, all amounts included in the consolidated financial
statements have been translated into US$.
The balance sheets of subsidiaries are translated into US$ using the
year end exchange rates. Revenues and expenses are translated at
average rates in effect for the periods presented. The cumulative
translation adjustment is reflected as a separate component of
shareholders' equity on the consolidated balance sheet.
The Company conducts business and maintains its accounts for Euroweb
Romania in the Romanian Lei ("ROL"). In Romania, the U.S. dollar is
used as the functional currency as Romania has a hyper-inflationary
economy. The Company's financial statements presented in ROL are
remeasured into U.S. dollars using the following policies:
o Monetary assets and liabilities are remeasured into the
functional currency using the exchange rate at the balance
sheet date.
o Non-monetary assets and liabilities are remeasured into the
functional currency using historical exchange rates.
o Revenues, expenses, gains and losses are remeasured into the
functional currency using the average exchange rate for the
period except for revenues and expenses related to
non-monetary items that are remeasured using historical
exchange rates.
The net effect of re-measurement from the local currency into the
functional currency (US$) is included in the determination of net
profit and loss, under `Other selling, general and administration
expenses'.
9
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
Foreign currency transaction gains and losses are included in the
consolidated results of operations for the periods presented.
(g) Property and equipment
Property and equipment are stated at cost, less accumulated
depreciation. Equipment purchased under capital lease is stated at the
present value of minimum lease payments at the inception of the lease,
less accumulated depreciation. The Company provides for depreciation
of equipment using the straight-line method over the shorter of
estimated useful lives of up to four years or the lease term.
Recurring maintenance on property and equipment is expensed as
incurred.
Any gain or loss on retirements and disposals are included in the
results of operations.
(h) Goodwill and Other Intangibles
Goodwill and intangible assets that have indefinite useful lives are
tested at least annually for impairment. Intangible assets that have
finite useful lives (whether or not acquired in a business
combination) are amortized over their estimated useful lives. During
2002 and 2003, the Company performed the required impairment test,
with respect to goodwill. The first step of this test requires the
Company to compare the carrying value of any reporting unit that has
goodwill to the estimated fair value of the reporting unit. When the
current fair value is less than the carrying value, the Company
performs the second step of the impairment test. This second step
requires the Company to measure the excess of the recorded goodwill
over the current value of the goodwill by performing an exercise
similar to a purchase price allocation, and to record any excess as an
impairment.
The Company has assigned approximately $2.4 million to customer
contract intangible assets during the acquisition of Elender, and
these assets are being amortized over a period of three years. The
Company has assigned a preliminary value of $5.7 million to Goodwill
related to the acquisition of Elender.
(i) Stock-Based compensation
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation an interpretation of
APB Opinion No. 25" issued in March 2000, to account for its fixed
plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS No. 123") established accounting
and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has
adopted the disclosure requirements of SFAS No. 123.
10
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
Under the accounting provisions of SFAS No. 123, the Company's net
loss and net loss per share would have been reduced to the pro forma
amounts indicated below:
Six months ended June 30,
2003 2004
---------- -----------
Net loss:
Net loss as reported $(96,805) $(232,997)
Additional FAS 123 compensation expense (52,586) -
Pro forma net loss (149,391) (232,997)
Basic and diluted loss per share:
As reported $ (0.02) $ (0.05)
Pro forma (0.03) (0.05)
3. Related party loan payable
Freestart Kereskedelmi es Szolgaltato Kft. (Freestart), a wholly-owned
subsidiary of Euroweb Hungary Rt., has a loan from PanTel of HUF 245 million
(approximately $1.174 million) plus 13% annual interest.
Pursuant to the Loan Agreement, Freestart is obligated to repay in full the Loan
with interest, paying principal in five equal semi-annual instalments on
December 1, 2004, June 30, 2005, December 31, 2005, June 30, 2006 and December
31, 2006 and paying interest semi-annually on June 30, 2004, December 1, 2004,
June 30, 2005, December 31, 2005, June 30, 2006 and December 31, 2006
4. Bank loans, overdraft, and notes payable
On June 1, 2004, Elender Rt entered into a bank loan agreement with Commerzbank
(Budapest) Rt. The agreement consists of a loan facility of HUF 300 million
(approximately $1.5 million) of which approximately $890,000 was outstanding at
June 30, 2004. The loan is to be repaid in quarterly installments of HUF 14.5
million (approximately $72,500), commencing November 30, 2004. The interest rate
is BUBOR (Budapest Interbank Offered Rate) + 1.35%.
In additional, the bank also provided an overdraft facility of HUF 150 million
(approximately $720,000) to Elender, of which approximately $620,000 was drawn
down as at June 30, 2004. The interest rate is BUBOR (Budapest Interbank Offered
Rate) + 1%.
Notes payable relate to outstanding Elender liabilities towards three previous
owners: Vitonas, Certus and Rumed. Half of the outstanding amount (approximately
$1.4 million) is payable by the end of 2004, while the remaining half is payable
in four equal installments of HUF 36.438 million (approximately $175,000).
5. Stockholders' Equity
On April 28, 2004, the Company granted 125,000 options to the Chief Executive
Officer and an additional 195,000 options to five employees and 45,000 options
to two consultants of the Company. All of these
11
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
options have an exercise price equal to the market price on day of grant
($4.78), vest over a period of between 3-4 years and relate to future services
to be performed. There were no options or warrants exercised during this period.
As the Company has opted to follow APB 25 with respect to accounting for grants
made to employees, the company will recognize total compensation charges of
approximately $162,000 for the grants made to the two consultants, which will be
expensed over the vesting period of three years (compensation expense in the
second quarter of 2004 is $28,048).
Upon the exercise of an outstanding warrant or option granted prior to August
30, 2001, each warrant/option holder will receive 1/5 of a share, due to the
reverse stock split effected on August 30, 2001.
On May 25, 2004, the Company's shareholders approved an amendment to the
Company's restated Certificate of Incorporation increasing the number of the
Company's authorized shares of common stock from 12,500,000 to 35,000,000.
6. Commitments and Contingencies
(a) Employment Agreements
The Company entered into a six-year agreement with its Chief Executive Officer,
Csaba Toro, which commenced January 1, 2000, and provided for an annual
compensation of $96,000. The agreement was amended in 2004. The amended
agreement provides for an annual salary of $150,000 and a bonus of up to
$100,000 (guaranteed minimum of $50,000) in 2004, and an annual salary of
$200,000 and a bonus of up to $150,000 in 2005.
(b) Lease agreements
The Company's subsidiaries have entered into various capital leases for vehicles
and internet equipment, as well as non-cancelable agreements for office
premises.
(c) 20 years' usage rights
Euroweb Romania has provided an Indefeasible Right of Use for transmission
capacity on 12 pairs of fiber over a period of 20 years. The construction was
finished in April 2003. For the duration of the agreement, Euroweb Romania is
obliged to use all reasonable endeavours to ensure the Cable System is
maintained in efficient working order and in accordance with industry standards.
(d) Euroweb Hungary Rt. acquisition
In February 2004, the remaining 51% of Euroweb Hungary Rt. was purchased from
Pantel Rt. The Consideration paid by the Company for the 51% interest consisted
of EUR 1,650,000 (USD 2,105,000) in cash, guarantees for amounts owed to Pantel
Rt. by a subsidiary of Euroweb Hungary Rt., and a guarantee that Euroweb Hungary
Rt. will purchase at least HUF 600 million (approximately $3 million) worth of
services from Pantel Rt. in each of 2004-2006.
(e) Legal Proceedings
The Company is a member of ICANN (Internet Corporation for Assigned Names and
Numbers), which is the association of domain registrations worldwide. The
Company, as a representative of ICANN in Slovakia, started to provide
registration and administration of second level domains for organizations
located in the Slovak Republic in January 2003 (total revenues in 2003
approximately $250,000).
12
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
Due to the fact that the Company is the only provider of such services in
Slovakia, the Association of Internet
Providers in Slovakia ("API") and the Association of Webhosting Providers claim
that the Company has a monopoly and is abusing this dominant position and
started legal proceedings against the Company with the Slovak Antimonopoly
Office. The Antimonopoly office agreed that certain parts of the "General terms
of domain registrations" can be considered as abusing the dominant position and
requested the Company to change certain items in the registration system, and
imposed two minor penalties. The initial decision of the Anti-Monopoly Office
was upheld upon appeal.
However, API started a new legal procedure relating to the deadline for
registering in order to migrate to the new domain registration system. Initially
Euroweb Slovakia set a deadline of early 2003 for registration, but extended
this deadline to November 2003 due to the lack of registrants. API claims that
this was unfair to early registrants as they had to pay six or seven months of
additional fees than the registrants who registered in November 2003. Management
believes that it acted in accordance with the requirements of the API and the
whole internet community and does not believe that any penalties will arise in
respect of this claim.
There are no other known significant legal procedures that have been filed and
are outstanding against the Company.
7. Related Party Transactions
The provision of international/domestic leased line and VOIP services are being
provided in conjunction with Pantel Telecommunication Rt., an entity which is
majority owned and controlled by KPN Telecom B.V. (which is also the largest
shareholder of the Company as at June 30, 2004 with 43.6% ownership). In the
first half of 2004 and fiscal 2003, Pantel Telecommunication Rt. was the most
significant trading partner of the Company with approximately 58% of the 2004
revenues of Euroweb Romania (translating into 23% of the consolidated revenues
of the Company) were derived from providing services to Pantel.
8. Restatement of consolidated financial statements
Under accounting principles generally accepted in the United States of America
("US GAAP"), FASB Statement No. 141, Business Combinations, require's transfers
of net assets or exchanges of shares between entities under common control to be
accounted for by the receiving entity at carryover or the predecessor basis of
the transferring entity. Any excess of purchase consideration over book value is
recorded as a capital transaction or deemed distribution resulting in a
deduction from retained earnings.
Pantel, Euroweb International Corp., and KPN (as majority shareholder of both
Pantel and Euroweb International Corp.at the time of the acquisition) took the
following steps to ensure the transaction was concluded at arm's length:
13
Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements
o the two KPN Board members that are common to Euroweb were not involved
in the transaction as they stepped back from the decision making
process: the transaction was reviewed and approved by an independent
committee consisting solely of the two independent Board members with
the assistance of Csaba Toro, CEO and former Chairman of the Board, as
instructed by this committee.
o an independent accounting firm was commissioned to prepare a valuation
of the 51% shareholding which formed the basis of the transaction
price.
o legal advice was sought throughout the process on measures to ensure
that KPN or its appointed Board members were not involved in the
transaction from the Company's side.
Nonetheless, both Pantel and Euroweb are entities under the common control of
KPN for accounting purposes and therefore the transaction is required to be
booked in the manner described above.
14
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Overview
The Company owns and operates Internet Service Providers in the Czech Republic,
Hungary, Romania and Slovakia through its subsidiaries Euroweb Czech Republic
spol. s.r.o. ("Euroweb Czech"), Euroweb Hungary Rt. and Elender Rt. ("Euroweb
Hungary"), Euroweb Slovakia a.s. ("Euroweb Slovakia") and Euroweb Romania S.A.
("Euroweb Romania"). The Company operates in one industry segment, providing
Internet access and additional value added services to business customers.
The revenues come from the following four sources:
(1) Internet Service Provider (Internet access, content and web services,
other services);
(2) International/domestic leased line and Internet Protocol data services;
(3) Voice over Internet Protocol services; and
(4) Facilities (sale, rent and maintenance of dark fiber between the
Hungarian border and the Romanian City of Timisoara).
For the services in point (2) and (3) in Romania, the main customer of the
Company in 2004 and 2003 was Pantel Telecommunication Rt, a related party.
Related party transactions - Pantel Telecommunications Rt. (or "Pantel")
General: The largest customer of the Company since early 2001 has been Pantel, a
Hungary-based alternative telecommunications provider. Pantel operates within
the region and has become a significant trading partner for Euroweb Romania
through the provision of direct fibre cable connection which enables companies
to transmit data to a variety of destinations by utilizing the international
connections of Pantel.
Due to the fact that the significant revenue of the Company derives from the
iinternational/domestic leased line and Voice over Internet Protocol services, a
few of the Company's representatives have moved to the premises of Pantel in
order to improve co-operation on international projects.
After the acquisition of Euroweb Hungary and Elender Rt. in 2004, the balance
and volume of transactions with Pantel has changed significantly. First, the net
receivable position in the past (related party receivable less related party
liabilities) has changed to a net liability position through the large trade and
loan liability position of Euroweb Hungary to Pantel. Second, sales dependency
on Pantel (i.e. percent of consolidated sales derived from Pantel) will decrease
as Euroweb Hungary and Elender Rt. have insignificant sales to Pantel. Third,
dependency on Pantel as the main supplier of the Company will increase as Pantel
is also the main supplier of Euroweb Hungary.
Transactions: Both Euroweb Hungary and Euroweb Romania have engaged in
transactions with Pantel as follows:
(a) Pantel receives revenue from the provision of the following services to
subsidiaries of the Company:
15
- Internet and related services;
- National and international leased and telephone lines;
- VOIP services;
- Consulting services; and
- Interest on a loan to the Company.
The total amount of these services were USD $2,768,689 (2003:
$2,745,464) during the six month period ended June 30, 2004 of which $99,404 is
interest expense and consulting fees, while the remaining balance is telecom
related.
(b) The Company and its subsidiaries received revenue from the provision of the
following services to Pantel:
- Cost of international leased lines and local telephone lines in
Slovakia and Romania;
- International/national data and voice over internet protocol services
for Pantel;
- Internet and related services;
- Consulting services; and
- Commission.
Total value of these services were approximately USD $3,437,428
($2,745,464) in the six months period ended June 30, 2004.
During the six months ended June 30, 2004, direct sales to Pantel were 23% of
total consolidated revenue, but Euroweb Romania's dependency on Pantel is even
greater than this figure suggests. Some third party sales involve Pantel as the
subcontractor/service provider for the international/domestic lines (hence the
revenues from Pantel are lower than the amounts paid to Pantel), and some third
party customers are also clients of Pantel outside of Romania (i.e. their
relationship with Pantel is stronger than their relationship with Euroweb
Romania).
Effective dependency on Pantel - taking into account direct and Pantel-related
sales - represents approximately 34% of total consolidated revenues of the
Company and approximately 80-90% of total sales of Euroweb Romania. There is no
such dependency in the case of Euroweb Czech, Euroweb Hungary or Euroweb
Slovakia.
With respect to pricing, agreements are made at market prices or a split of the
margin based on the financial investment into the specific services by each of
the parties. Euroweb International Corporation always considers alternative
suppliers for each individual project.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles
in the United States of America ("US GAAP"). This preparation requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. US GAAP provides the framework from which to make these
estimates, assumption and disclosures. The Company chooses accounting policies
within US GAAP that management believes are appropriate to accurately and fairly
report the Company's operating results and financial position in a consistent
manner. Management regularly assesses these policies in light of current and
forecasted economic conditions.
16
Acquisitions
On February 12, 2004, the Company entered into a Share Purchase Agreement with
Pantel to acquire Pantel's 51% interest in Euroweb Hungary, a provider of
Internet service and is based in Budapest, Hungary. The Company previously owned
49% of Euroweb Hungary and, as a result of this acquisition, Euroweb Hungary
became a wholly-owned subsidiary of the Company. The purchase price paid by the
Company for Pantel's interest in Euroweb Hungary was EURO 1,650,000 (USD
2,105,000) in cash.
On February 23, the Company signed a Share Purchase Agreement in connection with
its acquisition of all of the outstanding shares of Elender Business
Communications Ltd., a leading ISP in Hungary. The consideration of $ 9,121,571
consisted of USD 6,500,000 in cash and 677,201 of the Company's common shares
valued at $2,487,352 and $ 134,219 in transaction costs. The closing of this
acquisition was on 9 June 2004, which is the starting date of consolidation.
Results of Operations
Six-month Period Ended June 30, 2004 Compared to Six-month Period Ended
June 30, 2003
The Company has reduced losses from operation as compared to last year mainly
due to the increased profitability in Slovakia in connection with domain name
sales, successful sale of fiber and other non-recurring items in Romania as well
as profit generated by the Hungarian operation.
Revenues
Six months ended June 30, 2004 2003
---- ----
Total Revenues 14,419,534 11,436,198
The Company experienced a 26% revenue growth, or an increase of $2,983,336, for
the six months ended June 30, 2004 compared to the six months ended June 30,
2003.
The following table summarizes the main changes in revenue for each of the
Company's business segments compared to the previous year with respect to the
revenue structure:
Revenue / services 2004 2003 % change
------------------------------------ ---------------- --------------------- -----------------
ISP activity $8,132,074 $5,994,591 +36%
------------------------------------ ---------------- --------------------- -----------------
Int./dom. leased line *(a) $2,601,432 $3,057,443 -15%
------------------------------------ ---------------- --------------------- -----------------
VOIP (b) $3,611,195 $2,192,201 +65%
------------------------------------ ---------------- --------------------- -----------------
Facilities (a) $74,833 191,963 -61%
------------------------------------ ---------------- --------------------- -----------------
Total $14,419,534 $11,436,198 26%
------------------------------------ ---------------- --------------------- -----------------
* - primarily Pantel or Pantel related sales,
(a) substantially all generated by the Romanian subsidiary
(b) generated by the Hungarian and Romanian subsidiary. 100% of Romania
sales is Pantel direct sales ($852,000 in 2004)
ISP revenue has increased in all countries expect the Czech Republic, while VOIP
revenue has increased significantly in Romania. In Romania,
international/domestic leased lines revenue has fallen due to higher competition
and price pressure, while facilities consist of mainly non-recurring sale of
fiber optic cable in 2003, while there was much less revenue from this source in
2004.
17
The following table summarize the main changes in revenue compared to the
previous year with respect to the geographical source of revenue:
Revenue/country Revenues in 2004 Revenues in 2003 Change in %
--------------------------- ----------------- -------------------- -------------
Czech Republic $498,409 $626,990 (20%)
--------------------------- ----------------- -------------------- -------------
Slovakia $1,992,462 $1,616,214 23%
--------------------------- ----------------- -------------------- -------------
Hungary 6,104,716 4,181,581 46%
--------------------------- ----------------- -------------------- -------------
Romania $5,823,947 $5,011,413 16%
--------------------------- ----------------- -------------------- -------------
Total $14,419,534 $11,436,198 26%
--------------------------- ----------------- -------------------- -------------
ISP business has decreased 20% in Czech Republic due to the smaller customer
base compared to previous years, while the increase in Slovakia of 23% is due
exclusively to domain name registration revenue. Overall ISP revenue improved
due to the weakness of the US Dollar relative to the Czech Koruna and Slovak
Koruna.
Elender Rt is consolidated from 9 June 2004 and represents approximately 20% of
the 2004 revenues of Hungary in the above table. The remaining increase of
Hungary is due mainly to increased sales on ADSL lines and higher VOIP revenues.
Revenue from international leased lines and IP data services (mostly Euroweb
Romania) has decreased due to higher competition, falling margins and price
pressure. However, the largest increase in VOIP business was produced in Romania
explaining the increase of 16% in overall country revenues. Revenue generated in
the six months ended June 30, 2004 was $2,384,000 compared to $1,282,570 in the
six months ended June 30, 2003. Within the same period, the margin on this
service has fallen.
Cost of revenues
The following table summarizes the Company's cost of revenues for the six months
ended June 30, 2004 and 2003:
Three months ended June 30, 2004 2003
---- ----
Total cost of revenues 9,324,279 7,152,291
Cost of revenues comprise mostly telecommunication expenses. Gross margin has
decreased from 38% in 2003 to 34% in 2004, which was mainly due to the
significant increase of low margin voice revenue.
Operating expenses (excluding depreciation and amortization)
The following table summarizes the Company's operating expenses for the six
months ended June 30, 2004 and 2003:
Six months ended June 30, 2004 2003
---- ----
Operating expenses (excluding depreciation and 4,501,449 3,831,836
amortization)
18
Overall operating expenses (excluding depreciation, amortization) increased by
18% mostly due to the consolidation of Elender from 9 June 2004 (approximately
7% of the increase) and the exchange rate movement of USD in Slovakia, Czech and
Hungary (approximately 6% of the increase).
Depreciation and amortization
The following table summarizes the Company's depreciation and amortization for
the six months ended June 30, 2004 and 2003:
Six months ended June 30, 2004 2003
---- ----
Depreciation 588,281 845,790
Amortization of intangibles 44,644 33,454
Total depreciation and amortization 632,925 879,244
Depreciation has decreased by $257,509 in the six months ended June 30, 2004
compared to the same period in 2003 due to the strict control of capital
expenditures on equipment in 2003 and the first half of 2004. Amortization of
intangibles of $44,644 related to certain customer contracts of Elender which
were recognized as intangible assets upon acquisition of Elender. In 2003,
amortization of intangibles related to the customer lists of Euroweb Romania,
which are now fully amortized.
Net interest income
The following table summarizes the Company's net interest income for the
six months ended June 30, 2004 and 2003:
Six months ended June 30, 2004 2003
---- ----
Interest income 132,451 231,893
Interest expenses 172,869 91,560
Net interest expense (40,418) 140,333
The decrease in net interest income is due to the fact that (i) less
interest-generating funds were available in this period than in the same period
of the previous year, (ii) the effective interest rate on these investments has
decreased over the periods in question (iii) securities expired on February 15,
2004, and there was no other investment made due to cash needs of further
acquisitions in 2004 (iv) consolidation of Elender Rt. has increased interest
expense, and therefore reduced net interest income.
Liquidity and Capital Resources
The Company's cash, cash equivalents and marketable securities were
approximately $5,335,210 as of June 30, 2004, a decrease of approximately $9.1
million from the end of fiscal year 2003. The decrease was primarily due to the
acquisition of Euroweb Rt. (approximately $ 2.1 million) and the acquisition of
Elender Rt. (approximately $ 6.6 million).
After the acquisitions, the consolidated working capital (excluding
deferred revenue) is still more than $2,000,000 and management believes that the
Company will be able to meet its financial obligations and capital expenditure
needs over the next twelve months. The Company's financial situation is stable,
as current assets cover all current trade, loan and other liabilities of the
company.
Management believes, that the synergy effects and potential business
opportunities of the merged Hungarian entities will significantly improve cash
generating ability and will reduce the loans and trade liabilities of the
Company in the coming few years. Management also believes that with its existing
19
cash, cash equivalents, marketable securities and internally generated funds,
there will be sufficient funds to meet the Company's currently projected working
capital requirements and other cash requirements until at least the next 12
months taking into account the new acquisitions.
Inflation and Foreign Currency
The Company maintains its books in local currencies, including the Czech
Koruna for Euroweb Czech Republic, the Hungarian Forint for Euroweb Hungary, and
the Slovak Koruna for Euroweb Slovakia. However, the U.S. Dollar is the
functional currency of Euroweb Romania as it operates in an hyper-inflationary
economy.
The Slovakian Koruna has strengthened by 13%, the Czech Korona has
strengthened against the U.S. dollar by approximately 7%, while the Hungarian
Forint has strengthened against U.S. dollar by approximately 8% using the
average rates for the six month periods ended June 30, 2003 and 2004.
Effect of Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") announced
that it would mandate the fair value method of accounting for all stock-based
awards. The FASB issued an Exposure Draft of a proposed statement on March 31,
2004, which is subject to a comment period. If enacted, the change in accounting
is not expected to be effective for the Company until fiscal 2005. Until a final
statement is issued, the Company cannot estimate the effect that this change in
accounting would have on its consolidated statement of operations.
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. 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. The Company advises you to review any
additional disclosures made in its 10-QSB, 8-K, and 10-KSB reports filed with
the Commission
20
Item 3. Controls and Procedures
As of June 30, 2004, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and the Chief Accounting Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
the Chief Accounting Officer, concluded that the Company's disclosure controls
and procedures were effective as of June 30, 2004. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to June 30, 2004.
PART II
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings as of the date of
this report except the following:
The Company is a member of ICANN (Internet Corporation for Assigned Names and
Numbers), which is the association of domain registrations worldwide. The
Company, as a representative of ICANN in Slovakia, started to provide
registration and administration of second level domains for organizations
located in the Slovak Republic in January 2003 (total revenues in 2003
approximately $250,000).
Due to the fact that the Company is the only provider of such services in
Slovakia, the Association of Internet
Providers in Slovakia ("API") and the Association of Webhosting Providers claim
that the Company has a monopoly and is abusing this dominant position and
started legal proceedings against the Company with the Slovak Antimonopoly
Office. The Antimonopoly office agreed that certain parts of the "General terms
of domain registrations" can be considered as abusing the dominant position and
requested the Company to change certain items in the registration system, and
imposed two minor penalties. The initial decision of the Anti-Monopoly Office
was upheld upon appeal.
However, API started a new legal procedure relating to the deadline for
registering in order to migrate to the new domain registration system. Initially
Euroweb Slovakia set a deadline of early 2003 for registration, but extended
this deadline to November 2003 due to the lack of registrants. API claims that
this was unfair to early registrants as they had to pay six or seven months of
additional fees than the registrants who registered in November 2003. Management
believes that it acted in accordance with the requirements of the API and the
whole internet community and does not believe that any penalties will arise in
respect of this claim.
Item 2. Changes in Securities
On April 28, 2004, the Company granted 125,000 options to the Chief Executive
Officer and an additional 240,000 options to seven employees and consultants of
the Company. The exercise price of the options ($4.78) is equal to the market
price on the date the grants were made. The options vest over a period of
between 3-4 years.
21
On June 9, 2004, the Company issued 677,201 shares of common stock to the
shareholders of Elender Rt., an ISP in Hungary, a partial consideration of all
of the outstanding shares of Elender.
The Company issued such securities in reliance on the safe harbor and exemptions
from registration provided under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933, as amended. No advertising or general solicitation
was employed in offering the securities. The offerings and sales or issuances
were made to a limited number of persons, all of whom were accredited investors,
business associates of the Company or executive officers of the Company, and
transfer was restricted by the Company in accordance with the requirements of
such act. In addition to representations by the above-referenced persons, the
Company has made independent determinations that all of the investors were
accredited or sophisticated investors, and that they were capable of analyzing
the merits and risks of their investment, and that they understood the
speculative nature of their investment. Furthermore, these investors were
provided with access to our Securities and Exchange Commission filings.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
On May 25, 2004, the Company held its annual meeting of shareholders in
Budapest, Hungary. The Company's shareholders voted on, and approved, the
following three items:
o The Company's shareholders elected Csaba Toro, Daniel Kwantes, Stewart
Reich, Howard Cooper and Hans Lipman as directors to hold office until
their successors are elected and qualified
o The Company's shareholders approved an amendment to the Company's
restated Certificate of Incorporation increasing the number of the
Company's authorized shares of common stock from 12,500,000 to
35,000,000.
o The adoption of the Company's 2004 Stock Incentive Plan.
o The Company's shareholders approved the Board of Directors' selection
of KPMG Hungaria Kft. as the Company's independent auditors for the
fiscal year ending December 31, 2004.
ITEM 5. OTHER INFORMATION
None
item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits (numbers below reference Regulation S-B, Item 601)
(3) (a) Certificate of Incorporation filed November 9, 1992(1)
(b) Amendment to Certificate of Incorporation filed July 9, 19972
22
(c) Restated Certificate of Incorporation filed May 29, 2003
(d) By-laws(2)
(31) (a) Certification of the Chief Executive Officer of Euroweb International
Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31) (b) Certification of the Chief Accounting Officer of Euroweb International
Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32) (a) Certification of the Chief Executive Officer of Euroweb International
Corp. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32) (b) Certification of the Chief Accounting Officer of Euroweb International
Corp. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
--------------
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.
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 August 2004.
EUROWEB INTERNATIONAL CORP.
By /s/Csaba Toro
-------------
Csaba Toro
Chairman of the Board
23