Edgar Filing: EUROWEB INTERNATIONAL CORP

As filed with the Securities and Exchange Commission on February 10, 2005
An Exhibit List can be found on page II-3.
Registration No. 333-117649

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

PRE-EFFECTIVE AMENDMENT No. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EUROWEB INTERNATIONAL CORP.

(Name of small business issuer in its charter)

Delaware 4899 13-3696015
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)

1138 Budapest
Vaci ut 141. Hungary
+36-1-8897000
(Address and telephone number of principal executive
offices and principal place of business)

Csaba Toro, CEO
EUROWEB INTERNATIONAL CORP.
1138 Budapest
Vaci ut 141. Hungary
+36-1-8897000
(Name, address and telephone number of agent for service)

Copies to:
Gregory Sichenzia, Esq.
Stephen M. Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.

If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. _________

CALCULATION OF REGISTRATION FEE

------------------------------- -------------------- ---------------- ------------------ --------------------
Title of each class of Amount to be Proposed Proposed Amount of
securities to be registered registered maximum maximum registration fee
offering aggregate
price per offering price
share
------------------------------- -------------------- ---------------- ------------------ --------------------

Common stock, $.001 par value 677,201 $2.84(1) $1,923,250.84 $243.68

------------------------------- -------------------- ---------------- ------------------ --------------------

------------------------------- -------------------- ---------------- ------------------ --------------------
Total 677,201 $1,923,250.84 $243.68*
------------------------------- -------------------- ---------------- ------------------ --------------------
*Previously paid

(1) Estimated in accordance with Rule 457(c) solely for the purpose of computing
the amount of the registration fee based on the average of the high and low
closing prices of the Registrant's common stock on the Nasdaq SmallCap Market on
July 20, 2004.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

iii

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED February 10, 2005

EUROWEB INTERNATIONAL CORP.
677,201 SHARES OF
COMMON STOCK

This prospectus relates to the public offering of an aggregate of 677,201 shares
of common stock which may be sold from time to time by the selling stockholders
of Euroweb International Corp. named in this prospectus. These shares were
issued to the selling stockholders in connection with the acquisition of ELENDER
Business Communications Services Ltd. ("Elender") by Euroweb

Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"EWEB". The last reported sales price for our common stock on February 2, 2005,
was $3.37 per share.

Investing in these securities involves significant risks.

See "Risk Factors" beginning on page 4.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The date of this prospectus is _________, 2005.

The information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by Euroweb
International Corp. with the Securities and Exchange Commission. The selling
stockholders may not sell these securities until the registration statement
becomes effective. This Prospectus is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the sale
is not permitted.

TABLE OF CONTENTS

Page

Prospectus summary 3
Risk Factors 4
Use of Proceeds 6
Market for common equity and related stockholder matters 6
Management's discussion and analysis of financial condition 8
Business 24
Management 28
Certain relationships and related transactions 34
Security Ownership and Certain Beneficial Owners and Management 35
Description of securities to be registered 37
Indemnification for securities act liabilities 37
Plan of distribution 37
Selling Stockholders 40
Legal Matters 40
Experts 40
Available Information 41
Index To Financial Statements F-1

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the secured convertible notes to
the financial statements.

EUROWEB INTERNATIONAL CORP.

We own and operate Internet service providers in Hungary, Romania and Slovakia
through our subsidiaries , Euroweb Hungary Rt. and Elender Rt. ("Euroweb
Hungary"), Euroweb Romania S.A. ("Euroweb Romania") and Euroweb Slovakia a.s.
("Euroweb Slovakia"). On December 16, 2004, we sold our subsidiary in the Czech
Republic (Euroweb Czech Republic spol. s.r.o. - "Euroweb Czech") for cash of
$500,000. As a part of the transaction, we also effectively forgave loans
receivable from the sold subsidiary of $400,000.

We operate in one industry segment, providing Internet access and additional
value added services to business customers. For the nine months ended September
30, 2004, we generated revenues of $25,165,601 and incurred a net loss of
$815,342. In addition, for the year ended December 31, 2003, we generated
revenues of $23,280,720 (restated) and incurred a net loss of $1,791,027
(restated to reflect the acquisition of the remaining 51% of Euroweb Hungary as
a transaction between entities under common control, and recorded in a manner
similar to a pooling-of-interest).

Our principal offices are located at 1138 Budapest, Vaci ut 141. Hungary. Our
telephone number is +36-1-8897000. We are a Delaware corporation.

The Offering

Common stock offered by selling stockholders........... 677,201, which
represents 12.7%
of our outstanding
shares of common
stock

Nasdaq Smallcap Symbol................................ EWEB

The above information regarding common stock to be outstanding after the
offering is based on 5,342,533 shares of common stock outstanding as of February
2, 2005.

On June 9, 2004, we purchased 100% of the common stock of Elender Rt., a
Hungarian corporation, from Vitonas Investments Limited, a company registered in
Cyprus, Certus Kft., a Hungarian corporation and Rumed 2000 Kft., a Hungarian
corporation. Elender Rt. is an Internet service provider located in Hungary that
provides internet access to the corporate and institutional (public) sector,
including 2,300 schools in Hungary. The total purchase price paid by our company
for the acquisition of Elender was as follows:

o cash in the amount of $6,500,000 excluding transaction costs; and
o 677,201 shares of our common stock.

We are registering the 677,201 shares of our common stock issued in connection
with this transaction in this prospectus.

RISK FACTORS

If you purchase shares of our common stock, you will take on a financial risk.
In deciding whether to invest, you should consider carefully the following
factors, the information contained in this prospectus and the other information
to which we have referred. If any of the following risks actually occur, our
business, financial condition or results of operations could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

Risk Related to our Business and Industry

We have incurred net losses for the prior periods and we will again incur net
losses if we are unable to generate sufficient revenue and control costs.

We incurred net losses of $815,342 for the nine months ended September 30, 2004,
$1,791,027 for the year ended December 31, 2003 (restated) and $6,703,027 for
the year ended December 31, 2002 (restated). We may not achieve profitability on
a quarterly or annual basis in the future. If revenues grow more slowly than we
anticipate or if operating expenses exceed our expectations or cannot be
adjusted accordingly, we will continue to incur losses. Our future performance
is dependent upon the successful development and marketing of our services and
products, about which there is no assurance. Any future success that we might
enjoy will depend upon many factors, including factors out of our control or
which cannot be predicted at this time. These factors may include changes in or
increased levels of competition, including the entry of additional competitors
and increased success by existing competitors, changes in general economic
conditions, increases in operating costs, including costs of supplies, personnel
and equipment, reduced margins caused by competitive pressures and other
factors. These conditions may have a materially adverse effect upon us or may
force us to reduce or curtail operations.

We could incur material additional expenses, which could reduce our gross
margins or increase operating losses, if the Internet service industry becomes
subject to additional regulations.

The Internet service industry is not currently subject to direct regulation
other than regulation applicable to businesses generally. However, changes in
the regulatory environment relating to the telecommunications, Internet and
media industries could have an effect on our business, which may be materially
adverse to our interests. Additionally, legislative proposals from
international, federal, state and foreign governmental bodies in the areas of
content regulation, intellectual property, privacy rights and tax issues, could
impose additional regulations and obligations upon all online service and
content providers, which may be materially adverse to our interests. We cannot
predict the likelihood that any such legislation be introduced, nor the
financial impact, if any, of the resulting regulation.

Moreover, the applicability to persons engaged in Internet commerce of existing
laws governing issues such as intellectual property ownership, libel and
personal privacy is uncertain. Recent events relating to the use of online
services for certain activities has increased public focus and could lead to
increased pressure on foreign and national legislatures to impose regulations on
online service providers. The law relating to the liability of entities
conducting business over the Internet for information carried on, or
disseminated through, their systems is currently unsettled and has been the
subject of several recent private lawsuits. In the event that a similar action
be initiated against us, costs incurred as a result of such actions could have a
material adverse effect on the business of our company.

Our future success is dependent, in part, on the performance and continued
service of our Chief Executive Officer and our ability to attract additional
qualified personnel. If we are unable to do so our results from operations may
be negatively impacted.

Our success will be dependent on the personal efforts of Csaba Toro, Chief
Executive Officer. The loss of the services of Mr. Toro could have a material
adverse effect on our business and prospects. We do not have and do not intend
to obtain "key-man" insurance on the life of any of our officers. The success of
our company is largely dependent upon our ability to hire and retain additional
qualified management, marketing, technical, financial and other personnel.
Competition for qualified personnel is intense, and there can be no assurance
that we will be able to hire or retain additional qualified management. The
inability to attract and retain qualified management and other personnel will
have a material adverse effect on our company as our key personnel are critical
to our overall management as well as the development of our technology, our
culture and our strategic direction.

Our wholly owned subsidiary, Euroweb Romania, is highly dependent on one
customer, Pantel Rt. ("Pantel"), which is owned by KPN Telecom B.V. If Pantel
were to terminate our relationship, our results from operations would be
materially impacted. In 2004, KPN Telecom B.V. announced that it had signed an
agreement to divest its interest in Pantel Rt.

The majority owner of Pantel Rt. is KPN Telecom B.V., which also owns 38.11% of
our common stock. Such ownership has strengthened the commercial relationship
between the two companies, which has resulted in a high level of dependency in
the case of Euroweb Romania. Approximately 85% of total sales of Euroweb Romania
are directly or indirectly dependent upon the relationship with Pantel Rt. In
addition, in February 2004 a Service Contract was entered between Euroweb
Hungary and its subsidiaries and Pantel Rt., whereby Euroweb Hungary agreed to
buy services from Pantel Rt. on an annual basis of HUF 600,000,000
(approximately $3 million) plus value added tax during the three following
years. In the event that the Euroweb Hungary does not satisfy this annual
commitment, it is required to pay to Pantel Rt. a penalty equal to 25% of the
annual commitment less any services purchased. We have agreed to guarantee the
payment of the annual commitment. Further, we have also agreed to guarantee a
loan in the amount of HUF 245,000,000 (approximately $ 1.2 million) plus
interest payable by a Euroweb Hungary subsidiary to Pantel Rt. Despite the fact
that co-operation is based on arm's length agreements, disagreements between the
management of Pantel Rt. and our company, or an effective change of ownership in
one or both companies, may result in the loss of the Pantel Rt. related revenues
and their significant margin or the services provided by Pantel to our company.
In 2004, KPN Telecom B.V. announced its intention to divest its interest in
Pantel Rt., with certain sale agreements being signed with a view to final
consummation in 2005. In addition, on January 28, 2005, KPN entered into a Stock
Purchase Agreement whereby it sold to CORCYRA 289,855 shares of our common stock
for US $1,000,000 on February 1, 2005 and has also agreed to sell its remaining
2,036,188 shares of our common stock on or prior to April 30, 2006.

Increased competition in the Internet service industry may make it difficult for
our company to attract and retain customers and to maintain current pricing
levels.

The market for Internet-based products and services is intensely competitive,
rapidly evolving and subject to rapid technological change. We expect
competition to persist, intensify and increase in the future. Such competition
could materially adversely affect our business, operating results or financial
condition.

As a result of the acquisition of the remaining interest of Euroweb Hungary and
100% of Elender in 2004, we face the following direct competition on the
Hungarian Internet market:

o Axelero (incumbent Matav's subsidiary);
o GTS Hungary; and
o Interware.

Romania's Internet market is in the initial phase of development. At present,
other then Euroweb Romania, there are several other data transmission companies
providing internet services, which also cover the entire territory of Romania:

o RDS;
o GTS Romania;
o Equant;
o Connex; and
o Romtelecom.

We believe that the main competitors of Euroweb Slovakia are four of the largest
or most active providers in Slovakia:

o Nextra;
o GTS Slovakia;
o SLOVANET; and
o the incumbent telecom operator, Slovak Telecom.

All of the above are all also providing internet services. Both Nextra and GTS
have a customer base similar to ours.

We may face intense competition from other companies directly involved in the
same business and also from many other companies offering products, which can be
used in lieu of those offered by our company. Competition can take many forms,
including convenience in obtaining products, service, marketing and distribution
channels. We may not be able to compete successfully against current or future
competitors, which may materially adversely affect our business, operating
results or financial condition.

Risks Related to our Common Stock

The substantial number of shares that are or will be eligible for sale,
including the 677,201 shares of common stock being registered pursuant to this
prospectus would represent approximately 13% of our total outstanding shares,
which could cause our common stock price to decline even if we are successful in
operations.

Sales of significant amounts of common stock in the public market, or the
perception that such sales may occur, could materially affect the market price
of our common stock. These sales might also make it more difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem appropriate. We are registering 677,201 shares of common stock pursuant
to our prospectus, which represent approximately 13% of our total outstanding.

We have anti-takeover provisions, which could inhibit potential investors or
delay or prevent a change of control that may favor you.

Some of the provisions of our certificate of incorporation, our bylaws and
Delaware law could, together or separately, discourage potential acquisition
proposals or delay or prevent a change in control. In particular, our board of
directors is authorized to issue up to 5,000,000 shares of preferred stock (less
any outstanding shares of preferred stock) with rights and privileges that might
be senior to our common stock, without the consent of the holders of the common
stock.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock. The net
proceeds from the sale of our common stock will go to the selling stockholders,
which received their shares in connection with our acquisition of Elender Rt.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "EWEB". On August 30, 2001, the shareholders approved a one-for-five
reverse stock split of our common stock.

The following table sets forth the high and low bid prices for our common stock
during the periods indicated as reported by Nasdaq. The prices reported reflect
inter-dealer quotations, and may not represent actual transactions and do not
include retail mark-ups, mark-downs or commissions.

High Low
Quarter Ending: ------ ------

2002
----
March 31, 2002 2.95 1.47
June 30, 2002 2.85 1.84
September 30, 2002 2.50 1.88
December 31, 2002 2.14 1.72

2003
----
March 31, 2003 3.73 1.53
June 30, 2003 3.25 1.92
September 30, 2003 8.30 2.45
December 31, 2003 4.82 3.10

2004
----
March 31, 2004 7.45 3.70
June 30, 2004 6.20 3.25
September 30, 2004 3.74 2.13
December 31, 2004 5.56 2.40

Holders of Common Stock

As of February 2, 2005, we had 5,342,533 shares of common stock outstanding and
177 shareholders of record and approximately 6,153 beneficial owners who hold
their shares in street names.

Dividend policy

It has been our policy to retain earnings, if any, to finance the development
and growth of its business. We do not intend to pay dividends in the foreseeable
future.

Equity Compensation Plans

------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of shares to be Weighted-average exercise Number of shares remaining
issued upon exercise of price of outstanding available for future
outstanding options and options and warrants issuance under equity
warrants compensation plans

------------------------------- ---------------------------- ---------------------------- ----------------------------

Approved by security holders 46,000 $7.97 44,500

------------------------------- ---------------------------- ---------------------------- ----------------------------
Not approved by security 263,000 $5.60 --
holders

------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 309,000 $5.95 44,500
------------------------------- ---------------------------- ---------------------------- ----------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS

Some of the information in this Form SB-2 contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:

o discuss our future expectations;
o contain projections of our future results of operations or of our financial
condition; and
o state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."

Overview

We own and operate Internet Service Providers in Hungary, Romania and Slovakia
through our subsidiaries, Euroweb Hungary, Elender, Euroweb Slovakia and Euroweb
Romania. On December 16, 2004, we sold Euroweb Czech and no longer have
operations in the Czech Republic. We operate in one industry segment, providing
Internet access and additional value added services to business customers.

Our revenues come from the following four sources:

o Internet Service Provider (Internet access, content and web services, other
services);
o International/domestic leased line and Internet Protocol data services;
o Voice over Internet Protocol services; and
o Facilities (sale, rental and maintenance of dark fiber between the Hungarian
border and the Romanian City of Timisoara).

For the services in the second and third points in Romania, our main customer in
2004 and 2003 was Pantel Rt, a related party.

As an Internet Service Provider, we generally did not build out optical fibers
in the past, instead entering into a number of agreements with infrastructure
owners and telecom companies to buy internet and telecom services and resell
them to our customers. We also provide value added services and more
comprehensive solutions to our customers (additional services through domain,
web, hosting, application development, technical support, VPN, advising, voice
services etc.) Such a structure enables our company to avoid significant capital
expenditures on network development. However, without our own infrastructure,
our ability to compete with other Internet Service Providers and telecom
companies is limited due to existing access costs. In order to mitigate the
impact of newly introduced cheaper technology and competition, we took several
steps, including the following:

o Built strategic partnership with telecom companies;
o Increased the value added services and offered more comprehensive solutions;
o Introduced voice and international/domestic leased lines services;
o Started to build its own optical fiber network in Romania; and
o Made acquisitions to ensure economies of scale and utilize synergies.

This strategy has resulted in increased revenues and a reduction of losses since
2002 and has also increased our cash generating ability.

Related party transactions - Pantel Telecommunications Rt. (or "Pantel Rt.")

General: Our largest customer and supplier since early 2001 has been Pantel Rt.,
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 a direct fibre cable connection which enables companies
to transmit data to a variety of destinations by utilizing the international
connections of Pantel Rt. As a result, Euroweb Romania became the preferred, but
not exclusive partner of Pantel Rt. for services in Romania. In addition to
this, Euroweb Hungary utilizes significant telecom services from Pantel Rt. Due
to the fact that a significant portion of our revenue is generated by
international/domestic leased line and Voice over Internet Protocol services, a
number of our representatives have moved to the premises of Pantel Rt. in order
to improve co-operation on international projects.

After the acquisition and consolidation of Euroweb Hungary and Elender Rt. in
2004, the balance and volume of transactions with Pantel Rt. has changed
significantly. First, the net receivable position in the past (related party
receivables less related party liabilities) has changed to a net liability

position through the large trade and loan liability position of Euroweb Hungary
to Pantel Rt. Second, sales dependency on Pantel Rt. (i.e. percent of
consolidated sales derived from Pantel Rt.) will decrease as Euroweb Hungary and
Elender Rt. have insignificant sales to Pantel Rt. Third, dependency on Pantel
Rt. as the main supplier of the Company increased as Pantel Rt. is also the main
supplier of Euroweb Hungary.

Transactions: Both Euroweb Hungary and Euroweb Romania engage in the following
transactions with Pantel Rt.:

(a) Pantel Rt. receives revenue from the provision of the following services to
the Company and its subsidiaries:

- 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 $4,596,878 (2003: $4,290,341 -
restated) during the nine month period ended September 30, 2004 of which
$141,980 (2003: $163,539 - restated) is interest expense and consulting fees,
while the remaining balance is telecom related.

(b) Our company and our subsidiaries received revenue from the provision of the
following services to Pantel Rt.:

- 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 $5,533,618 (2003:
$3,990,294 restated) in the nine months period ended September 30, 2004.

During the nine months ended September 30, 2004, direct sales to Pantel Rt. were
22% of total consolidated revenues. However, the dependency on Pantel is even
more significant. Some third party sales of Euroweb Romania involve Pantel Rt.
as the subcontractor/service provider for the international/domestic lines
(hence the revenues related to Pantel Rt. are greater than the amounts paid to
Pantel Rt.), and some third party customers are also clients of Pantel Rt.
outside of Romania (i.e. their relationship with Pantel is stronger than their
relationship with Euroweb Romania).

Effective dependency on Pantel Rt. - taking into account direct and Pantel
Rt.-related sales - represents approximately 30% of total consolidated revenues
of the Company and approximately 85% of total sales of Euroweb Romania. There is
no such dependency in the case of 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. We alway considers alternative suppliers for each individual
project.

In 2004, KPN Telecom B.V. (the majority owner of Pantel Rt. and our largest
shareholder), announced its intention to divest its interest in Pantel Rt., with
certain sale agreements being signed with a view to final consummation in 2005.
If final consummation occurs, then Pantel Rt. will no longer be a related party
of our company. In addition, on January 28, 2005, KPN entered into a Stock
Purchase Agreement whereby it sold to CORCYRA 289,855 shares of our common stock
for US $1,000,000 on February 1, 2005 and has also agreed to sell its remaining
2,036,188 shares of our common stock on or prior to April 30, 2006. It cannot be
predicted in advance whether these changes will have an influence on the
business relationship between our company and Pantel Rt. However, our management
believes - although it cannot be assured - that the current business agreements
were made on arms-length principles and are beneficial to both parties, and
therefore significant changes may not occur.

Acquisitions

On February 12, 2004, we entered into a Share Purchase Agreement with a related
party, Pantel Rt. to acquire the remaining 51% of Euroweb Hungary shares that we
did not already own. Pantel Rt.'s majority shareholder is also KPN. As this was
a transaction between entities under common control (at the date of the
acquisition, KPN owned 50.17% of the voting common shares of our company and 75%
of the voting common shares of Pantel Rt.), the transaction was recorded in a
manner similar to a pooling-of-interest, and accordingly the historical
consolidated financial statements have been restated to include the financial
position, results of operations and cash flows of Euroweb Hungary for all
periods presented. Since the purchase consideration was in excess of Euroweb
Hungary's book value, a deemed distribution to KPN was recorded which resulted
in a deduction from retained earnings at the date of the transaction.

On February 23, 2004, we signed an agreement to acquire all of the outstanding
shares of Elender Rt., a leading ISP in Hungary. The consideration of $9,142,572
consisted of $6,500,000 in cash and 677,201 of our common shares valued at
$2,508,353 excluding registration costs, and $134,219 in transaction costs. The
acquisition closed on June 9, 2004, which is the starting date of consolidation.
We are required to register the shares of common stock issued in connection with
the Elender Rt. acquisition.

Results of Operations

Nine-month Period Ended September 30, 2004 Compared to Nine-month Period Ended
September 30, 2003

With the inclusion of Elender Rt. in the profit and loss statements from June 9,
2004, revenues and costs have increased significantly, however the $815,342 loss
from operations for the nine months ended September 30, 2004 was impacted by two
main factors:

o $400,000 spent on a special marketing campaign due to the acquisitions of
Euroweb Hungary and Elender Rt. together with a renewed "Euroweb" brand
introduction; and
o amortization of $245,744 related to the customer contracts of Elender Rt.
being amortized over a period of three years.

We finalized the organizational merger of Euroweb Hungary and Elender Rt. in the
fourth quarter of 2004, and expect to realize certain synergy effects from 2005
onwards. While our purchase of Elender closed on June 9, 2004, the legal merger
of our subsidiaries, Elender and Euroweb Hungary, was completed at the beginning
of November 2004.

Revenues

Nine months ended September 30, 2004 2003 (restated)
------- ---------------
Total Revenues $ 25,165,601 $ 17,181,573

We experienced a 46% revenue growth, or an increase of $7,984,028, for the nine
months ended September 30, 2004 compared to the nine months ended September 30,
2003. The increase was mainly due to the Elender Rt. acquisition and increase in
VOIP services.

The following table summarizes the main changes in revenue for each of our
revenue sources compared to the previous year:

------------------------------------ --------------------- --------------------- --------------

Revenue / services 2004 (9 months Sept 2003 (9 months Sept % change
30) 30) - restated
------------------------------------ --------------------- --------------------- --------------
ISP activity $14,216,434 $8,907,044 +60%
------------------------------------ --------------------- --------------------- --------------
Int./dom. leased line *(a) $4,163,635 $4,772,953 (13)%
------------------------------------ --------------------- --------------------- --------------
VOIP (b) $6,692,496 $3,256,785 +105%
------------------------------------ --------------------- --------------------- --------------
Facilities (a) $93,036 $244,791 (62)%
------------------------------------ --------------------- --------------------- --------------
Total $25,165,601 $17,181,573 46%
------------------------------------ --------------------- --------------------- --------------

* - primarily Pantel or Pantel related sales,
(a) substantially all generated by the Romanian subsidiary
(b) generated by the Hungarian and Romanian subsidiaries.

ISP revenue analysis

87% (approximately $ 4.6 million) of the increase in ISP revenue is due to the
acquisition of Elender Rt. The remaining growth of ISP revenue (13%) can be
attributed to the weakness of the US Dollar (7%-13% deprecation of dollar)
depending on comparisons with Hungary, Slovakia or Czech) and organic growth
compared to the previous year. Due to economic conditions and pricing issues,
customers - having access type services - generally transfer from higher monthly
fee subscriptions (such as leased line) to lower monthly fee subscriptions (e.g.
ADSL). Although the number of total customers has increased compared to previous
periods, revenue growth possibilities in this segment are limited due to the
structural change in utilized service types by the customers.

Leased Line revenue analysis

Revenue from international leased lines and IP data services produced by Euroweb
Romania has decreased by 13% compared to last year. This service is provided in
relationship with Pantel Rt.'s client base and services, and is generally
provided to a small number of Internet Service Providers, telecommunication
firms, and other international companies. Due to developments in the Romanian
market in the last few years, these individually agreed wholesale prices have
dropped (by at least 20% to more than 50%). Although we were able to obtain some
new customers and contracts to offset the reduction in prices, further decreases
in overall revenues from this source may be experienced in the future.

VOIP Service revenue analysis

--------------------------------------------- -------------------- --------------------- ---------------
VOIP services revenue 2004 (9 months 2003 (9 months Sept % change
Sept 30) 30) - restated
--------------------------------------------- -------------------- --------------------- ---------------

Retail voice origination $748,020 $343,376 +118%
--------------------------------------------- -------------------- --------------------- ---------------
Wholesale voice termination (a) $3,507,774 $1,771,724 98%
--------------------------------------------- -------------------- --------------------- ---------------
Neophone prepaid phonecard (b) $2,436,702 $1,141,685 113%
--------------------------------------------- -------------------- --------------------- ---------------
Total $6,692,496 $3,256,785 105%
--------------------------------------------- -------------------- --------------------- ---------------
(a) substantially all generated by the Romanian subsidiary, and 100% sales to Pantel
(b) generated by Euroweb Rt. No such revenue generated by Elender Rt.

Retail voice origination is provided to corporate customers over leased lines.
Such services enable the customers to reduce their costs of the international,
long distance and local calls which they initiate. These services are provided
to large number of clients in Hungary and Romania. We have experienced demand
for these services and increased traffic especially in Romania. These services
are denominated in local currency, and less than 10% of the increase can be
attributed to the depreciation of the US Dollar.

Wholesale voice termination represents voice minutes received from Pantel Rt.
and forwarded to Romanian telecommunication companies. Such services have
increased by 98%, but the margin has fallen significantly in 2004 as we changed
our wholesale voice termination business model in the middle of 2003, which
resulted in an approximate 10% reduction in wholesale margins. It is a price
sensitive service which is also affected by the regulatory environment in
Romania. The service bears a high risk that the voice traffic may be completely
eliminated if a strategic decision is made by Pantel to use alternative
providers or customers can obtain better termination rates from competitors and
this may occur at any time, although the impact on consolidated level will be
limited as margins are low. The currency impact of the weakened US Dollar is
less than 10%.

Neophone prepaid phonecards enable users to make cheaper international calls
compared to the rates of the incumbent telecom operators, and were first
introduced three years ago in Hungary. During this time, the number of users and
voice traffic has continuously and significantly increased. In the nine months
ended September 30, 2004, revenues from phone cards increased by 113% compared
to previous years, which was mainly due to volume increases, while the
appreciation of the Hungarian Forint has improved revenue by approximately 8%.
From 2004, the competition has introduced aggressively low prices: up to 50%
discounts depending on the destination of calls compared to previous periods.
Consequently, hawse have also had to reduce our prices, and so this development
may impair the increase of such revenues in the following quarters.

Facilities revenue analysis

Revenues from facilities consist of lease and sale of fiber optic cables. In
2003, a fibre optic sale transaction resulted in revenues of approximately
$190,000. This sales revenue is not expected to continue in the future.

Geographic revenue analysis

The following table summarizes the main changes in revenue compared to the
previous year with respect to the geographical source of revenue:

----------------------- --------------------- --------------------- ------------
Revenue/country 2004 (9 months Sept 2003 (9 months Sept Change in
30) 30) - restated %
----------------------- --------------------- --------------------- ------------
Czech Republic $736,844 $894,315 (18%)
----------------------- --------------------- --------------------- ------------
Slovakia $2,901,760 $2,469,216 18%
----------------------- --------------------- --------------------- ------------
Hungary $12,434,830 $6,280,734 98%
----------------------- --------------------- --------------------- ------------
Romania $9,092,167 $7,537,308 21%
----------------------- --------------------- --------------------- ------------
Total $25,165,601 $17,181,573 46%
----------------------- --------------------- --------------------- ------------
The decrease of 18% in the Czech Republic is the result of two factors:

o a decrease of 24% in the ISP business due to a reduced customer base compared
to previous years; and
o an increase due to the strengthening of the Czech Koruna against the US
Dollar.

As a result of the continuing losses of Euroweb Czech, this subsidiary was sold
on December 16, 2004.

The increase of 18% in Slovakia is due to an increase in domain registration
revenue (3%) and the remaining increase is due to the strengthening of the
Slovak Koruna against the US Dollar.

Elender Rt. is consolidated from June 9, 2004, and the Hungarian operations have
almost doubled, mainly (78%) due to this acquisition. Approximately 12% of the
increase in Hungary is because the Hungarian Forint has also strengthened
against the US Dollar (approximately 8%) and due to organic growth (4%).

The Romanian operations have experienced a 21% revenue increase compared to the
prior period due to increased wholesale voice termination (113%) and ISP revenue
(40%), while a decrease was realized in revenues from international/domestic
leased lines (13%).

Cost of revenues (excluding depreciation and amortization)

The following table summarizes our cost of revenues (excluding depreciation and
amortization) for the nine months ended September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003-restated
------- ------------

Total cost of revenues (excluding depreciation and amortization) $16,061,815 $10,891,112

Cost of revenues (excluding depreciation and amortization) comprise mostly
telecommunication expenses. The increase of 47% is consistent with the overall
increase of revenues of 46%.

Compensation and related costs

The following table summarizes our compensation and related costs for the nine
months ended September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003 -restated
Compensation and related costs ---------- --------------
$3,306,058 $2,418,226

Overall compensation and related costs increased by 37% (approximately $890,000)
due to the following factors: increase due to acquisition of Elender Rt. in June
2004 ($305,000), increase due to severance pay for employees ($125,000),
increase due to sales commission to Euroweb Hungary employees for successfully
obtaining large contracts ($80,000), increase of salaries and payroll costs in
subsidiaries ($150,000), and increase in compensation and accrued bonus for CEO
($115,000). The remaining increase is due to effect of appreciation of
Hungarian, Czech and Slovak currencies against the US Dollar.

Consulting and professional fees

The following table summarizes our consulting and professional fees for the nine
months ended September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003 - restated
---- ---------------
Total consulting and professional fees $2,158,069 $ 1,299,616

Overall consulting and professional fees increased by 66% (approximately
$860,000) due to the following factors: increase due to acquisition of Elender
Rt. in June 2004 ($535,000), increase ($155,000) due to legal and consultancy
costs associated with settling the VAT issue in Romania (see Note 18b of the
2003 audited financial statements) and the ICANN legal case (see Note 14d of the
2003 audited financial statements). The remaining increase ($170,000 or 13% of
the nine month ended September 30, 2003 costs) is due to increased legal and
consultancy costs associated with growth of the business.

Other selling, general and administrative expenses

The following table summarizes our other selling, general and administrative
expenses for the nine months ended September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003 - restated
---------- ---------------
Total other selling, general and
administrative expenses $2,836,855 $ 1,963,853

Overall other selling, general and administrative expenses increased by 66%
(approximately $875,000) due to the following reasons: increase due to
acquisition of Elender Rt. in June 2004 ($560,000), increase in marketing costs
mainly due to the operational merger of Euroweb Rt. and Elender Rt. ($205,000),
and the remaining increase due to increase in insurance costs due to Officers
and Directors Insurance (a new policy effective from end of 2003).

Depreciation and amortization

The following table summarizes our depreciation and amortization for the nine
months ended September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003 - restated
---- ---------------
Depreciation $1,220,585 $1,250,836
Amortization of intangibles $245,744 $50,181
Total depreciation and amortization $1,466,329 $1,301,017

Depreciation has decreased by $30,251 in the nine months ended September 30,
2004 compared to the same period in 2003. Although depreciation increased by
$362,217 due to the acquisition and consolidation of Elender Rt., this was
offset by the reduction ($353,313) of depreciation in Euroweb Hungary Rt. due to
certain high-value computer equipment having been fully depreciated.

Amortization of intangibles of $245,744 in 2004 relates to certain customer
contracts of Elender Rt. which were recognized as intangible assets upon
acquisition of Elender Rt. In 2003, amortization of intangibles related to the
customer lists of Euroweb Romania (which were fully impaired in 2003).

Net interest income

The following table summarizes our net interest income for the nine months ended
September 30, 2004 and 2003:

Nine months ended September 30, 2004 2003 - restated
----- ---------------
Interest income $165,746 $356,374
Interest expense $295,859 $128,240
Net interest income/(expense) $(130,113) $228,134

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 because funds were disbursed in connection with
acquisitions, (ii) the effective interest rate on these investments has
decreased over the periods in question (iii) securities expired on February 15,
2004, without new investments being made due to cash being needed to fund
acquisitions in 2004, and (iv) consolidation of Elender Rt. has increased
interest expense by $91,639 due to loans outstanding, and therefore reduced net
interest income.

Twelve-month Period Ended December 31, 2003 (restated) Compared to Twelve-month
Period Ended December 31, 2002 (restated)

The acquisition of Euroweb Hungary was a transaction between entities under
common control, and therefore the transaction was recorded in a manner similar
to a pooling-of-interest (see Note 2 of audited restated consolidated financial
statements for 2003 and 2002 attached to this filing), and accordingly the
historical consolidated financial statements have been restated for all periods
presented.

We reduced our loss from operations from $7,056,659 in 2002 to $2,183,628 in
2003. A majority (88%) of the reduction was related to the elimination and
reduction of certain items including severance to officers, and impairment of
intangibles and goodwill.

Revenues
Year ended December 31, 2003 2002
---- ----
Total Revenues $ 23,280,720 $ 19,477,420

We experienced 20% revenue growth, or an increase of $3,803,300, for the year
ended December 31, 2003 compared to the year ended December 31, 2002. The
revenue change was mainly due to the VOIP services representing 44% of the total
increase, while ISP revenue represented 38% of the total increase. Due to an
approximately 15% weakening of the US Dollar (exact percentage varying depending
on the currency-Hungarian Forint, Slovak Korona, Czech Korona) actual local
currency revenues increased only in the case of VOIP services, while other
services decreased or stagnated in local currency terms.

The following table summarizes the main changes in revenue for each of our
revenue sources compared to the previous year:

----------------------------- ------------------ ------------------ ------------
Revenue / services 2003 2002 % change
----------------------------- ------------------ ------------------ ------------
ISP activity $11,996,176 $10,556,377 +14%
----------------------------- ------------------ ------------------ ------------
Int./dom. leased line *(a) $6,487,607 $6,100,530 +6%
----------------------------- ------------------ ------------------ ------------
VOIP (b) $4,511,604 $2,820,513 +60%
----------------------------- ------------------ ------------------ ------------
Facilities (a) $285,333 0 -
----------------------------- ------------------ ------------------ ------------
Total $23,280,720 $19,477,420 20%
----------------------------- ------------------ ------------------ ------------

* - primarily Pantel or Pantel related sales,
(a) substantially all generated by the Romanian subsidiary
(b) generated by the Hungarian and Romanian subsidiaries.

ISP revenue analysis

ISP activity increased by 14% ($1,439,799) compared to the prior year, implying
that there was no revenue growth in local currency (due to the 15% weakening of
the US Dollar against the Slovak, Hungarian and Czech currencies). From 2003,
ADSL internet technology was introduced in Hungary and Slovakia. It is expected
that some of our customers will change from lower subscription services from
internet to leased lines and therefore future revenue growth from ISP revenue is
expected to be limited, despite the increase in the number of ADSL customers.

Leased Line revenue analysis

Revenues from international leased lines and IP data services produced by
Euroweb Romania increased by 6% compared to the prior year. This service is
provided in relationship with Pantel's client base and services, and is
generally provided to a small number of Internet Service Providers,
telecommunication firms, and other international companies. Due to developments
in the Romanian market in the last few years, these individually agreed
wholesale prices have continuously dropped (by at least 10% to more than 20%)
and therefore it is expected that such revenues may stagnate or may reduce in
the future.

VOIP Service revenue analysis

--------------------------------- ----------------- ----------------- ----------
VOIP services revenue 2003 2002 % change
--------------------------------- ----------------- ----------------- ----------
Retail voice origination $492,689 $87,988 +460%
--------------------------------- ----------------- ----------------- ----------
Wholesale voice termination (a) $2,413,932 $2,025,411 +19%
--------------------------------- ----------------- ----------------- ----------
Neophone prepaid phonecard (b) $1,604,983 $707,114 +127%
--------------------------------- ----------------- ----------------- ----------
Total $4,511,604 $2,820,513 +60%
--------------------------------- ----------------- ----------------- ----------
(a) substantially all generated by the Romanian subsidiary, and 100% sales to
Pantel
(b) generated by the Hungarian subsidiary.

Retail voice origination is provided to corporate customers over leased lines.
Such services enable the customers to reduce their costs of the international,
long distance and local calls which they initiate. These services are provided
to large number of clients in Hungary and Romania. We have experienced demand
for these services and increased traffic. The bulk of the increase can be
attributed to volume increasing, as prices have decreased.

Wholesale voice termination represents voice minutes received from Pantel Rt.
and forwarded to Romanian telecommunication companies. It is a price sensitive
service which is also affected by the regulatory environment in Romania. The
increase is due to higher volume of voice minutes, as prices have decreased.

Facilities revenue analysis

Revenues from facilities consist of lease, sale and maintenance of fiber optic
cables.

Geographic revenue analysis

The following table summarizes the main changes in revenue compared to the
previous year with respect to the geographical source of revenue:

--------------------- --------------------- --------------------- ------------
Revenue/country 2003 2002 Change in
--------------------- --------------------- --------------------- ------------
Czech Republic $1,163,662 $1,415,541 (18%)
--------------------- --------------------- --------------------- ------------
Slovakia $3,424,633 $2,757,086 +24%
--------------------- --------------------- --------------------- ------------
Hungary $8,519,346 $6,536,789 +30%
--------------------- --------------------- --------------------- ------------
Romania $10,173,079 $8,768,004 +16%
--------------------- --------------------- --------------------- ------------
Total $23,280,720 $19,477,420 +20%
--------------------- --------------------- --------------------- ------------
The decrease of 18% in the Czech Republic is the result of two factors:

o a decrease of 30% in the ISP business due to a reduced customer base compared
to previous years; and
o an increase due to the strengthening of the Czech Koruna against the US Dollar
of approximately 16%.

As a result of the continuing losses of Euroweb Czech, this subsidiary was sold
on December 16, 2004.

The weakening of the US Dollar accounts for almost 18% of the increase of 24% in
Slovakia, while the remaining increase can be attributed to the organic growth
of the company mainly on sale of internet access services.

Euroweb Hungary achieved a 30% increase in revenues. The weakening of the US
Dollar accounts for approximately 13% of the increase, while the majority of the
remaining increase can be attributable to the Neophone voice services.

The Romanian operations experienced an additional 16% revenue increase compared
to the previous year. The main reason was the increase in wholesale voice
termination (+84%).

Cost of revenues (excluding depreciation and amortization)

The following table summarizes our cost of revenues (excluding depreciation and
amortization) for the nine months ended September 30, 2003 and 2002:

Year ended December 31, 2003 2002
---- ----

Total cost of revenues(excluding depreciation and amortization) $14,623,863 $11,717,491

Cost of revenues (excluding depreciation and amortization) comprise mostly
telecommunication expenses. The increase of 25% is higher than the increase in
sales of 20% due to the fact that the increase of sales is mostly due to the
increase in the wholesale voice termination activity whose direct cost of
revenues (excluding depreciation and amortization) are relatively higher than
the direct cost of revenues (excluding depreciation and amortization) for the
other services provided by the Company.

Compensation and related costs

The following table summarizes our compensation and related costs for the years
ended December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- -----------
Compensation and related costs $3,173,720 $3,309,788

Overall compensation and related costs decreased by 4% (approximately $136,000).
The main reason was the closing of the New York office in June 2002 (and the
subsequent termination of employment of one staff and two officers) which
resulted in savings of approximately $300,000 in 2002. However, due to increases
in salary in Czech and the Slovak Republic and the impact of the weakness of the
US Dollar, the overall decrease was reduced to $136,000. Cost savings of
approximately $270,000 in Hungary were offset by the increase of approximately
the same amount in the Slovak Republic.

Severance to Officers

The following table summarizes severance to Officers for the years ended
December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- ----

Severance to Officers $- $2,020,832

The severance to Officers related to termination payments made to the CEO and
CFO based in the Unites States of America. With the closing of the New York
office in June 2002, these roles were made redundant. The new CEO operates out
of Budapest.

Consulting and professional fees

The following table summarizes our consulting and professional fees for the
years ended December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- ----
Total consulting
and professional
fees $2,135,056 $ 1,558,864

Overall consulting and professional fees increased by 37% (approximately
$575,000) due to the following factors: increase of miscellaneous consulting
expenses due to the expansion of the business (approximately $300,000), increase
due to more consultants being used in Hungary due to the reduction of workforce
($145,000), increase due to accruals for consultants relating to the VAT issue
in Romania ($45,000), increase in audit and accounting fees ($25,000). The
remaining increase is due to the weakness of the US Dollar compared with the
local currencies of Slovakia and Hungary.

Other selling, general and administrative expenses

The following table summarizes our other selling, general and administrative
expenses for the years ended December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- ----
Total other selling, general
and administrative expenses $2,723,011 $ 2,846,094

Overall other selling, general and administrative expenses decreased by 4%
(approximately $125,000) due to the closing of the New York office in June 2002
and the associated costs (approximately $80,000), and the remaining due to cost
control procedures implemented in local offices.

Depreciation and amortization

The following table summarizes our depreciation, amortization and impairment
charges for the years ended December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- ----
Depreciation $1,660,887 $1,513,012
Amortization of intangibles $66,909 $189,227
Impairment of intangibles $100,364 $448,500
Impairment of goodwill $980,538 $2,930,271
Total depreciation and amortization $2,808,698 $5,081,010

At the end of 2003 and 2002, we performed an annual impairment test relating to
the goodwill recorded in its books. Euroweb Hungary, Euroweb Romania, Euroweb
Czech, and Euroweb Slovakia, were identified as `Reporting Units' under SFAS
142. We compared the fair value of the reporting units (determined using
discounted cash flow projections) to their carrying amounts, noting that the
carrying amounts in some cases were higher than their fair values taking into
account the market developments, actual performance and outlook. We then
compared the implied fair value of each reporting unit's goodwill with their
carrying amounts and recorded an impairment charge of $980,538 (2002:
$2,930,271), with $92,881 (2002: $746,000) relating to Euroweb Czech, $563,000
(2002: $442,000) relating to Euroweb Slovakia, $324,657 (2002: $828,000)
relating to Euroweb Romania and no charge (2002: $914,271) relating to Euroweb
Hungary. An average annual 1% growth rate for revenues was used in the
calculations for Euroweb Czech and Euroweb Slovakia, and 3% for Euroweb Romania.
After the 2003 impairment, the Goodwill relating to Euroweb Czech, Euroweb
Hungary and Euroweb Slovakia has a net book value of zero, while the Goodwill
relating to Euroweb Romania has a net book value of $566,000.

The Romanian customer lists acquired were being amortized over an estimated
period of benefit of 5 years. However, an analysis of the customers and revenues
as at September 2002 indicated that most of the expected revenues to be
generated by this customer list did not materialize and we recorded an
impairment of $448,500. At the end of 2003, the company again assessed the
recoverability of the outstanding amount and wrote down the remaining value
($100,364) to zero.

Net interest income

The following table summarizes our net interest income for the years ended
December 31, 2003 and 2002:

Year ended December 31, 2003 2002
---- -----
Interest income $511,178 $539,777
Interest expense $166,608 $186,145
Net interest income $344,570 $353,632

The decrease in interest income is due to the fact that less interest-generating
funds were available in this period than in the same period of the previous
year. This was mainly due to the disbursed funds in connection with severance
payments of $2,000,000 in May 2002, which were previously invested with 3.1%
annual interest rate.

Liquidity and Capital Resources (September 30, 2004)

In recent years, we maintained approximately $11 million in cash invested into
US Government Securities, which matured in February 2004. The main source of
these funds was capital injections by KPN in previous years.

As of September 30, 2004, our cash, cash equivalents and marketable securities
were $4,607,608, a decrease of approximately $9.9 million from the end of fiscal
year 2003. The decrease is primarily due to the acquisition of the remaining 51%
of the Euroweb Hungary shares that we did not already own (approximately $ 2.1
million), the acquisition of Elender Rt (approximately $ 6.6 million) and
partial repayments of related party trade liabilities.

Cash flow from operations was almost the same, $1,013,091 for the nine months
ended 2004 compared with $1,027,636 for the nine months ended in 2003. Investing
activities also increased the cash at hand of the company by $1,444,183.
Collection of notes receivable and matured securities provided $11,616,140 of
cash, while $8,601,219 was spent on acquisitions. The financing activity used
cash of $816,771, which was due to the reduction of bank loans, notes payable
and capital lease obligations.

Management believes that the synergy effects and potential business
opportunities of the merged Hungarian entities may contribute to improving our
cash generating ability from 2005. We intend to reduce the loans and trade
liabilities of our company from any such cash generated.

After the acquisitions of Euroweb Hungary and Elender, the consolidated working
capital excluding deferred revenues (current assets less current liabilities
excluding deferred revenue) is still more than $1.6 million, and management
believes that there will be sufficient funds to meet our currently projected
working capital requirements and other cash requirements for at least the next
12 months. In case of further acquisitions, we may raise additional funds or it
may sell non-strategic assets within one year in order to finance such
movements.

Our subsidiaries have entered into various capital leases for vehicles and
internet equipment, as well as non-cancelable agreements for office premises.

In August 2004, Euroweb Romania won a tender to provide domestic leased line
services over a period of 10 years. In connection with this transaction, we
estimate that an investment of approximately $1,600,000 will be required, of
which approximately $350,000 has already been spent. The remaining $ 1,250,000
will be spent over the next three months.

On June 1, 2004, Elender Rt. (which is now a wholly owned subsidiary) 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 $1,000,000 was outstanding at September 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 addition, the bank also provided an overdraft facility of HUF 150 million
(approximately $720,000) to Elender Rt., of which approximately $146,389 was
drawn down as at September 30, 2004. The interest rate is BUBOR (Budapest
Interbank Offered Rate) + 1%.

Notes payable (approximately $1,235,687 as at September 30, 2004) relate to
outstanding Elender Rt. liabilities to three previous shareholders of Elender
Rt.: Fleminghouse Investments Limited (taken over from Vitonas Investments
Limited), Certus Kft. and Rumed 2000 Kft. Approximately $508,000 is payable on
December 31, 2004, while the remaining amount is payable in four equal quarterly
installments of HUF 36.438 million (approximately $182,000), with the final
payment on December 31, 2005.

The following table summarizes the commitments described above:

----------------------------------- ---------------- ------------- ------------ ------------- -----------
Contractual Cash Obligations 2005 2006 2007 2008 After 2008
----------------------------------- ---------------- ------------- ------------ ------------- -----------

Capital leases $126,368 $73,265 $7,955 - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Operational leases $584,264 $584,264 $512,964 $416,000 -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Capital expenses $1,250,000 - - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Employment agreements (1) $200,000 - - - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Purchase commitment $3,000,000 $3,000,000 - - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------

Related party note payable $488,728 $488,728 - - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Bank loan payable $289,247 $289,247 $277,239 - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Note payable $726,881 - - - -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Total Contractual Cash Obligations $6,665,488 $4,435,504 $798,158 $416,000 -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
(1) Csaba Toro's salary without bonus

In addition to the above contractual cash obligations, our subsidiary in Romania
has entered into a 20 year Indefeasible Right of Use agreement whereby 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. The total consideration of $920,000
has already been received, and is being accounted for as an operating lease.

We are also obliged to pay a $2,000 per day penalty ($248,000 as of February 8,
2005) if the registration of the 677,201 shares, issued as part of the purchase
consideration for Elender was not effected by October 2004. The penalty is
payable until the effective date of registration if the delay is attributable to
the fault of our company. We are presently in discussion with the former
shareholders of Elender to obtain a waiver of the penalty, if any.

--------------------------------------------------------------------------------
Cash flow analysis for the years ended 2003 2002
--------------------------------------------------------------------------------

Net cash provided by (used in) operating activities 1,381,439 (1,452,504)

Net cash (used in) provided by investing activities (488,363) 1,803,587

Net cash (used in) provided by financing activities (616,611) 542,795
--------------------------------------------------------------------------------

Cash flow from operations was $ $1,381,439 for the year ended December 31, 2003
compared with an outflow of $1,452,504 for the year ended December 31, 2002. The
main reason of the $2,833,943 improvement is due to the higher losses in 2002,
caused in part by the severance payments made in that year. Investing activities
decreased the cash at hand at the Company by $2,291,950, which is mainly due to
the much smaller value of matured securities of our company. The increase of
cash used in financing activities of $1,159,406, can be attributed to the loan
facility received in 2002, with no equivalent transaction occurring in 2003.

Sale or disposal transactions

During 2004 and 2003, we focused primarily on improving our operations and the
introduction of new services and thus did not divest any material assets.
However, we have decided to simplify our organizational structure and sell non
strategic assets including two small subsidiaries in 2003 and a non operational
subsidiary of Euroweb Hungary in 2004. On December 16, 2004, we concluded the
sale of Euroweb Czech. The sale of Euroweb Czech will be accounted for as
discontinued operations in the financials statements of our company. We
recognized a gain in the fourth quarter of 2004 of approximately US $405,000 on
the sale of Euroweb Czech.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations
are based upon our 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, assumptions and
disclosures. We choose accounting policies within US GAAP that management
believes are appropriate to accurately and fairly report our operating results
and financial position in a consistent manner. Management regularly assesses
these policies in light of current and forecasted economic conditions. Although
we believe that our estimates, assumptions and judgments are reasonable, they
are based upon information presently available. Actual results may differ
significantly from these estimates under different assumptions, judgments or
conditions for a number of reasons. Our accounting policies are stated in Note 1
to the 2003 Consolidated Financial Statements (restated). We identified the
following accounting policies as critical to understanding the results of
operations and the effect of the more significant judgments and estimates used
in the preparation of the consolidated financial statements: impairment of
long-live assets, allowance for doubtful accounts, stock-based compensation.

Impairment of long lived assets We adopted Statement of Financial Accounting
Standard No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which
establishes that goodwill acquired in a business combination and that have
indefinite useful lives are no longer amortized but rather are tested at least
annually for impairment. These policies require us to make significant and
subjective estimates and assumptions which are sensitive to deviations from
actual results. In particular, we make estimates regarding future undiscounted
cash flows from the use of long-lived assets in assessing potential impairment
whenever events or changes in circumstances indicate the carrying value of a
long-lived asset may not be recoverable. Since there were some events or changes
in circumstances in the past, the carrying value of long-lived assets were
impaired by $1,080,902 in 2003 (2002: $3,378,771) as we recorded adjustments to
the carrying value of these assets. We cannot assure that there will be no
future events or changes in cash flow estimates or other circumstance, which may
significantly change the carrying value of long-lived assets.

Allowance for Doubtful Accounts. We make judgments as to our ability to collect
outstanding accounts receivable and provide an allowance for a portion of our
accounts receivable when collection becomes doubtful. We also make judgments
about the creditworthiness of customers based on ongoing credit evaluations and
the aging profile of customer accounts receivable and assess current economic
trends that might impact the level of credit losses in the future. Historically,
our allowance for doubtful accounts has been sufficient to cover our actual
credit losses. However, since we cannot predict changes in the financial
stability of our customers, we cannot guarantee that our allowance will continue
to be sufficient. If actual credit losses are significantly greater than the
allowance that we have established, this would increase our operating expenses
and our reported net loss.

Stock-Based compensation We apply 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". to account for its 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") and FASB Statement No. 148 Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123".established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by existing
standards we elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure requirements of SFAS
No. 123, as amended. The FASB has recently issued Statement 123R which requires
expense recognition for stock options and other types of equity-based
compensation based on the fair value of the options at the grant date.
Additionally, the FASB is evaluating how to develop a measure of the fair value
of an option. As a result, we will be required to recognize expense related to
stock options and other types of equity-based compensation in future periods.
Additionally, we may be required to change our method for determining the fair
value of stock options. This will result in the increase of compensation expense
and related cost in the profit and loss statement.

Inflation and Foreign Currency

We maintain our 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. After joining to the European Union (except Romania) from
May 1, 2004, all countries are committed to introducing the Euro within 5-8
years. The currencies of these countries are mainly connected to Euro, and
therefore foreign currency deviation can result from two main sources (1) US
Dollar-Euro fluctuations and (2) individual economic conditions of these
countries. We currently do not actively hedge against currency fluctuation.

The Slovakian Koruna has strengthened against the U.S. dollar by approximately
13%, the Czech Korona by approximately 7%, while the Hungarian Forint has
strengthened against U.S. dollar by approximately 8% based on the average rates
for the nine month periods ended September 30, 2004 and 2003.

For the year ended December 31, 2003, the Slovakian Koruna strengthened against
the U.S. dollar by 18.6%, the Czech Korona by approximately 14%, while the
Hungarian Forint has strengthened by 13.3% when compared with the year ended
December 31, 2002.

Effect of Recent Accounting Pronouncements

On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. We do not believe that FAS 149 will have any impact on our financial
statements.

FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial
instruments within its scope. For our company, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be
effective as of January 1, 2004, except for mandatory redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for our company on January 1, 2005. The effective
date has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. The Company currently does not have any
financial instruments that are within the scope of this Statement.

In December 2003, the Securities and Exchanges Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 104, "Revenue Recognition". SAB 104 revises or
rescinds certain SAB guidance in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations relating to revenue recognition. This bulletin is
effective immediately. We believe that our current revenue recognition policies
comply with SAB 104.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities (VIE), which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which was issued in January 2003.
The Company will be required to apply FIN 46R by December 31, 2004. We currently
have no VIE's.

In December 2004, the FASB issue FASB Statement 123R which requires companies to
recognize in the income statement, the grant-date fair value of stock options
and other equity based compensation issued to employees. The Statement will
become effective for reporting periods after June 15, 2005 and will apply to
unvested prior grants. We are evaluating the impact of this Statement on our
financial statements, although we expect compensation expense to increase in our
Statement of Operations.

Recently Adopted Accounting Standards

In June 2001, FASB Statement No. 143, Accounting for Asset Retirement
Obligations, was issued Statement. 143 requires our company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also would record a corresponding asset
that is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation would be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company was adopted
Statement 143 on January 1, 2003. The adoption of Statement 143 had no effect on
our financial statements.

In June 2002, FASB Statement No. 146, Accounting for Cost Associated with Exit
or Disposal Activities, was issued. Statement 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3,Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity". The provisions of
Statement 146 were effective for exit or disposal activities initiated after
December 31, 2002, with early application encouraged. The adoption of Statement
146 had no effect on our financial statements.

In November 2002, FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34, was issued. This Interpretation
enhances the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation were applicable to guarantees issued or modified after December
31, 2002 and the disclosure requirements were effective for financial statements
of interim or annual periods ending after December 15, 2002. The adoption of
FASB Interpretation No. 45 had no effect on the Company's financial statements.

In December 2002, FASB Statement No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123, was issued. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, Statement 148 amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements. We have elected to continue to apply the intrinsic
value-based method of accounting, and has adopted the disclosure requirements of
SFAS No. 123, as amended.

BUSINESS

History of Business

We are a Delaware corporation which was organized on November 9, 1992. We
operate in the Czech Republic, Slovakia, Romania and Hungary, through our
subsidiaries Euroweb Slovakia , Euroweb Romania, Euroweb Hungary and Elender. We
provide Internet access and additional value added services primarily to
business customers. On December 16, 2004, we disposed of Euroweb Czech and no
longer have operations in the Czech Republic.

Euroweb Strategy

We strive to be a leading supplier in Central Europe to businesses of complete
telecommunication solutions using Internet technologies.

We entered the Internet field in January 1997. Since then we have made various
acquisitions in Hungary, the Czech Republic, Slovakia and Romania. As a
continuing consolidation is taking place in the industry, we are constantly
reviewing additional business opportunities, which may include either an
acquisition or a merger with another company. No assurances can be given that we
will be successful in locating or negotiating with any of these potential
business opportunities.

Entry into ISP Market in Central Europe and History of Acquisitions/Dispositions

We entered the Internet Service Provider ("ISP") market in Central Europe
through various acquisitions of companies in that area over the past five years.
On January 2, 1997, we acquired all of the outstanding stock of three Hungarian
ISPs for a total purchase price of approximately $1,785,000, consisting of
28,800 shares of common stock of our company and $1,425,000 in cash
(collectively, the "1997 Acquisitions"). Thereafter in 1997, the three Hungarian
companies were combined and merged into a new Hungarian entity, Euroweb Hungary.
On November 22, 1998, we sold 51% of the outstanding shares of Euroweb Hungary
to Pantel Rt. for $2,200,000 in cash and an agreement to increase the share
capital of Euroweb Hungary by $300,000 without changing the ownership ratio
(after the capital increase, the ownership ratio remained 49 - 51 percent). On
February 12, 2004, we entered into a share purchase agreement with Pantel Rt to
acquire Pantel Rt.'s 51% interest in Euroweb Hungary. As a result of this
acquisition, Euroweb Hungary became a wholly-owned subsidiary of our company.
The purchase price of EURO 1,650,000 (approximately $2,105,000) was funded from
cash that we had previously raised. As part of the acquisition, we guaranteed
the purchase of HUF 600 million (approximately $3,000,000) of services (annually
from 2004-2006) by Euroweb Hungary and its subsidiaries from Pantel Rt. In 2003,
Euroweb Hungary and subsidiaries (Freestart Kft. and Neophone Rt.) purchased in
excess of HUF 700 million (approximately $3,500,000) in services from Pantel Rt.
In the event that Euroweb Hungary and its subsidiaries do not satisfy this
commitment, Euroweb Hungary is required to pay to Pantel Rt a penalty equal to
25% of the commitment amount less any services purchased. We also guaranteed a
loan of HUF 245,000,000 ($1,201,687) plus interest payable provided by Pantel Rt
to Freestart Kft.

We made the following acquisitions of ISPs in the Czech Republic, Slovakia and
Romania in 1999 and 2000:

On June 11, 1999, we acquired all of the participating interests of Luko
CzechNet, an ISP in the Czech Republic, for a total cost of $1,862,154
consisting of 90,000 shares of our common stock and 50,000 options valued at
$2.00 per share, and the balance paid in cash. This acquisition was effective as
of June 1, 1999.

On July 15, 1999, we acquired all of the outstanding shares of capital stock of
EUnet Slovakia, an ISP in the Slovak Republic, for a total cost of $813,299
consisting of 47,408 shares of our common stock valued at $400,005 issued August
9, 1999 and the balance paid in cash. This acquisition was effective as of
August 1, 1999. We then made another acquisition of a Slovak ISP on July 15,
1999 with the purchase of 70% of the outstanding shares of Dodo s.r.o.'s
subsidiary, R-Net, for a total cost of $630,234 consisting of 29,091 shares of
our common stock valued at $200,000 issued August 13, 1999 and the balance paid
in cash. This acquisition was effective as of August 1, 1999.

On September 23, 1999 and November 16, 1999, we acquired from Slavia Capital
o.c.p., a.s. 70% and 30%, respectively, of the issued and outstanding stock of
Global Network Services a.s.c., a Slovakian corporation providing Internet
service primarily to businesses located in Bratislava and other major cities in
Slovakia for a total purchase price of $1,633,051, consisting of 71,114 shares
of our common stock valued at $499,929 issued on September 23, 1999, and the
balance paid in cash. This acquisition was effective as of October 1, 1999. All
Slovakian operations were then merged into one company under the name of Euroweb
Slovakia.

On April 21, 2000, we acquired all of the outstanding capital stock of Isternet
SR, s.r.o., an Internet service provider in the Slovak Republic, for $1,029,299
in cash. Goodwill arising on this purchase was $945,200. This acquisition was
effective May 1, 2000.

On May 19, 2000, we purchased all 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 was accounted for as an asset purchase with a value of
$1,150,000 being assigned to customer lists acquired.

On May 22, 2000, we acquired the remaining 30% of R-Net (the initial 70% being
acquired in 1999) for $355,810 in cash. Goodwill arising on this purchase was
$357,565.

On June 14, 2000, we acquired all of the outstanding shares of capital stock of
Mediator S.A., an Internet service provider in Romania for a total cost of
$2,835,569. This consisted of $2,040,000 in cash and the assumption of a
$540,000 liability to the former owner payable in annual installments of
$180,000 commencing on June 1, 2001. Goodwill arising on this purchase was
$2,455,223. Immediately after the purchase the name was changed to Euroweb
Romania, S.A. This acquisition was effective as of July 1, 2000.

On August 25, 2000, Luko Czech acquired all of the outstanding capital stock of
Stand s.r.o., an Internet service provider in the Czech Republic for $280,735 in
cash, which was merged into Luko Czech under the name of Euroweb Czech Republic.
This acquisition was effective as of September 1, 2000.

On February 23, 2004, we entered into a Share Purchase Agreement with the owners
of 100% interest in Elender Business Communications Services Ltd., a Hungarian
corporation ("Elender"), which is an Internet service provider located in
Hungary that provides internet access to the corporate and institutional
(public) sector and, amongst others, 2,300 schools in Hungary. The total
purchase price was:

o cash of $6,500,000; and
o 677,201 shares of our common stock valued at $2,508,353 excluding registration
costs,

At closing, Elender had debt valued at $2,900,000, consisting of a bank loan and
a non-transferable shareholders loan payable by Elender to the sellers. We
guaranteed the full repayment of the non-transferable shareholders loan over a
period of one and a half years and, in addition, we have also placed in escrow
248,111 unregistered shares, which are to be issued to the sellers in the event
that there is a default in connection with the non-transferable shareholders
loan. The closing of the Elender purchase occurred on June 9, 2004.

Products and Services

Our activity can be divided into the following categories:

o traditional ISP services including Internet access, content and Web and other
services;
o International/national leased line, IP data services (IP connections between
different countries);
o Voice over IP services; and
o Facilities (sale, rent and maintenance of dark fiber between the Hungarian
border and the Romanian City of Timisoara).

Traditional ISP services

Internet Access

Access to the Internet can be either through a leased line/DSL, microwave
technology, which enables a constant connection to the Internet at all times, or
through dial-up service, which requires subscribers to dial a telephone number
to connect to the Internet. We offer a variety of access options and packages.

Content and Web Services

In addition to internet access services, we provide services such as the design,
development, hosting and maintenance of home pages and web servers, domain
registration, consulting, and other services.

International/domestic leased line, IP data services

In order to meet requests of our international customers, we offer
international/national data connection for companies across borders, or within
the countries to connect premises in different countries. This service includes
single (one to one point) and also Virtual Private Network (many to many point)
IP connections. In most cases, Pantel Rt. acts as a partner in the development
of international network possibilities.

Voice over IP services

Capitalizing on our existing international presence and cross border
connections, we offer voice services to major carriers and our customers based
on Internet Protocol (IP) technology. Carriers and partners send Voice minutes
to/from the region in which we operate. Our most significant VOIP partner is
Pantel Rt.

Customers

Our customers are mainly local businesses and professionals including
telecommunication carriers and multinational corporations. Our customer base
uses more than 1,300 leased lines and over 30,000 dial up connections in
Hungary, Slovakia, and in Romania as of September 30, 2004. These figures
include the services sold to the newly acquired Elender customer base.

Network Operations and Technical Support

As of December 17, 2004, we had a network operations group consisting of
approximately 111 people, including technical and customer support employees.
Our network operations personnel located at our network operations center in
Hungary, Slovakia and Romania are responsible for continuously monitoring
traffic across our network infrastructure and also to carry out implementation
of new customer connections both for Internet and other IP data connections.
Both technical support and customer support personnel are currently available
from 8 a.m. to 8 p.m., Monday through Friday. At other times, these personnel
respond to technical support requests via telephone 24 hours a day. By the end
of September 2004, we owned or contracted 109 Point of Presences (POPs) covering
the territory of Hungary, Slovakia and Romania.

Sales and Marketing

We employ approximately 71 persons in sales and marketing. To date, we have sold
our Internet access and applications products and services primarily through
direct personal and telephone contact and have used indirect sales channels for
distribution of prepaid voice mass products. The sales force works closely with
the customer and technical support group, which is responsible for installation
at multiple sites and for support and technical consulting services, thereby
demonstrating our commitment to account management to our customers.

Government Regulations

We are not currently subject to direct government regulation other than laws and
regulations applicable to businesses generally. There are specific industry laws
that may apply to the local subsidiaries in the field of Internet and
Telecommunications. However, with the increasing popularity and use of the
Internet, it is likely that new laws and regulations involving the Internet will
be adopted at the local, state, national or international levels, covering
issues such as user privacy, freedom of expression, pricing of products and
services, taxation, information security or the convergence of traditional
communications services with Internet communications.

Employees

Our workforce consists of 229 employees in the countries of Hungary, Slovakia
and Romania. All of our employees are full time. None of our employees is
represented by a labor organization.

Description of Properties

The following table lists the office spaces that our company and our
subsidiaries lease from unaffiliated persons:

Rent
Amount/
Lessor Address of Property Primary Use Sq. feet Month Lease Terms
-------------------- -------------------------- -------------------------- -------- ---------- -------------

Euroweb Hungary Vaci ut 141. stockholder relations 18,000 EUR 30,000 4 years
H-1138 general executive non-cancelable
Budapest, Hungary general operations

Euroweb Slovakia Priemyselna 1/A general operations 14,274 EUR 17,000 3 years and
SK - 821 09 8 months
Bratislava, Slovakia non-cancelable

Euroweb Romania Bd. Unirii 33, Bl. A2, general operations 4,951 $7,664 1-month
Sc.3, 6th Floor, Sector notice
3 Bucharest, Romania

Legal Proceedings

Euroweb Slovakia has been the national registrar of Top Level Domains (suffix
attached to Internet domain names e.g. .sk, .net, etc.) since the middle of
2003. We have been subject to legal proceedings and submissions to different
authorities in connection with its exclusive right to manage the system. We have
succeeded in our defense on all occasions to date, but there is no assurance
that Euroweb Slovakia will be able to keep these rights and/or that penalties
will not be charged in the future.

From time to time, we are a party to litigation or other legal proceedings that
we consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future.

MANAGEMENT

The following table sets forth certain information regarding our executive
officers and directors:

Name Age Position with Company
---- --- ---------------------
Csaba Toro 38 Chief Executive Officer, Treasurer and Director
Howard Cooper 47 Director
Stewart Reich 60 Chairman of the Board

Gabor Ormossy 34 Director
Ilan Kenig 43 Director
Yossi Attia 42 Director

Csaba Toro, age 38, CEO and a director of our company since June 2002, has been
with us since September 1998 in various other positions including the position
of the Chairman between 2002 and 2004. During 2001 and 2002, Mr. Toro held the
positions of COO and CEO in Pantel Rt. He resigned as CEO of Pantel Rt. as of
March 2003. From 1997 to 1999, Mr. Toro was managing director of our Hungarian
subsidiary. Prior thereto, since 1994, he was managing director of ENET Kft.,
which was acquired by our company in 1997.

Howard Cooper, age 47, has been the President, CEO and Chairman, Teton Petroleum
Company - Denver, CO (AMEX:TPE) from 1996. Teton has raised institutional equity
and US Trade and Development Agency funding for the development of proven oil
fields in Russia. Teton has been successful in Russia producing oil, exporting
oil for hard currency, and developing an oil field with proven and probable
reserves in excess of 107 million barrels. Previously he was engaged in oil
projects in the former Soviet Union.

Stewart Reich, age 60, our Chairman of the Board since June 2004, was Chief
Executive Officer and President of Golden Telecom Inc., Russia's largest
alternative voice and data service provider as well as its largest ISP, since
1997. In September 1992, Mr. Reich was employed as Chief Financial Officer at
UTEL (Ukraine Telecommunications), of which he was appointed President in
November 1992. Prior to that Mr. Reich held various positions at a number of
subsidiaries of AT&T Corp. Mr. Reich has been a director of our company since
2002.

Gabor Ormosy, age 34, served as the Chief Financial Officer of Elender from 2002
to 2004 where he was responsible for strategic planning, controlling, treasury,
accounting, administration, business development and investor relationships.
From 2000 to 2002, Mr. Ormosy served as the Chief Financial Officer for Webigen
Rt., which was a web developer and marketing company before merging into
Elender. Prior to joining Webigen Rt., Mr. Ormosy served in the corporate
finance department of CA IB Securities Ltd., Budapest where he was responsible
as project manager for deal execution and valuations in mergers & acquisitions
and capital market deals. Since 2002, Mr. Ormosy has also served as the
President of the Board of Directors of Wallizing Rt. and as a member of the
Board of Directors of Index Rt.

Yossi Attia, since 2000, has been self employed as a real estate developer.
Prior to entering into the real estate development industry, Mr. Attia served as
the Senior Vice President of Investments of Interfirst Capital from 1996 to
2000. From 1994 though 1996, Mr. Attia was a Senior Vice President of
Investments with Sutro & Co. and from 1992 through 1994 Mr. Attia served as the
Vice President of investments of Prudential Securities. Mr. Attia received a BA
in economics and marketing from Haifa University in 1987 and a MBA from
Pepperdine University in 1995. Mr. Attia held Series 7 and 63 securities
licenses from 1991 until 2002.

Ilan Kenig has over 20 years of management, legal, venture capital and
investment banking experience with specific emphasis in the technology and
telecommunications arena. Mr. Kenig was appointed to the Company's Board on
February 1, 2005. Mr. Kenig joined Unity Wireless Corporation ("Unity"), a
designer, developer and manufacturer of wireless systems, as Vice President of
Business Development in December 2001 before assuming the position of President
and CEO in April 2002. From January 1999 until December 2001, Mr. Kenig pursued
international finance activities and mergers and acquisitions in New York. Mr.
Kenig was a founder of a law firm in Tel-Aviv representing technology and
telecommunications interests. Mr. Kenig holds a law degree from Bar-Ilan
University.

Directors are elected annually and hold office until the next annual meeting of
the stockholders of our company and until their successors are elected and
qualified. Officers are elected annually and serve at the discretion of the
Board of Directors.

Role of the Board

Pursuant to Delaware law, our business, property and affairs are managed under
the direction of our board of directors. The board has responsibility for
establishing broad corporate policies and for the overall performance and
direction of our company, but is not involved in day-to-day operations. Members
of the board keep informed of our business by participating in board and
committee meetings, by reviewing analyses and reports sent to them regularly,
and through discussions with our executive officers.

2003 BOARD MEETINGS

In 2003, the board met five times. No director attended less than 80% of all of
the combined total meetings of the board and the committees on which they served
in 2003.

BOARD COMMITTEES

Audit Committee

The audit committee of the board of directors reviews the internal accounting
procedures of our company and consults with and reviews the services provided by
our independent accountants. During 2003, the audit committee consisted of
Messrs. Stewart Reich and Howard Cooper, both of whom are considered to be
independent. The audit committee held three meetings in 2003. Mr. Reich serves
as the financial expert on the Audit Committee.

Compensation Committee

The compensation committee of the board of directors i) reviews and recommends
to the board the compensation and benefits of our executive officers; ii)
administers our stock option plans and employee stock purchase plan; and iii)
establishes and reviews general policies relating to compensation and employee
benefits. In 2003, the compensation committee consisted of Messrs Cooper and
Reich. No interlocking relationships exist between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company. During the past fiscal year the compensation committee had
two meetings.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers, and persons who own more then 10 percent of our common
stock, to file with the SEC the initial reports of ownership and reports of
changes in ownership of common stock. Officers, directors and greater than 10
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.

Specific due dates for such reports have been established by the Securities and
Exchange Commission and we are required to disclose any failure to file reports
by such dates during fiscal 2003. Based solely on our review of the copies of
such reports received by it, or written representations from certain reporting
persons that no Forms 5 were required for such persons, the Company believes
that during the fiscal year ended December 31, 2003, there was no failure to
comply with Section 16(a) filing requirements applicable to its officers,
directors and ten percent stockholders.

POLICY WITH RESPECT TO SECTION 162(m)

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, unless an appropriate exemption applies, a tax deduction for the
Company for compensation of certain executive officers named in the Summary
Compensation Table will not be allowed to the extent such compensation in any
taxable year exceeds $1 million. As no executive officer of the Company received
compensation during 2003 approaching $1 million, and the Company does not
believe that any executive officer's compensation is likely to exceed $1 million
in 2003, the Company has not developed an executive compensation policy with
respect to qualifying compensation paid to its executive officers for
deductibility under Section 162(m) of the Code.

CODE OF ETHICS

We have adopted our Code of Ethics and Business Conduct for Officers, Directors
and Employees that applies to all of the officers, directors and employees of
our company.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual and long term
compensation of our Chief Executive Officer. We do not have any officer whose
annual salary and bonus exceeds $100,000 as of December 31, 2003:

ANNUAL COMPENSATION LONG-TERM COMPENSATION
Restricted Number of
Stock Award(s) Securities
Bonus and Underlying
Name and Year Ended Other Annual All Other
Principal Position December 31, Salary ($) Compensation ($) ($) Options/SARs Compensation ($)
------------------ ------------ ---------- ------------ --- ------------- ----------------

Csaba Toro 2003 $96,000 -- -- -- --

Chairman, CEO, and
Treasurer 2002 $96,000 -- -- -- --

2001 $96,000 -- -- -- --

OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

There were no grants of Stock Options/SAR made to the named Executive during the
fiscal year ended December 31, 2003.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES

------------------------ ---------------------- --------------------- ------------------------ -----------------------
Number of securities Value of the
underlying unexercised unexercised in the
options/SARs at FY-end money options/SARs atFY-end
(#) ($)*

Name Shares acquired on Value realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
exercise (#)
------------------------ ---------------------- --------------------- ------------------------ -----------------------

Csaba Toro, Chairman None None 83,000 $0.00
CEO, and Treasurer
------------------------ ---------------------- --------------------- ------------------------ -----------------------

* Fair market value of underlying securities (calculated by subtracting the
exercise price of the options from the closing price of the Company's Common
Stock quoted on the Nasdaq as of December 31, 2003), which was $3.77 per share.
None of Mr. Toro's options are presently in the money.

EMPLOYMENT AND MANAGEMENT AGREEMENTS

We entered into a six-year agreement with our Chief Executive Officer, Csaba
Toro on October 18, 1999, 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.

The agreement further provides that, if Mr. Toro's employment is terminated
other than for willful breach by the employee, for cause or in event of a change
in control of our company, then the employee has the right to terminate the
agreement. In the event of any such termination, the employee will be entitled
to receive the payment due on the balance of his employment agreement.

We have no pension or profit sharing plan or other contingent forms of
remuneration with any officer, director, employee or consultant, although
bonuses are paid to some individuals.

DIRECTOR COMPENSATION

Directors who are also officers of our company are not separately compensated
for their services as a director. Directors who are not officers receive cash
compensation for their services: $2,000 at the time of agreeing to become a
Director; $2,000 for each Board Meeting attended either in person or by
telephone; and $1,000 for each Audit Committee Meeting attended either in person
or by telephone. Non-employee directors are reimbursed for their expenses
incurred in connection with attending meetings of the Board or any committee on
which they serve and are eligible to receive awards under our 1993 Stock Option
Plan (described below).

STOCK OPTION PLAN

Our 1993 Stock Option Plan (the "Plan") permits the grant of options to
employees of our company, including officers and directors, who are serving in
such capacities. An aggregate of 134,000 shares of Common Stock are authorized
for issuance under the Plan. At December 31, 2003, options for 46,000 Common
Stock were outstanding and exercisable under the Plan. The Plan provides that
qualified and non-qualified options may be granted to officers, directors,
employees and consultants to our company for the purpose of providing an
incentive to those persons to work for our company.

2004 Incentive Plan

General

The 2004 Incentive Plan was adopted by the Board of Directors. The Board of
Directors has initially reserved 800,000 shares of Common Stock for issuance
under the 2004 Incentive Plan. Under the Plan, options may be granted which are
intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the
Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs")
intended to qualify as Incentive Stock Options thereunder.

The 2004 Incentive Plan and the right of participants to make purchases
thereunder are intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
2004 Incentive Plan is not a qualified deferred compensation plan under Section
401(a) of the Internal Revenue Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").

On April 28, 2004, we granted 125,000 options to the Chief Executive Officer and
an additional 240,000 options to seven employees and consultants of our 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.

Purpose

The primary purpose of the 2004 Incentive Plan is to attract and retain the best
available personnel for the Company in order to promote the success of the
Company's business and to facilitate the ownership of the Company's stock by
employees.

Administration

The 2004 Incentive Plan is administered by the Company's Board of Directors, as
the Board of Directors may be composed from time to time. All questions of
interpretation of the 2004 Incentive Plan are determined by the Board, and its
decisions are final and binding upon all participants. Any determination by a
majority of the members of the Board of Directors at any meeting, or by written
consent in lieu of a meeting, shall be deemed to have been made by the whole
Board of Directors.

Notwithstanding the foregoing, the Board of Directors may at any time, or from
time to time, appoint a committee (the "Committee") of at least two members of
the Board of Directors, and delegate to the Committee the authority of the Board
of Directors to administer the Plan. Upon such appointment and delegation, the
Committee shall have all the powers, privileges and duties of the Board of
Directors, and shall be substituted for the Board of Directors, in the
administration of the Plan, subject to certain limitations.

Members of the Board of Directors who are eligible employees are permitted to
participate in the 2004 Incentive Plan, provided that any such eligible member
may not vote on any matter affecting the administration of the 2004 Incentive
Plan or the grant of any option pursuant to it, or serve on a committee
appointed to administer the 2004 Incentive Plan. In the event that any member of
the Board of Directors is at any time not a "disinterested person", as defined
in Rule 16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange Act of
1934, the Plan shall not be administered by the Board of Directors, and may only
by administered by a Committee, all the members of which are disinterested
persons, as so defined.

Eligibility

Under the 2004 Incentive Plan, options may be granted to key employees,
officers, directors or consultants of the Company, as provided in the 2004
Incentive Plan.

Terms of Options

The term of each Option granted under the Plan shall be contained in a stock
option agreement between the Optionee and the Company and such terms shall be
determined by the Board of Directors consistent with the provisions of the Plan,
including the following:

(a) PURCHASE PRICE. The purchase price of the Common Shares subject to each ISO
shall not be less than the fair market value (as set forth in the 2004 Incentive
Plan), or in the case of the grant of an ISO to a Principal Stockholder, not
less that 110% of fair market value of such Common Shares at the time such
Option is granted. The purchase price of the Common Shares subject to each
Non-ISO shall be determined at the time such Option is granted, but in no case
less than 85% of the fair market value of such Common Shares at the time such
Option is granted.

(b) VESTING. The dates on which each Option (or portion thereof) shall be
exercisable and the conditions precedent to such exercise, if any, shall be
fixed by the Board of Directors, in its discretion, at the time such Option is
granted.

(c) EXPIRATION. The expiration of each Option shall be fixed by the Board of
Directors, in its discretion, at the time such Option is granted; however,
unless otherwise determined by the Board of Directors at the time such Option is
granted, an Option shall be exercisable for ten(10) years after the date on
which it was granted (the "Grant Date"). Each Option shall be subject to earlier
termination as expressly provided in the 2004 Incentive Plan or as determined by
the Board of Directors, in its discretion, at the time such Option is granted.

(d) TRANSFERABILITY. No Option shall be transferable, except by will or the laws
of descent and distribution, and any Option may be exercised during the lifetime
of the Optionee only by him. No Option granted under the Plan shall be subject
to execution, attachment or other process.

(e) OPTION ADJUSTMENTS. The aggregate number and class of shares as to which
Options may be granted under the Plan, the number and class shares covered by
each outstanding Option and the exercise price per share thereof (but not the
total price), and all such Options, shall each be proportionately adjusted for
any increase decrease in the number of issued Common Shares resulting from
split-up spin-off or consolidation of shares or any like Capital adjustment or
the payment of any stock dividend.

Except as otherwise provided in the 2004 Incentive Plan, any Option granted
hereunder shall terminate in the event of a merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation of the Company.
However, the Optionee shall have the right immediately prior to any such
transaction to exercise his Option in whole or in part notwithstanding any
otherwise applicable vesting requirements.

(f) TERMINATION, MODIFICATION AND AMENDMENT. The 2004 Incentive Plan (but not
Options previously granted under the Plan) shall terminate ten (10) years from
the earlier of the date of its adoption by the Board of Directors or the date on
which the Plan is approved by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Company entitled to vote
thereon, and no Option shall be granted after termination of the Plan. Subject
to certain restrictions, the Plan may at any time be terminated and from time to
time be modified or amended by the affirmative vote of the holders of a majority
of the outstanding shares of the capital stock of the Company present, or
represented, and entitled to vote at a meeting duly held in accordance with the
applicable laws of the State of Delaware.

FEDERAL INCOME TAX ASPECTS OF THE 2004 INCENTIVE PLAN

THE FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION UPON
THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE PURCHASE OF SHARES UNDER
THE 2004 INCENTIVE PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND DOES
NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS WITH SPECIAL TAX
STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE INCOME
TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT
MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX CONSEQUENCES OTHER
THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH PARTICIPANT TO CONSULT
HIS OR HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN
THE 2004 Incentive Plan AND FOR REFERENCE TO APPLICABLE PROVISIONS OF THE CODE.

The 2004 Incentive Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421, 422 and
423 of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the 2004 Incentive
Plan.

If the shares are sold or otherwise disposed of (including by way of gift) more
than two years after the first day of the offering period during which shares
were purchased (the "Offering Date"), a participant will recognize as ordinary
income at the time of such disposition the lesser of (a) the excess of the fair
market value of the shares at the time of such disposition over the purchase
price of the shares or (b) 15% of the fair market value of the shares on the
first day of the offering period. Any further gain or loss upon such disposition
will be treated as long-term capital gain or loss. If the shares are sold for a
sale price less than the purchase price, there is no ordinary income and the
participant has a capital loss for the difference.

If the shares are sold or otherwise disposed of (including by way of gift)
before the expiration of the two-year holding period described above, the excess
of the fair market value of the shares on the purchase date over the purchase
price will be treated as ordinary income to the participant. This excess will
constitute ordinary income in the year of sale or other disposition even if no
gain is realized on the sale or a gift of the shares is made. The balance of any
gain or loss will be treated as capital gain or loss and will be treated as
long-term capital gain or loss if the shares have been held more than one year.

In the case of a participant who is subject to Section 16(b) of the Exchange
Act, the purchase date for purposes of calculating such participant's
compensation income and beginning of the capital gain holding period may be
deferred for up to six months under certain circumstances. Such individuals
should consult with their personal tax advisors prior to buying or selling
shares under the 2004 Incentive Plan.

The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.

The Company is entitled to a deduction for amounts taxed as ordinary income to a
participant only to the extent that ordinary income must be reported upon
disposition of shares by the participant before the expiration of the two-year
holding period described above.

Restrictions on Resale

Certain officers and directors of our company may be deemed to be "affiliates"
of our company as that term is defined under the Securities Act. The Common
Stock acquired under the 2004 Incentive Plan by an affiliate may be reoffered or
resold only pursuant to an effective registration statement or pursuant to Rule
144 under the Securities Act or another exemption from the registration
requirements of the Securities Act.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our largest customer since early 2001 has been Pantel Rt, a Hungary-based
alternative telecommunications provider. Pantel Rt 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 Rt.

Due to the fact that a significant portion of our revenue derives from the
international/domestic leased line and Voice over Internet Protocol services,
some of our representatives are located on the premises of Pantel in order to
improve co-operation on international projects.

After the acquisition and consolidation of the remaining 51% of Euroweb Hungary
shares that we did not already own and of Elender Rt. in 2004, the balance and
volume of transactions with Pantel Rt. 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 Rt. Second, sales
dependency on Pantel Rt. (i.e. percent of consolidated sales derived from Pantel
Rt.) will decrease as Euroweb Hungary and Elender Rt. have insignificant sales
to Pantel Rt. Third, dependency on Pantel Rt as our main supplier will increase
as Pantel Rt is also the main supplier of Euroweb Hungary.

Euroweb Hungary and Euroweb Romania have engaged in transactions with Pantel Rt.
Pantel Rt. receives revenue from the provision of the following services to our
subsidiaries:

o Internet and related services;
o National and international leased and telephone lines;
o VOIP services;
o Consulting services; and
o Interest on a loan to our company.

The total amount of these services were USD $4,596,878 (2003: $4,290,341 -
restated) during the nine month period ended September 30, 2004 of which
$141,980 (2003: $163,539 restated) is interest expense and consulting fees,
while the remaining balance is telecom related.

Together with our subsidiaries, we received revenue from the provision of the
following services to Pantel:

o Cost of international leased lines and local telephone lines in Slovakia and
Romania;
o International/national data and voice over internet protocol services for
Pantel;
o Internet and related services;
o Consulting services; and
o Commission.

Total value of these services were approximately USD $5,533,618 (2003:
$3,990,294 - restated) in the nine months period ended September 30, 2004.

During the nine months ended September 30, 2004, direct sales to Pantel Rt. were
22% of total consolidated revenue. However, the dependency on Pantel is even
more significant. Some third party sales of Euroweb Romania involve Pantel Rt.
as the subcontractor/service provider for the international/domestic lines
(hence the revenues related to Pantel Rt. are greater than the amounts paid to
Pantel Rt.), and some third party customers are also clients of Pantel Rt.
outside of Romania (i.e. their relationship with Pantel is stronger than their
relationship with Euroweb Romania).

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. The Company always considers alternative suppliers for each
individual project.

In 2004, KPN Telecom B.V. (the majority owner of Pantel Rt. and our largest
shareholder), announced its intention to divest its interest in Pantel Rt., with
certain sale agreements being signed with a view to final consummation in 2005.
In addition, on January 28, 2005, KPN entered into a Stock Purchase Agreement
whereby it sold to CORCYRA 289,855 shares of our common stock for US $1,000,000
on February 1, 2005 and has also agreed to sell its remaining 2,036,188 shares
of our common stock on or prior to April 30, 2006. If final consummation of
these transactions occur, then we will no longer be a related party with Pantel
Rt. It cannot be predicted in advance whether this change will have an influence
on the business relationship between our company and Pantel Rt. However, our
management is confident - although we cannot be assured - that the current
business agreements were made on arms-length principles and are beneficial to
both parties, and therefore significant changes may not occur.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 2, 2005 by (i) each person known by
our company to own beneficially more than 5% of the outstanding Common Stock;
(ii) each director of our company; (iii) each officer of our company and (iv)
all executive officers and directors as a group. Except as otherwise indicated
below, each of the entities or persons named in the table has sole voting and
investment powers with respect to all shares of Common Stock beneficially owned
by it or him as set forth opposite its or his name.

Shares
Name and Address Beneficially Owned(1) Percent Owned (1)
--------------------------------------------------- ----------------------------
KPN Telecom B.V. (4) 2,036,188 38.11%
Maanplein 5
The Hague, The Netherlands

Fleminghouse Investments Limited 522,054 9.77%
Chrysanthou Mylona 3, P.C.
3030 Limassol
Cyprus

CORCYRA d.o.o.(3) 2,326,043 43.53%
Verudela 17
Pula Croatia 52100

Csaba Toro (2)(5)(6) 94,250 1.76%
1138 Budapest
Vaci ut 141.
Hungary

Howard Cooper (6)(7) 25,000 *
2135 Burgess Creek Road, Ste. #7
Steamboat Springs, CO 80477

Stewart Reich (6)(7) 25,000 *
18 Dorset Lane,
Bedminister, NJ 07921

Gabor Ormosy
Fleminghouse Investments Limited 0 0
Chrysanthou Mylona 3, P.C. (3)
3030 Limassol
Cyprus

Yossi Attia (6) 0 0
1061 1/2 Spalding Ave.
West Hollywood, CA 90046

Ilan Kenig (6) 0 0
7438 Fraser Park Drive
Burnaby, BC Canada V5J 5B9

All Officers and Directors as a 144,250 2.70%
Group (6 Persons)

* Less than one percent

(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of this table, a person or
group of persons is deemed to have "beneficial ownership" of any shares which
such person has the right to acquire within 60 days after February 2, 2005. For
purposes of computing the percentage of outstanding shares held by each person
or group of persons named above on February 2, 2005 any security which such
person or group of persons has the right to acquire within 60 days after such
date is deemed to be outstanding for the purpose of computing the percentage
ownership for such person or persons, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Mr. Toro owns, directly or indirectly, 1.76% of the issued and outstanding
shares of the Company represented by options to purchase 94,250 shares.
(3) Pursuant to a Stock Purchase Agreement dated as of January 28, 2005, by and
between KPN Telecom B.V. ("KPN Telecom"), a company incorporated under the laws
of the Netherlands, and CORCYRA d.o.o., a Croatian company ("CORCYRA"), (the
"Purchase Agreement"), KPN Telecom sold to CORCYRA 289,855 shares (the "Initial
Shares") of our common stock for US $1,000,000 (the "Initial Closing"). The
Initial Closing occurred on February 1, 2005. Pursuant to the Purchase
Agreement, CORCYRA has also agreed to purchase and, KPN has agreed to sell, KPN
Telecom's remaining 2,036,188 shares of our common stock (the "Final Shares") on
April 30, 2006 (the "Final Closing"); provided, however, that upon 14 days'
prior written notice to KPN Telecom, CORCYRA may accelerate the Final Closing to
an earlier month-end date as specified in such notice; provided, further, that
the Final Closing is subject to the satisfaction or waiver of all of the
conditions to closing set forth in the Purchase Agreement. Accordingly, CORCYRA
presently owns 289,855 shares of common stock and is deemed to own, pursuant to
Rule 13d-3(d), promulgated under the Securities Exchance Act of 1934, as
amended, the remaining 2,036,188 shares held by KPN Telecom.

(4) KPN Telecom B.V. is a subsidiary of Royal KPN N.V.
(5) An officer of the Company.
(6) A director of our company.
(7) Includes an option to purchase 25,000 shares of common stock at an exercise
price of $4.21 per share. The options vest on April 13, 2004.

The foregoing table is based upon 5,342,533 shares of common stock outstanding
as of February 2, 2005.

DESCRIPTION OF SECURITIES TO BE REGISTERED

The rights evidenced by the shares of common stock to be registered hereunder
are described below. Our total authorized capital stock is 35,000,000 shares of
common stock and 5,000,000 shares of preferred stock. As of February 2, 2005
there were issued and outstanding 5,342,533 shares of common stock.

Common Stock. Each holder of common stock is entitled to one vote per share held
of record on all matters submitted to a vote of the stockholders. All shares of
common stock are entitled to participate in any distributions or dividends that
may be declared by the board of directors, subject to any preferential dividend
rights of outstanding shares of preferred stock. Subject to prior rights of
creditors, all shares of common stock are entitled, in the event of our
liquidation, dissolution or winding up, to participate ratably in the
distribution of all our remaining assets, after distribution in full of
preferential amounts, if any, to be distributed to holders of preferred stock.
There are no sinking fund provisions applicable to the common stock. Our common
stock has no preemptive or conversion rights or other subscription rights. All
of the shares of common stock offered by us under this prospectus will, when
issued, be fully paid and non-assessable.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Certificate of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Certificate of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act" or "Securities Act") may be permitted to directors, officers or
persons controlling us pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

PLAN OF DISTRIBUTION

Each Selling Stockholder (the "Selling Stockholders") of our common stock and
any of their pledges, assignees and successors-in-interest may, from time to
time, sell any or all of their shares of common stock on the trading market or
any other stock exchange, market or trading facility on which the shares are
traded or in private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the following methods
when selling shares:

o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

o purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

o an exchange distribution in accordance with the rules of the applicable
exchange;

o privately negotiated transactions;

o settlement of short sales entered into after the date of this prospectus;

o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;

o a combination of any such methods of sale;

o through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise; or

o any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), if available, rather
than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each Selling Stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.

In connection with the sale of our common stock or interests therein, the
Selling Stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the
Company that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute the Common Stock.

We are required to pay certain fees and expenses incurred by our company
incident to the registration of the shares. We have agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each Selling
Stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling
Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the Selling Stockholders without registration
and without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to the prospectus or Rule 144 under the Securities Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to our common stock for a period of two
business days prior to the commencement of the distribution. In addition, the
Selling Stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time of
the sale.

PENNY STOCK

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the definition of a "penny stock," for the purposes relevant to us, as any
equity security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require:

o that a broker or dealer approve a person's account for transactions in penny
stocks; and
o the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.

In order to approve a person's account for transactions in penny stocks, the
broker or dealer must

o obtain financial information and investment experience objectives of the
person; and
o make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:

o sets forth the basis on which the broker or dealer made the suitability
determination; and
o that the broker or dealer received a signed, written agreement from the
investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

SELLING STOCKHOLDERS

The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.

The following table also sets forth the name of each entity who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.

Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering (1) After the Offering (2)
------------------ ---------------- -------------------------------- ---------------- --------------------------------
Total Shares
Name Number Percent Registered Number Percent
----------------------------------- --------------- ---------------- ---------------- ---------------- ---------------

CERTUS Kereskedelmi Korlatolt 82,890 1.55% 82,890 0 --
Felelossegu Tarsasag(1)
Hungary
1025 Budapest Vihorlat u. 10
----------------------------------- --------------- ---------------- ---------------- ---------------- ---------------
RUMED 2000 Kft. (2) 72,257 1.35% 72,257 0 --
Hungary
1056 Budapest
Iranyi u. 1
----------------------------------- --------------- ---------------- ---------------- ---------------- ---------------
Fleminghouse Investments Limited 522,054 9.77% 522,054 0 --
Chrysanthou Mylona 3, P.C. (3)
3030 Limassol
Cyprus
----------------------------------- --------------- ---------------- ---------------- ---------------- ---------------
Total 677,201
----------------------------------- --------------- ---------------- ---------------- ---------------- ---------------

The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholder has sole or shared voting power or investment power and
also any shares, which the selling stockholder has the right to acquire within
60 days.

(1) CERTUS Kereskedelmi Korlatolt Felelossegu Tarsasag is beneficially owned by
Lepp Gyula, Lepp Judit, and Leppne Ruzsovics Krisztina.

(2) RUMED 2000 Kft. is beneficially owned by Dr. Koka Janos and Dr. Kokane
Ruzsovics Agnes.

(3) Fleminghouse Investments Limited is beneficially owned by WALLIS BEFEKTETESI
GAZDASAGI TANACSADO ES VAGYONKEZELESI RT ("Wallis"). Wallis, a limited company,
with its registered seat in Hungary owns 99.9% of the outstanding ordinary
shares of Fleminghouse Investments Limited. The majority shareholder of Wallis,
Mr. Tibor Veres, owns 83.55% of Wallis, may be deemed the control person of the
shares owned by Fleminghouse Investments Limited, with final voting power and
investment control over such shares. Vitonas, the original owner of Elender Rt.
has assigned all shares of Euroweb International and loans payable by Elender to
Vitonas to Fleminghouse Investment Limited.

LEGAL MATTERS

Sichenzia Ross Friedman Ference LLP, New York, New York will issue an opinion
with respect to the validity of the shares of common stock being offered hereby.

EXPERTS

The consolidated financial statements of Euroweb International Corp. as of
December 31, 2003 and for each of the years in the two year period ended
December 31, 2003 have been included in this registration statement in reliance
upon the reports of KPMG Hungaria Kft., an independent registered public
accounting firm appearing elsewhere herein and upon the authority of said firm
as experts in accounting and auditing. The audit report covering the December
31, 2003 balance sheet and the consolidated financial statements for each of the
years in the two year period ended December 31, 2003 (1) contains an explanatory
paragraph stating that the consolidated financial statements give retroactive
effect to the merger of the Company and Euroweb Rt. which has been accounted for
as a combination of entities under common control in a manner similar to a
pooling of interests and (2) refers to a change in the method of accounting for
goodwill and other intangibles in 2002.

The financial statements of ELENDER Business Communications Services Rt.
included in this prospectus have been audited by Deloitte Auditing and
Consulting Ltd, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

We have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Euroweb International Corp., filed as
part of the registration statement, and it does not contain all information in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.

We are subject to the informational requirements of the Securities Exchange Act
of 1934 which requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Such reports, proxy
statements and other information may be inspected at public reference facilities
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549.
Copies of such material can be obtained from the Public Reference Section of the
SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.

INDEX TO FINANCIAL STATEMENTS

EUROWEB INTERNATIONAL CORP.

INDEX TO FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2004 and 2003 (Unaudited)

Consolidated Balance Sheet as of September 30, 2004 (Unaudited).................F-2
Consolidated Statements of Operations for the nine months ended
September 30, 2004 and 2003 (restated) (Unaudited).............................F-3
Consolidated Statements of Stockholders' Equity as of
September 30, 2004 (Unaudited).................................................F-4
Consolidated Statements of Cash Flows For the nine months ended
September 30, 2004 and 2003 (restated) (Unaudited).............................F-5
Notes to the Consolidated Financial Statements (Unaudited)......................F-6

For the Years Ended December 31, 2003 (restated) and 2002 (restated)

Report of Independent Registered Public Accounting Firm.........................F-15
Consolidated Balance Sheet (restated)...........................................F-17
Consolidated Statement of Operations and Comprehensive Loss
(restated).....................................................................F-18
Consolidated Statement of Stockholders Equity (restated)........................F-19
Consolidated Statement of Cash Flows (restated).................................F-20
Notes to Consolidated Financial Statements (restated)..........................F-21

Financial Statements of Elender Business Communications Services Rt. for the
years ended December 31, 2003 and 2002

Report of Independent Public Accountants........................................F-38
Balance Sheets..................................................................F-39
Statements of Operations........................................................F-40
Statements of Changes in Stockholders' Deficit..................................F-41
Statements of Cash Flows........................................................F-42
Notes to Financial Statements...................................................F-43

Financial Statements of Elender Business Communications Services Rt. for the
three months ended March 31, 2004 (unaudited)

Condensed Balance Sheets as of March 31, 2004 and
December 31, 2003..............................................................F-52
Condensed Statements of Operations for the quarters ended
March 31, 2004 and 2003........................................................F-53
Condensed Statements of Cash Flows for the quarters ended March 31,
2004 and 2003..................................................................F-54
Notes to Financial Statements...................................................F-55

Unaudited Pro Forma Consolidated Financial Statements.............................................F-56

F-1

EUROWEB INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEET
September 30, 2004
(Unaudited)
ASSETS

Current Assets
Cash and cash equivalents .................................... $ 4,607,608
Investment in securities ..................................... --
Trade accounts receivable, net ............................... 3,166,749
Related party receivables .................................... 1,439,565
Current portion of note receivable ........................... 21,771
Prepaid and other current assets ............................. 2,315,421
-------------
Total current assets .................................... 11,551,114

Property and equipment, net .................................... 7,057,793
Assets under construction ...................................... 435,023
Intangibles - customer contracts ............................... 2,167,015
Goodwill ....................................................... 5,943,821
-------------
Total assets .............................................. $ 27,154,766
=============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Trade accounts payable ....................................... $ 4,079,193
Related party payables ....................................... 928,955
Related party loan payable - short term portion .............. 488,729
Overdrafts and current portion of bank loans ................. 435,637
Current portion of notes payable ............................. 1,053,975
Other current liabilities .................................... 715,039
Accrued expenses ............................................. 2,157,728
Deferred IRU revenue ......................................... 46,000
Deferred other revenue ....................................... 1,116,985
-------------
Total current liabilities ................................. 11,022,241

Non-current portion of deferred IRU revenue ................... 808,834
Non-current portion of related party loan payable ............. 733,093
Non-current portion of bank loans ............................. 711,111
Non-current portion of notes payable .......................... 181,712
Non-current portion of lease obligations ...................... 144,605
-------------
Total liabilities ......................................... 13,601,596

Commitments and contingencies

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 shares ....................... 24,807
Additional paid-in capital .................................... 50,755,993
Accumulated deficit ........................................... (36,066,607)
Accumulated other comprehensive losses: ....................... (45,611)
Treasury stock - 175,490 common shares, at cost .............. (1,115,412)
-------------
Total stockholders' equity ................................. 13,553,170
-------------
Total liabilities and stockholders' equity ................. $ 27,154,766
=============

See accompanying notes to consolidated financial statements.

F-2

EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

Nine months ended
September 30,
2004 2003
(restated)
------------- -------------

Revenues

Third party $ 19,631,983 $ 13,191,279
Related party 5,533,618 3,990,294

------------- -------------
Total Revenues 25,165,601 17,181,573

Cost of revenues (exclusive of depreciation
and amortization shown separately below)
Third party 11,606,917 6,764,310
Related party 4,454,898 4,126,802

------------- -------------

Total Cost of revenues (exclusive of depreciation
and amortization shown separately below) 16,061,815 10,891,112

Operating expenses
Compensation and related costs 3,306,058 2,418,226
Consulting and professional fees 2,158,069 1,299,616
Other selling, general and administrative expenses 2,836,855 1,963,853
Depreciation and amortization 1,466,329 1,301,017
------------- -------------
Total operating expenses 9,767,311 6,982,712

Loss from operations (663,525) (692,251)

Net interest (expense) income (130,113) 228,134

Gain from sale of subsidiaries 28,751 109,421

Loss before income taxes (764,887) (354,696)
------------- -------------
Provision for income taxes 50,455 77,057
------------- -------------
Net Loss (815,342) (431,753)
------------- -------------
Other comprehensive (income) loss 20,109 170,443
------------- -------------
Comprehensive loss $ (835,451) $ (602,196)
============= =============
Net loss per share, basic and diluted (.16) (.09)

Weighted average number of shares outstanding, basic and 4,948,753 4,665,332
diluted

See accompanying notes to consolidated financial statements

F-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, 2003
(restated) 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 - - - - (26,383) - (26,383)
Deemed distribution (Note 2) - - - (2,145,549) - - (2,145,549)
Compensation charge on share 70,121 70,121
options issued to consultants
Issuance of shares (Elender Rt. 677,201 678 2,458,108 2,458,786
acquisition)
Net loss for the period - - - (815,342) - - (815,342)
---------- -------- ------------ ------------- ------------- ------------ -------------
Balances, September 30, 2004 5,342,533 $24,807 $50,755,993 $(36,066,607) $ (45,611) $(1,115,412) $ 13,553,170
========== ======== ============ ============= ============= ============ =============

See accompanying notes to consolidated financial statements

F-4

EUROWEB INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended
September 30,
2004 2003
(restated)
------------- -------------

Cash flows from operating activities:
Net loss ............................................................ $ (815,342) $ (431,753)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ....................................... 1,466,329 1,301,017
Foreign currency gain ............................................... 43,428 (3,362)
Compensation expense booked to equity (options issued to consultants) 70,121 --
Realized gain on sale of securities ................................. (26,383) --
Unrealized interest income on securities ............................ -- (272,173)

Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable ................................................. 390,083 (565,541)
Prepaid and other assets ............................................ 160,416 (67,865)
Accounts payable, other current liabilities and accrued expenses .... (290,065) 709,935
Deferred revenue .................................................... 14,504 357,378
------------- -------------
Net cash provided by operating activities .................. 1,013,091 1,027,636
------------- -------------

Cash flows from investing activities:
Maturity of securities .............................................. 11,464,000 499,632
Collection on notes receivable ...................................... 152,140 141,274
Payment of acquisition indebtedness ................................. -- (180,000)
Acquisition of 100% of Elender Rt.net of cash and transaction costs . (6,459,219) --
Acquisition of 51% of Euroweb Rt., net of cash and transaction costs (2,142,000) --
Acquisition of property and equipment ............................... (1,570,738) (1,199,353)
------------- -------------
Net cash provided by (used in) investing activities ......... 1,444,183 (738,447)
------------- -------------
Cash flows from financing activities:
Change in bank loans and overdraft .................................. (211,375) --
Repayment of notes .................................................. (180,161) (129,945)
------------- -------------
Principal payments under capital lease obligations .................. (425,235) (386,187)
Net cash used in financing activities ........................ (816,771) (516,132)
------------- -------------
Effect of foreign exchange rate changes on cash ........................ (76,598) 3,615
------------- -------------
Net increase (decrease) in cash and cash equivalents ................... 1,563,905 (223,328)

Cash and cash equivalents, beginning of period ......................... 3,043,703 2,666,526
------------- -------------
Cash and cash equivalents, end of period ............................... $ 4,607,608 $ 2,443,198
------------- -------------
Significant non cash transactions:
Issuance of shares as part of Elender Rt. acquisition .................. $ 2,458,786 --
New capital leases ..................................................... $ 140,251 $ 245,904

See accompanying notes to consolidated financial statements.

F-5

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

1. (a) Organization and Business and Summary of Significant Accounting Policies

EuroWeb International Corp. (the "Company") is a Delaware corporation which was
organized on November 9, 1992. The largest shareholder of Euroweb International
Corp. is KPN Telecom B.V. ("KPN"), a Netherlands corporation, with a 43.6%
shareholding at September 30, 2004 (beneficiary ownership is 44.19%).

The Company owns and operates Internet service providers in, Hungary, Slovakia
and Romania. The Company operates in one business segment. See Note 8,
Subsequent Events which describes the disposition of the operations in the Czech
Republic on December 16, 2004.

Acquisition of remaining 51% of Euroweb Hungary Rt.

The Hungarian operations conducted through Euroweb Hungary Rt. were historically
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 Telecommunication Rt. ("Pantel Rt.") and is fully
consolidated in the financial statements for all periods presented (see Note 2).

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 by Euroweb
Hungary Rt. 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.

Acquisition of Elender Business Communications Rt. ("Elender Rt.")

On June 9, 2004, the Company acquired all of the outstanding shares of Elender
Rt., an Internet Service Provider ("ISP") located in Hungary. Consideration paid
of $9,142,572 consisted of $6,500,000 in cash and 677,201 of the Company's
common shares valued at $2,508,353 excluding registration costs,, and $134,219
in transaction costs (consisting primarily of professional fees incurred related
to attorneys, accountants and valuation advisors). The results of Elender Rt.
have been included in the Company's consolidated financial statements from the
date of acquisition.

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 on a
preliminary basis as follows:

Fair value of Elender Rt.'s recorded assets acquired and liabilities assumed 1,351,991
Identified intangibles - customer contracts 2,412,759
Excess purchase of price over allocation to identifiable assets and liabilities (Goodwill) 5,377,822
------------
Total Consideration $ 9,142,572
============

F-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 early 2005.

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 Rt.'s services, among other factors. The acquired identifiable
intangible assets obtained in the Company's acquisition of Elender Rt. relate to
customer contracts which are being amortized over the estimated useful life of 3
years.

The Company preliminarily estimated 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 preliminarily 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 company has recognised goodwill, which arises mainly from
the planned synergy effects and improvements of effectiveness between Elender
and Euroweb Hungary.

The former owners of Elender Rt. received shares of common stock of the Company
but each currently holds less than 10% of the outstanding shares of common stock
in the Company. Accordingly, they are not considered related parties and the
Elender Rt. loans payable to these former owners are shown as third party
transactions in the unaudited interim consolidated financial statements of the
Company.

The following table presents unaudited summarized combined results of operations
of the Company and Elender Rt., and the sale of Euroweb Czech Republic on a pro
forma basis, as though the companies had been combined as of January 1, 2003:

--------------------- --------------- ---------------------- --------------------- --------------------
Twelve months ended Nine months ended Nine months ended
December 31, 2003 September 30, 2004 September 30, 2003
--------------------- --------------- ---------------------- --------------------- --------------------

Revenues $37,370,370 $ 34,982,682 $ 32,144,782
--------------------- --------------- ---------------------- --------------------- --------------------
Net loss $(2,807,661) $ (1,342,511) $ (1,933,627)
--------------------- --------------- ---------------------- --------------------- --------------------
Net loss per share (0.53) (0.25) (0.36)
--------------------- --------------- ---------------------- --------------------- --------------------

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. 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.

(b) Principles of consolidation and basis of presentation

The unaudited consolidated financial statements comprise the accounts of the
Company and its majority owned subsidiaries. All material inter-company balances
and transactions have been eliminated upon consolidation and all adjustments,
consisting mainly of normal recurring accruals, necessary for a fair
presentation, have been made.

The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of America
("U.S. GAAP").

The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements of the Company for the year
ended December 31, 2003, including the notes thereto.

F-7

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

revenues and expenses during the reporting period. Significant items subject to
such estimates and assumptions made by the Company include the period of benefit
and recoverability of goodwill and other intangible assets. Actual results could
differ from those estimates.

(d) 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.

(e) Revenue recognition

Revenue Recognition--The Company applies the provisions of SEC Staff Accounting
Bulletin ("SAB") No. 104, Revenue Recognition in Financial Statements, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB No. 104 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosure
related to revenue recognition policies. In general, the Company recognizes
revenue related to its billable services when (i) persuasive evidence of an
arrangement exists, (ii) services have been rendered, (iii) the fee is fixed or
determinable and (iv) collectibility is reasonably assured. Generally, these
criteria are met monthly as the Company's service is provided on a
month-to-month basis and collection for the service is generally made within 30
days of the service being provided.

Billable services revenues are recognized in the period in which fees are fixed
or determinable and the related services are provided to the user. When the
Company's subscribers pay in advance for services, revenue is recognized ratably
over the period in which the related services are provided. Advance payments
from users are recorded on the balance sheet as deferred revenue. In
circumstances where payment is not received in advance, revenue is only
recognized if collectibility is reasonably assured.

Access revenues consist of monthly fees charged to customers for dial-up
Internet access services. Access revenues also consist of fees charged for
high-speed, high-capacity access services including digital subscriber line
("ADSL") and leased lines. Voice revenue relates to the transmission of voice
information in digital form in discrete packets. Revenues are recognized on a
monthly basis based on usage.

Data revenue refers to the provision of leased lines to business customers.
Revenues are derived from monthly fixed fees and are recognized in the month
earned.

Domain registration revenue is usually billed in advance for a period of between
0-2 years. It is recorded as deferred revenue on the balance sheet and is taken
into income monthly on a straight-line basis.

Web design relates to services performed for customers who require assistance
with setting up a web page. Revenue is recognized once the final product has
been accepted by the customer. Any work-in-progress is classified as ,,other
assets" on the balance sheet.

Hosting revenues consist of fees earned by leasing server space and providing
web services to companies and individuals wishing to present a web or e-commerce
presence. Revenues are derived from monthly fixed fees and are recognized in the
month earned.

Revenues from prepaid calling card sales are recognized when the customer uses
the cards and are based on the ratio of actual minutes used to minutes
purchased. Once the prepaid calling cards expire, any remaining prepaid amounts
are recognized as revenues.

In 2002, the Company entered into an agreement to provide transmission capacity
to a customer pursuant to an indefeasible rights-of-use agreement ("IRU"). Since
the Company's IRU does not involve a transfer of title and other factors,
management believes the agreement does not qualify for up-front sales treatment
despite collection in full of the $920,000 arrangement fee. The Company has
accounted for this transaction as an operating lease under Financial Accounting
Standards Board Interpretation No. 13, "Accounting for Leases" ("FAS 13"). This
accounting has resulted in a substantial amount of deferred revenue being
recorded on the balance sheet. Revenue attributable to the lease is being
recognized on a straight-line basis over the term of the 20-year lease agreement
(monthly $3,833).

The Company is also obligated to maintain its network in efficient working order
and in accordance with industry standards. The customer is obligated for the
term of the agreement to pay for their allocable share of the costs for
operating and maintaining the network.

(f) Cost of revenues (excluding depreciation and amortization)

F-8

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

Cost of revenues (excluding depreciation and amortization) comprise principally
of telecommunication network expenses, costs of content services and cost of
leased lines.

(g) 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 its subsidiary,
Euroweb Romania in the Romanian Lei ("ROL"). In Romania, which has a
hyper-inflationary economy, the U.S. dollar is used as the functional currency.
The Company's financial statements prepared in ROL are remeasured into U.S.
dollars using the following policies:

|X| Monetary assets and liabilities are remeasured into the functional currency
using the exchange rate at the balance sheet date.

|X| Non-monetary assets and liabilities are remeasured into the functional
currency using historical exchange rates.

|X| 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'. Foreign currency
transaction gains and losses for all subsidiaries are included in the
consolidated results of operations for the periods presented.

(h) Property and equipment

Property and equipment are stated at cost, less accumulated depreciation.
Equipment accounted for as capital leases are 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 life 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.

(i) Goodwill and Other Intangibles

Goodwill results from business acquisitions and represents the excess of
purchase price over the fair value of net assets acquired. Amortization was
computed over the estimated future period of benefit (generally five years) on a
straight-line basis until December 31, 2001. On January 1, 2002 the Company
adopted Statement of Financial Accounting Standard No. 142 ("SFAS 142"),
"Goodwill and Other Intangible Assets," which establishes that goodwill and
intangible assets acquired in a business combination and that have indefinite
useful lives are no longer amortized but rather are tested at least annually for
impairment. 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.

Intangible assets that have finite useful lives (whether or not acquired in a
business combination) are amortized over their estimated useful lives but also
reviewed for impairment in accordance with FASB No. 144 "Accounting for
Impairment or Disposal of Long Lived Assets". Intangibles consist of customer
lists which were acquired as a result of a purchase of assets and are being
amortized over the estimated future period of benefit of five years. The
assessment of recoverability and possible impairment are determined using
estimates of undiscounted future cash flows. The Company measures impairment
based on the amount by which the carrying value of the customer lists exceeds
its fair market value. Fair market value is determined primarily using the
projected future cash flows discounted at a rate commensurate with the risk
involved.

F-9

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

The Company has preliminarily assigned approximately $2.4 million to customer
contract intangible assets related to the acquisition of Elender Rt., and these
assets are being amortized over a period of three years. The Company had
initially assigned a value of $5.7 million to Goodwill related to the
acquisition of Elender Rt. However, a subsequent fixed asset valuation by an
independent valuation expert increased the value initially assigned to fixed
assets by $ 330,000 and therefore Goodwill was revised to $5.4 million in the
third quarter of 2004. As discussed in Note 1 a final determination of the
purchase accounting adjustments is expected by early 2005.

(j) 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.At September
30, 2004, the Company had one stock-based compensation plan. 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.

Except for the compensation expense recorded for two consultants, no stock-based
employee compensation cost is reflected in net income (loss), as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. For stock-based compensation
grants to non-employees, the Company recognizes as compensation expense the fair
market value of such grants as calculated pursuant to SFAS No. 123, amortized
ratably over the lesser of the vesting period of the respective option or the
individual's expected service period. The compensation charge for the two
consultants of $70,121is included in the net income is for the nine months ended
September 30, 2004.

Under the accounting provisions of SFAS No. 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:

Nine months ended September 30,
2004 2003
---------- ----------

Net loss:
Net loss as reported $(815,342) $(431,753)
Additional FAS 123 compensation expense (553,027) -
Pro forma net loss (1,368,369) (431,753)

Basic and diluted loss per share:
As reported $ (0.16) $ (0.09)
Pro forma (0.28) (0.09)

To determine pro forma information as if we had accounted for employee stock
options under the fair-value method as defined by SFAS No. 123, we used the
Black-Scholes method, assuming no dividends, as well as the following: weighted
average assumptions: expected life of 6 years, volatility of 88% and risk free
rate of 4%.

F-10

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

2. Business Combination following the "as-if"-pooling of interest method of
accounting

On February 12, 2004, the Company entered into a Share Purchase Agreement with a
related party, Pantel Rt. to acquire the remaining 51% of Euroweb Hungary shares
that the Company did not already own. Pantel Rt.'s majority shareholder is also
KPN. As this was a transaction between entities under common control (At the
date of the acquisition, KPN owned 50.17% of the voting common shares of the
Company and 75% of the voting common shares of Pantel Rt.), the transaction was
recorded in a manner similar to a pooling-of-interest, and accordingly the
historical consolidated financial statements have been restated to include the
financial position, results of operations and cash flows of Euroweb Hungary for
all periods presented. Since the purchase consideration was in excess of Euroweb
Hungary's book value by $ 2,145,549 it is accounted for as a deemed distribution
to KPN which results in a deduction from retained earnings.

It should be noted that prior to the February 12, 2004 transaction the Hungarian
operations conducted through Euroweb Hungary were accounted for under the equity
method in 2003 and 2002 as the Company held 49% of the shares of Euroweb
Hungary.

In order to ensure that the transaction was concluded at arm's length, the two
KPN Board members that are common to the Company and KPN were not involved in
the transaction as they recused themselves from the decision making process.
Accordingly, the transaction was reviewed and approved by an independent
committee consisting solely of the two independent Board members with the
assistance of Csaba Toro the Company's CEO and former Chairman of the Board.

3. Related party loan payable

A subsidiary of the Company has a loan from PanTel Rt. of HUF 245 million
(approximately $1.174 million) plus 13% annual interest.

Pursuant to the Loan Agreement, the subsidiary 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

Notes payable (approximately $1,235,687 as at September 30, 2004) relate to
outstanding Elender Rt. liabilities to three previous shareholders of Elender
Rt. Fleminghouse Investments Limited, Certus Kft. and Rumed 2000 Kft..
Approximately $508,000 is payable on December 31, 2004, while the remaining
amount is payable in four equal quarterly installments of HUF 36.438 million
(approximately $182,000), with the final payment on December 31, 2005. Euroweb
International Corp. Notes to Interim Unaudited Consolidated Financial Statements

F-11

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

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 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 follows APB 25 with
respect to accounting for grants made to employees, no compensation expense was
recorded for the options granted to the Chief Executive Officer and the five
employees. However, 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 for the
nine month period ended September 30, 2004 was $70,121).

In connection with the acquisition of Elender Rt. (Note 1), the Company issued
677,201 of common shares. The Company is required to register the shares of
common stock issued in connection with the Elender Rt. acquisition.

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 (approximately $ 126,368 due in 2005, $ 73,265 due in
2006, and $ 7,955 due in 2007), as well as non-cancelable agreements for office
premises ($ 584,264 in each of 2005 and 2006, $ 512,964 in 2007 and $416,000 in
2008).

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

A subsidiary of the Company has committed to purchase at least HUF 600 million
(approximately $3 million) worth of services from Pantel Rt. in each of
2004-2006.

(e) Elender Rt. acquisition

The Company is in the process of registering the shares of common stock issued
in connection with the Elender Rt. acquisition. Pursuant to section 1 of the
Registration Rights Agreement signed on June 1, 2004 with the Sellers of Elender
Rt., if the shares of common stock are not registered within 120 days of Closing
(Closing was on June 9, 2004) for reasons attributable to the Company, a penalty
of $ 2,000 per day is payable until the shares are registered. Although the
shares have yet to be registered, the Company is currently in discussions with
the former shareholders of Elender Rt. to obtain a waiver of the penalty, if
any.

(f) 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).

F-12

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

The Association of Internet Providers in Slovakia ("API") started a 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 more than the registrants
who registered in November 2003. On 15 July 2004, the Anti-Monopoly Office
dismissed the claim of API. However, API can appeal against this decision
although management is confident that the decision of the Anti-Monopoly Office
will be upheld. API has not filed an appeal to date.

There are no known significant legal procedures that have been filed and are
outstanding against the Company.

(g) Capital expenditure commitment

In August 2004, Euroweb Romania won a tender to provide domestic leased line
services over a period of 10 years. In connection with this transaction, the
company estimates that an investment of approximately $1,600,000 will be
required, of which approximately $350,000 has already been spent. The remaining
$ 1,250,000 will be spent over the next six months.

7. Related Party Transactions

The provision of international/domestic leased line and VOIP services are being
provided in conjunction with Pantel 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 September 30, 2004 it held 43.6% of the Company's outstanding
shares of common stock, beneficiary ownership was 44.19%). In the first nine
months of 2004 and fiscal 2003, Pantel Rt. was the most significant trading
partner of the Company comprising approximately 67% of the 2004 revenues of
Euroweb Romania (translating into 22% of the consolidated revenues of the
Company).

8. Subsequent events

(a) Capital expenditure commitment

In August 2004, Euroweb Romania won a tender to provide domestic leased line
services over a period of 10 years. In connection with this transaction, the
company estimates that - investments of approximately $1,600,000 will be made by
the second quarter of 2005.

(b) Sale of Euroweb Czech Republic

On November 29, 2004, the Company signed an agreement to dispose of all of its
shares in its wholly-owned subsidiary, Euroweb Czech for cash of $500,000.
However, as a part of the transaction, the Company effectively forgave $400,000
of loans receivable from Euroweb Czech. The closing occurred on December 16,
2004. Under the terms of the agreement, the Buyer has a right for a claim under
representation and warranties up to a maximum of $200,000. The sale of Euroweb
Czech will be accounted for as discontinued operations in the financials
statements of the Company. The Company recognized a gain in the fourth quarter
of 2004 of approximately US $405,000 on the sale of Euroweb Czech.

F-13

Euroweb International Corp.
Notes to Interim Unaudited Consolidated Financial Statements

9. Segment information

The following table summarizes financial information by geographic area for the
nine months ended September 30, 2004 and 2003 after intercompany eliminations
and allocation of certain salaries and revenues/direct cost to the respective
countries for better analysis:

2004 Slovakia Czech Romania Hungary Corporate Total

Revenues 2,901,760 736,844 9,092,167 12,434,830 - 25,165,601
Profit /(loss) 260,901 (66,192) 197,180 (102,805) (1,104,426) (815,342)
Total assets 238,441 32,181 2,207,134 5,015,060 - 7,492,816

2003 Slovakia Czech Romania Hungary Corporate Total

Revenues 2,469,216 894,315 7,537,308 6,280,734 - $17,181,573
Profit /(loss) 54,620 (221,570) 188,227 (195,069) (257,961) (431,753)
Total assets 349,232 69,117 1,692,382 925,704 - 3,036,435

Costs and revenues have been allocated to the respective countries. Goodwill and
related impairment amounts are recorded in the books of the Corporate entity and
allocated to segments.

F-14

EUROWEB INTERNATIONAL CORP. AND SUBSIDIARIES

Consolidated Balance Sheet as of December 31, 2003, and Consolidated Statements
of Operations & Comprehensive Loss, Stockholders' Equity, and Cash Flows for the
Years ended December 31, 2003 and 2002

F-15

Report of the Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Euroweb International Corp.

We have audited the accompanying consolidated balance sheet of Euroweb
International Corp. and subsidiaries as of December 31, 2003, and the
consolidated statements of operations and comprehensive loss, stockholders'
equity, and cash flows for the years ended December 31, 2003 and 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Euroweb
International Corp. and subsidiaries as of December 31, 2003, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2003 and 2002 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in note 1(k) to the restated consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangibles in
2002.

The consolidated financial statements give retroactive effect to the purchase of
Euroweb Rt. by the Company on February 29, 2004 which has been accounted for as
a combination of entities under common control in a manner similar to a pooling
of interests as described in Note 2 to the consolidated financial statements.

KPMG Hungaria Kft.
Budapest, Hungary
December 1, 2004

F-16

Euroweb International Corp. and subsidiaries Consolidated Balance Sheet December
31, 2003

2003
Restated (Note 2)

ASSETS
Current assets:
Cash and cash equivalents (note 3) ............................... $ 3,043,703
Investment in securities (note 4) ................................ 11,449,669
Trade accounts receivable, less allowance for doubtful accounts of
$1,053,064 ...................................................... $ 1,305,268
Related party trade receivables .................................. 1,145,069
Note receivable (note 5) ......................................... 173,911
Prepaid and other current assets ................................. 1,604,424
-------------
Total current assets ........................................ 18,722,044

Property and equipment, net (note 6) ............................... 2,782,239
Assets under construction .......................................... 47,853
Goodwill (note 7) .................................................. 566,000
-------------
Total assets .................................................. $ 22,118,136
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................... $ 1,323,747
Related party trade payables ..................................... 1,962,152
Short term related party loan payable (note 10) .................. 235,679
Other current liabilities ........................................ 903,275
Accrued expenses ................................................. 619,821
Deferred IRU revenue (note 8) .................................... 46,000
Deferred other revenues .......................................... 1,007,464
-------------
Total current liabilities ..................................... 6,098,138

Long term related party loan (note 10) ........................... 942,715
Non-current portion of deferred IRU revenue (note 8) ............. 843,334
Non-current portion of lease obligations (note 8) ................ 228,686
-------------
Total liabilities ............................................. 8,112,873

Commitments and contingencies (note 13)

Stockholders' equity
Preferred stock, $.001 par value - Authorized 5,000,000 shares;
no shares issued or outstanding ................................ --
Common stock, $.001 par value - Authorized 12,500,000 shares;
issued and outstanding 4,665,332 shares ........................ 24,129
Additional paid-in capital ........................................ 48,227,764
Accumulated deficit ............................................... (33,105,716)
Accumulated other comprehensive loss .............................. (25,502)
Treasury stock - 175,490 common shares, at cost ................... (1,115,412)
-------------
Total stockholders' equity ..................................... 14,005,263
-------------
Total liabilities and stockholders' equity ..................... $ 22,118,136
=============

See accompanying notes to consolidated financial statements.

F-17

Euroweb International Corp. and subsidiaries Consolidated Statements of
Operations and Comprehensive Loss Years Ended December 31, 2003 and 2002

2003 2002
Restated (Note 2) Restated (Note 2)

Revenues

Third party ........................................................................... $ 17,540,011 $ 14,495,646
Related party ........................................................................... 5,740,709 4,981,774

------------- -------------
Total Revenues ................................................................... 23,280,720 19,477,420

Cost of revenues (exclusive of depreciation and amortization shown separately below)
Third party .......................................................................... 8,827,513 7,490,713
Related party .......................................................................... 5,796,350 4,226,778

------------- -------------

Total Cost of revenues (exclusive of depreciation and amortization
shown separately below) ............................................................ 14,623,863 11,717,491

Operating expenses
Compensation and related costs .............................................................. 3,173,720 3,309,788
Severance to officers ....................................................................... -- 2,020,832
Consulting, professional and directors fees ................................................. 2,135,056 1,558,864
Other selling, general and administrative expenses .......................................... 2,723,011 2,846,094
Goodwill impairment (Note 7) ................................................................ 980,538 2,930,271
Impairment of intangibles (Note 7) .......................................................... 100,364 448,500
Depreciation and amortization ............................................................... 1,727,796 1,702,239
------------- -------------
Total operating expenses ........................................................ 10,840,485 14,816,588
------------- -------------
Loss from operations ........................................................................... (2,183,628) (7,056,659)

Net interest income ......................................................................... 344,570 353,632
Gain on sale of subsidiaries (Note 11) ..................................................... 109,621 --

Loss before income taxes ...................................................................... (1,729,437) (6,703,027)
Provision for income taxes ..................................................................... 61,590 --
------------- -------------

Net loss...................................................................................... (1,791,027) (6,703,027)

Other comprehensive (loss) income.............................................................. (261,644) 379,465
------------- -------------
Comprehensive loss ............................................................................ $ (2,052,671) $ (6,323,562)
============= =============

Net loss per share, basic ..................................................................... (0.38) (1.44)

Weighted average number of shares outstanding ................................................. 4,665,332 4,665,332

See accompanying notes to consolidated financial statements

F-18

Euroweb International Corp. and subsidiaries Consolidated statement of
stockholders' equity Year ended December 31,

Accumulated
Additional Other TOTAL
Common Stock Paid-in Accumulated Comprehensive Treasury Stockholders'
Shares Amount Capital Deficit Gains(Losses) Stock Equity
---------- -------- ------------ -------------- ---------- ------------ ------------

Balances, December 31, 2001 4,665,332 $24,129 $48,227,764 $ (24,611,662) $(143,323) $(1,115,412) $22,381,496
(Restated - Note 2)

Foreign currency translation loss - - - - 160,687 - 160,687
(Restated - Note 2)
Reclassification of realized gain (26,434) (26,434)
included in net income
Unrealized loss on securities - - - - 245,212 - 245,212
available for sale
Net loss for the period
(Restated - Note 2) - - - (6,703,027) - - (6,703,027)
---------- -------- ------------ -------------- ---------- ------------ ------------
Balances, December 31, 2002
(Restated - Note 2) 4,665,332 $24,129 $48,227,764 $ (31,314,689) $236,142 $(1,115,412) $16,057,934
========== ======== ============ ============== ========== ============ ============
Foreign currency translation loss - - - - (45,237) -
(Restated - Note 2) (45,237)
Unrealized loss on securities - - - - (216,407) - (216,407)
available for sale (Note 4)
Net loss for the period
(Restated - Note 2) - - - (1,791,027) - - (1,791,027)
---------- -------- ------------ -------------- ---------- ------------ ------------
Balances, December 31, 2003
(restated - Note 2) 4,665,332 $24,129 $48,227,764 $ (33,105,716) $(25,502) $(1,115,412) $14,005,263
========== ======== ============ ============== ========== ============ ============

See accompanying notes to consolidated financial statements

F-19

Euroweb International Corp. and subsidiaries Consolidated Statements of Cash
Flows Year Ended December 31, 2003 and 2002

2003 2002
(restated note 2) (restated note 2)

Cash flows from operating activities

Net loss ............................................................... $ (1,791,027) $ (6,703,027)

Adjustments to reconcile net loss to net cash provided by (used in)
operating
activities:
Depreciation and amortization .......................................... 1,727,796 1,702,239
Goodwill impairment .................................................... 980,538 2,930,271
Intangibles impairment - customer lists ................................ 100,364 448,500
Amortization of discount on acquisition indebtedness ................... 5,232 15,380
Gain on sale of subsidiaries ........................................... (109,621) --
Provision on doubtful accounts ......................................... 120,859 272,377
Foreign currency loss .................................................. 101,134 35,041
Realized gain on sale of investment securities ......................... (7,113) (26,434)
Unrealized interest income on investment securities .................... (360,539) (357,046)

Changes in operating assets and liabilities net of effects of acquisitions:
Accounts receivable .................................................... (685,063) (768,499)
Prepaid and other assets ............................................... 314,505 24,218
Accounts payable, other current liabilities and accrued expenses ....... 664,106 77,640
Deferred revenue ....................................................... 320,268 896,836
------------- -------------
Net cash provided by (used in) operating activities ............ 1,381,439 (1,452,504)
------------- -------------

Cash flows from investing activities:
Investment in securities ............................................... -- (13,506,666)
Maturity of securities ................................................. 798,567 16,654,820
Payment of acquisition indebtedness .................................... (180,000) (180,000)
Collection on notes receivable ......................................... 190,065 194,296
Proceeds from sale of subsidiaries ..................................... 4,933 --
Acquisition of Company, net of cash (cash greater than purchase price) . -- 215,859
Repayment of loan receivable ........................................... (129,945) --
Acquisition of property and equipment .................................. (1,171,983) (1,574,722)
------------- -------------
Net cash (used in) provided by investing activities ............ (488,363) 1,803,587
------------- -------------

Cash flows from financing activities:
Principal payments under capital lease obligations ..................... (616,611) (545,320)
Related party loan ..................................................... - 1,088,115
------------- -------------
Net cash (used in) provided by financing activities ............. (616,611) 542,795

Effect of foreign exchange rate changes on cash ........................... 100,712 22,188
------------- -------------

Net increase in cash and cash equivalents ................................. 377,177 916,066
Cash and cash equivalents, beginning of year .............................. 2,666,526 1,750,460
------------- -------------
Cash and cash equivalents, end of year .................................... $ 3,043,703 $ 2,666,526
============= =============
Supplemental disclosure:
Interest paid ............................................................. $ 158,306 $ 186,145
Income taxes paid ......................................................... $ 61,590 --
New capital leases ........................................................ $ 378,855 $ 358,404

See accompanying notes to consolidated financial statements.

F-20

1. Summary of Significant Accounting Policies and Practices

(a) Description of business

Euroweb International Corp. (the "Company") is a Delaware corporation which was
organized on November 9, 1992. The controlling owner of Euroweb International
Corp. is KPN Telecom BV (,,KPN"), a Netherlands corporation, which was also the
majority owner in 2003 and 2002.

The Company operates in the Czech Republic, Hungary, Romania and Slovakia,
through its subsidiaries Euroweb Czech Republic spol. s.r.o. ("Euroweb Czech"),
Euroweb Rt ("Euroweb Hungary"), Euroweb Slovakia a.s. ("Euroweb Slovakia") and
Euroweb Romania S.A. ("Euroweb Romania"). On December 16, 2004, the Company sold
Euroweb Czech (see Note 18f). 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, Internet Protocol data
services (3) Voice over Internet Protocol services (4) Facilities (lease of
fibre optic cables (see Note 1(e))

For the services in points (2) and (3) above, the primary customer of the
Company in 2003 and 2002 was Pantel Rt. ("Pantel"). Pantel is majority owned by
KPN and a related party (See Note 13).

(b) Principles of consolidation and basis of presentation

The consolidated financial statements comprise the accounts of the Company and
its majority owned subsidiaries. All material inter-company balances and
transactions have been eliminated upon consolidation.

The preparation of consolidated financial statements requires management to make
a number of 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant items subject to
such estimates and assumptions made by the Company include the period of benefit
and recoverability of goodwill and other intangible assets. Actual results could
differ from those estimates.

(d) 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.

(e) Revenue recognition

Data revenue refers to the provision of leased lines to business customers.
Revenues are derived from monthly fixed fees and are recognized in the month
earned.

F-21

(f) Cost of revenues (excluding depreciation and amortization)

Cost of revenues (excluding depreciation and amortization) comprise principally
of telecommunication network expenses, costs of content services and cost of
leased lines and are recognized as incurred.

(g) Foreign currency translation

The Company conducts business and maintains its accounts for Euroweb Romania in
the Romanian Lei ("ROL"). Romania is considered a highly inflationary economy
and, therefore the U.S. dollar is used as the functional currency. The Company's
financial statements presented in ROL are remeasured into U.S. dollars using the
following policies:

|X| Monetary assets and liabilities are remeasured into the functional currency
using the exchange rate at the balance sheet date.

|X| Non-monetary assets and liabilities are remeasured into the functional
currency using historical exchange rates.

The net effect of re-measurement from the local currency (ROL) into the
functional currency (US$) is included in the determination of net profit and
loss, under `Other selling, general and administration expenses'.

Foreign currency transaction gains and losses are also included in the
consolidated results of operations for the periods presented.

(h) Cash and cash equivalents

Cash and cash equivalents at December 31, 2003 include cash at bank and
short-term deposits of less than three months duration.

F-22

(i) Investment in securities

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 other comprehensive income until realized.
Investments with remaining maturities of greater than one year are classified as
long-term, while those with remaining maturities of less than one year are
classified as short-term. A decline in the market value of available-for-sale
securities below cost that is deemed to be other-than-temporary temporary
results in a reduction in the carrying value amount to fair value. Such
impairment is charged to earnings and a new cost basis for the security is
established. In assessing whether an impairment is other-than-temporary, the
Company considers several factors including, but not limited to, the ability and
internet to hold the investment, reason and duration for the impairment and
forecasted performance of the investee.

(j) 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. Total depreciation for the years ended December 31,
2003 and 2002 was $1,660,887 and $1,513,012 respectively.

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.

(k) Goodwill and Intangibles

(l) 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. Basic earnings (loss) per share
include no dilution and is computed by dividing income(loss) attributable to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share reflects the potential 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 years ended December 31, 2003 and 2002, which
were not included in the computation of diluted net loss per share because they
were antidilutive.

F-23

(m) Comprehensive income

Comprehensive income includes all changes in equity except those resulting from
investments by, and distributions to, owners. All items that are required to be
recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company has chosen
to present a Combined Statement of Operations and Comprehensive Loss.

(n) Business segment reporting

The Company's operations fall into one industry segment: providing Internet
access and additional value added services to business customers. Substantially
all of the Company's revenues are derived from the provision of such services.
The Company manages its operations, and accordingly determines its operating
segments, on a geographic basis. Consequently, the Company has four operating
segments: Euroweb Czech, Euroweb Hungary, Euroweb Romania, and Euroweb Slovakia.

(o) Income taxes

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities, net of appropriate valuation allowances, are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities, if any, are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

(p) 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" 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") and FASB Statement No. 148, ,,Accounting for Stock-Based Compensation
- Transition and Disclosure, an amendment of FASB Statement No. 123"established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by existing
standards, 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, as amended.

Under the accounting provisions of SFAS No. 123, the Company's 2003 and 2002 net
loss and net loss per share would have been increased to the pro forma amounts
indicated below:

2003 2002
Net loss:
Net loss as reported $(1,791,027) $(6,703,027)
Compensation expense (22,826) -
Pro forma net loss (1,813,853) (6,703,027)

Basic and diluted loss per share:
As reported $ (0.38) $ (1.44)
Pro forma (0.39) (1.44)

F-24

(q) Recently Issued Accounting Standards

On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which amends
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to address (1) decisions reached by the Derivatives Implementation
Group, (2) developments in other Board projects that address financial
instruments, and (3) implementation issues related to the definition of a
derivative. The Company does not believe that FAS 149 will have any impact on
its financial statements.

FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial
instruments within its scope. For the Company, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be
effective as of January 1, 2004, except for mandatory redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for the Company on January 1, 2005. The effective
date has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments. The Company currently does not have any
financial instruments that are within the scope of this Statement.

In December 2003, the Securities and Exchanges Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 104, "Revenue Recognition". SAB 104 revises or
rescinds certain SAB guidance in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations relating to revenue recognition. This bulletin is
effective immediately. The Company believes that its current revenue recognition
policies comply with SAB 104.

(r) Recently Adopted Accounting Standards

In June 2001, FASB Statement No. 143, Accounting for Asset Retirement
Obligations, was issued Statement. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also would record a corresponding asset
that is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation would be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company was adopted
Statement 143 on January 1, 2003. The adoption of Statement 143 had no effect on
the Company's financial statements.

In June 2002, FASB Statement No. 146, Accounting for Cost Associated with Exit
or Disposal Activities, was issued. Statement 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, ,,Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity". The provisions of
Statement 146 were effective for exit or disposal activities initiated after
December 31, 2002, with early application encouraged. The adoption of Statement
146 had no effect on the Company's financial statements.

F-25

In December 2002, FASB Statement No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123, was issued. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, Statement 148 amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements. The Company has elected to continue to apply the intrinsic
value-based method of accounting, and has adopted the disclosure requirements of
SFAS No. 123, as amended.

2. Business Combination following the "as-if" pooling-of-interest method of
accounting

On February 12, 2004, the Company entered into a Share Purchase Agreement with a
related party, Pantel Rt. ("Pantel") to acquire the remaining 51% of Euroweb
Hungary shares that the Company did not already own. Pantel's majority
shareholder is also KPN. As this was a transaction between entities under common
control (At the date of the acquisition, KPN owned 50.17% of the voting common
shares of the Company and 75% of the voting common shares of Pantel Rt.), the
transaction was recorded in a manner similar to a pooling-of-interest, and
accordingly the historical consolidated financial statements have been restated
to include the financial position, results of operations and cash flows of
Euroweb Hungary for all periods presented. Since the purchase consideration was
in excess of Euroweb Hungary's book value by $ 2,145,549 it is accounted for as
a distribution to KPN which resulted in a deduction from retained earnings at
the closing of the transaction (February 29, 2004). There were no intercompany
transactions requiring elimination in any period.

The following table shows the historical results of the Company and Euroweb
Hungary for the periods prior to the consummation of the merger:

2003 2002
Revenues
The Company $ 14,761,374 $12,940,631
Euroweb Hungary 8,519,346 6,536,789
------------- ------------------
Total $23,280,720 $19,477,420
------------- ------------------
Net Loss
The Company $ (1,466,439) $(5,894,234)
Euroweb Hungary (324,588) (1,488,430)
------------- ------------------
Total $(1,791,027) $(6,703,027)
------------- ------------------

Prior to the February 12, 2004 transaction the Company's 49% interest in Euroweb
Hungary was accounted for under the equity method.

F-26

3. Cash Concentration

All cash and cash equivalents are held in current accounts as of December 31,
2003. Approximately $550,000 is held in the United States, and approximately
$400,000 is held in United States dollars in Romania, Slovakia and Hungary.
Approximately $200,000 is held in Romania in Euro. The remaining amounts are
held in local currency in Romania, Slovakia, Hungary and the Czech Republic.

4. Investment in Securities

The Company holds investments in United States Treasury Notes with a face value
of $11,464,000, which matured on February 15, 2004. During 2003, the Company
sold United States Treasury Notes with a face value of $805,000 for $798,567.

During 2003, the Company recorded gross unrealized losses of $253,539, gross
unrealised gains of $30,019, gross realised gains of $7,113, and the accretion
of interest on the Notes of $360,539. In 2002, the Company recorded gross
unrealized gains of $245,212, gross realised gains of $26,434, gross realised
losses of $1,006, and the accretion of interest on the Notes of $357,046.
Amounts reclassified out of accumulated other comprehensive income into earnings
was based on average cost.

5. Notes Receivable

In December 1998, the Company sold its entire shareholding in a wholly-owned
Hungarian subsidiary, Teleconstruct Epitesi, for $1,500,000. The sale was
satisfied by a payment of $500,000 in January 1999 and the receipt of a
promissory note for $1,000,000 payable in sixty equal monthly installments,
including interest at approximately 7.3% per annum. The note is collateralized
by a building. The receivable is due to be fully collected by the end of 2004.

6. Property and equipment -

Property and equipment as at December 31, 2003 comprise the following:

2003 Useful Life
---- -----------
Software $ 718,024 3 years
Internet equipment 4,083,408 3 years
Fibre optic cables-Romania 1,136,600 20 years
Vehicles 992,915 4-5 years
Other 1,475,327 3-5 years
------------
Total 8,406,274
Less accumulated depreciation (5,624,035)
------------
$ 2,782,239
============

7. Goodwill and Other intangible assets

Acquired Intangible Assets
Goodwill and other intangible assets as at December 31, 2003 comprise the
following:

2003
----
Customer lists $1,150,000
Goodwill 10,202,165
-----------
Total 11,352,165
Less impairment Customer lists (548,864)
Less impairment -Goodwill (5,843,007)
Less accumulated amortization-Customer lists (601,136)
Less accumulated amortization-Goodwill (3,793,158)
-----------
$566,000
===========
F-27

No goodwill was recorded in 2003.

Amortization charged during 2003 was $66,909. The customer lists were obtained
during the course of the purchase of assets from a Romanian company in 2000.

Impairment Charges

At the beginning of 2004 and 2003 the Company performed an annual impairment
test relating to the goodwill recorded in its books as of December 31, 2003 and
2002. Euroweb Romania, Euroweb Czech, and Euroweb Slovakia were identified as
`reporting units' under SFAS 142. The Company compared the fair value of the
reporting units to their carrying amounts, noting that the carrying amounts in
each case were higher than their fair values. The Company then compared the
implied fair value of each reporting unit's goodwill with their carrying amounts
and recorded an impairment charge of $980,538 (2002: $2,016,000). The impairment
relating to Euroweb Slovakia was $563,000 (2002: $442,000), Euroweb Czech was
$92,581 (2002:
$746,000) and Euroweb Romania was $324,957 (2002: $828,000). The remaining
goodwill as of December 31, 2003 for Euroweb Romania is $566,000 (2002: $
890,957). The Goodwill relating to Euroweb Czech and Euroweb Slovakia have been
fully impaired.

In 2002, an analysis of Euroweb Romania's customers and revenues generated by
the purchased customer list indicated that most of the customers on this
customer list were lost during the year. Therefore, the Company recorded an
impairment of $448,500, with the balance of $184,000 being amortized over the
remaining estimated period of benefit of 33 months. At the end of 2003, the
company again assessed the recoverability of the outstanding amount and wrote
down the remaining value ($100,364) to zero. The impairment was mainly due to
the fact that most of the customers migrated to other service providers.

8. Leases

Capital leases

The Company is committed under various capital leases, which expire over the
next four years. The amount of assets held under capital leases included in
property and equipment is as follows:

2003
----
Leased Internet equipment gross value 1,094,257
Leased vehicles gross value 447,405
Total gross book value leased assets 1,800,483
Less accumulated depreciation (1,024,245)
-----------
Total net book value leased assets $517,417
===========
The following is a schedule of future minimum capital lease payments (with
initial or remaining lease terms in excess of one year) as of December 31, 2003:

2004 $ 524,876
2005 189,461
2006 32,588
2007 24,197
2008 6,050
Total minimum lease payments 777,172
Less interest costs (87,086)
----------
Present value of future minimum lease payments 690,086
Less: current installments (461,400)
----------
Non-current portion of lease obligations $228,686
==========

The current portion of lease obligations are included in `Other current
liabilities' on the Balance Sheet.

F-28

Operating leases

The Company's subsidiaries in Slovakia and the Czech Republic each (as Lessee)
have five year non-cancelable lease agreements for office premises. Remaining
minimal rental payments total approximately $769,980; $168,264 in each of the
years 2004-2006, and $96,924 in 2007.

In 2002, the Company (as Lessor) entered into a twenty year Indefeasible Right
of Use agreement (,,IRU") to provide transmission capacity and collected the
$920,000 lease payment in full in the same year (See note 1(e)).

9. Acquisition Indebtedness

In connection with the acquisition of Euroweb Romania S.A., the company assumed
indebtedness of $ 540,000 from a selling shareholder. The indebtedness is
payable in three yearly installments of $180,000, commencing June 1, 2001. The
last payment was made in June 2003.

10. Related party loan payable

During 2002 Pantel Rt., a related party, provided a loan of HUF 245,000,000
(approximately $ 1.18 million) to a subsidiary of the Company. The loan bears
interest at a rate of 13%. The full balance of the loan is outstanding at
December 31, 2003 and is repayable in five equal instalments from December 2004
semi-annually until the end of 2006.

11. Gain on sale of subsidiaries

In 2003, Euroweb Hungary sold two subsidiaries for approximately $ 5,000. A gain
of $ 109,621 was recorded on the sales due to the fact that both subsidiaries
had net liabilities at the time of sale.

12. Income taxes

The income tax expense in 2003 of $61,590 (2002: nil) relates entirely to
current foreign tax.

The difference between the total expected tax expense (benefit) and tax expense
for the years ended December 31, 2003 and 2002 is accounted for as follows:

c
2003 2002
Amount % Amount %
--------- ------ -------- ------

Computed expected tax
Benefit $(588,009) (34.00) $(2,279,029) (34.00)

State Taxes Net of Federal Benefit - 0.00 (398,160) (5.94)

Foreign Tax Rate Differential 178,740 10.34 1,616,087 24.11

Utilization of net operating losses
not previously recognized (51,529) (2.98) - 0.00

Change in tax rates 194,390 11.24 - 0.00

Non-deductible expenses 333,383 19.28 - 0.00

Other - 0.00 (106,352) (1.59)

Change in Valuation Allowance (5,385) (0.31) 1,167,454 17.42
--------- ------ --------- ------
Total Expense (Benefit) $61,590 3.56% $ - 0.00%
========= ====== ========= ======

F-29

The change in the tax rates results from the fact that the corporate tax rate in
Hungary was 18% for 2003 and prior years, but in 2003, the Hungarian parliament
enacted a tax rate of 16% for 2004 and subsequent years. The net impact of the
change in tax rates has no material impact on the financial statements as the
Company has provided a full valuation allowance for deferred tax assets (see
below).

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets at December 31, 2003 and 2002 are as follows:

2003 2002
----------- -----------
Deferred Tax Assets:
Net Operating Loss Carryovers $5,241,133 $5,058,773
Other 76,351 46,389
Capital Loss Carryovers 63,801 1,278,955
----------- -----------
Gross Deferred Tax Assets 5,381,385 6,384,117
Valuation Allowance (5,381,385) (6,384,117)
----------- -----------
Net Deferred Tax Assets $ - $ -
=========== ===========

The valuation allowance was $4,174,553 at January 1, 2002. During 2003, the
valuation allowance decreased by $1,002,732, while during 2002 it increased by
$2,209,564.

The Company has unused net operating loss carryforwards at December 31, 2003 of
approximately $18.5 million available to offset future taxable income. Such
carryforwards expire in various years from 2008 through 2023, although $8.2
million arose in the first three years of operations in Hungary and as such are
eligible to be carried forward indefinitely under current Hungarian Tax
Legislation. The Tax Acts of some jurisdictions contain provisions which may
limit the net operating loss carryforwards available to be used in any given
year if certain events occur, including significant changes in ownership
interests. The Company has not assessed the impact of these provisions on the
availability of Company loss carryovers since the deferred tax assets are fully
offset by the valuation allowance.

The Company has unused capital loss carryovers at December 31, 2003 of
approximately $187,650. Capital loss carryforwards expire in 2004.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods in which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
not realize the benefits of these deductible differences at December 31, 2003.

13. Related party transactions

General: The largest customer of the Company since early 2001 has been Pantel
Rt., 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 a direct fiber cable connection, which enables
companies to transmit data to a variety of destinations by utilizing the
international connections of Pantel. Due to the increase in revenues from
International/domestic leased line and VOIP services provided in conjunction
with Pantel, some of the representatives of the Company have moved to the
premises of Pantel in order to improve the effectiveness of the co-operation on
international projects and daily operational issues. Csaba Toro, Chief Executive
Officer of Euroweb International Corp., was also the Chief Executive Officer of
Pantel until February 2003.

Transactions: Both Euroweb Slovakia and Euroweb Romania have engaged in
transactions with Pantel:

F-30

(a) Pantel provides the following services to the subsidiaries of the Company:

- Internet bandwidth
- National leased and telephone lines within Hungary - VOIP services
- Consulting services

The total amount of these services purchased from Pantel was $5,796,350 during
2003 (2002: $4,226,778). Additionally, consulting services amounted to $292,864
in 2003.

(b) The Company and its subsidiaries provided the following services to Pantel:

- International leased lines and local loops in Slovakia and Romania -
International IP and VOIP services
- Certain consultants are hired by the Company, but also work on projects for
Pantel. In these cases, Pantel is recharged a portion of the consulting fees

The total value of these services sold was approximately $5,740,709 in 2003
(2002: $4,981,774).

Direct sales to Pantel were 25% of total consolidated revenue in 2003 and 2002.
However, the dependency on Euroweb Romania on Pantel is even more significant.
Some third party sales involve Pantel as the subcontractor/service provider for
the international/domestic lines, and some third party customers were introduced
to the Company by Pantel (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 38% of total consolidated revenues of the
Company and approximately 88% of total sales of Euroweb Romania. There is no
such dependency in the case of Euroweb Czech or Euroweb Slovakia.

Pricing: Agreements are made at market prices or a portion of the margin based
on the financial investment into the specific services by each of the parties.
The Company considers alternative suppliers for individual projects, when
appropriate.

There were no other significant related party transactions in 2003.

14. Commitments and Contingencies

(a) Employment Agreements

An employment agreement with the Chief Executive Officer which provided for
aggregate annual compensation of $96,000 through December 31, 2005 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. Refer to Note 8 (Leases). The Company entered into capital leases for
vehicles in Romania, which were delivered in the first quarter of 2004. Total
future minimum lease payments under this agreement will be $96,837.

F-31

In 2002, Euroweb Romania provided an Indefeasible Right of Use for transmission
capacity on 12 pairs of fiber (see Note 8) over a period of 20 years, commencing
in 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) Legal Proceedings

There are no known significant legal procedures that have been filed and are
outstanding against the Company.

15. Stock Option Plan and Employee Options

a) Stock Option Plan

Under the Company's Stock Option Plan (the "Plan") which expired in 2003, an
aggregate of 134,000 shares of common stock were authorized for issuance. The
Plan provides that incentive and nonqualified options may be granted to
officers, directors and consultants of the Company for the purpose of providing
an incentive to those persons. The Plan may be administered by either the Board
of Directors or a committee of three directors appointed by the Board (the
"Committee"). The Board or Committee determines, among other things, the persons
to whom stock options are granted, the number of shares subject to each option,
the date or dates upon which each option may be exercised and the exercise price
per share.

Options granted under the Plan are generally exercisable for a period of up to
six years from the date of grant. Options terminate upon the option holder's
termination of employment or consulting arrangement with the Company, except
that, under certain circumstances, an option holder may exercise an option
within the three-month period after such termination of employment. An option
holder may not transfer any options although an option may be exercised by the
personal representative of a deceased option holder within the three-month
period following the option holder's death. Incentive options granted to any
employee who owns more than 10% of the Company's outstanding common stock
immediately before the grant must have an exercise price of not less than 110%
of the fair market value of the underlying stock on the date of the grant.
Moreover, the exercise term may not exceed five years. The aggregate fair market
value of common stock (determined at the date of grant) for which any employee
may exercise incentive options in any calendar year may not exceed $100,000. In
addition, the Company will not grant a nonqualified option with an exercise
price less than 85% of the fair market value of the underlying common stock on
the date of the grant.

As of December 31, 2003, the total number of shares for which options have been
issued and are exercisable pursuant to the Plan is 46,000 (2002: 61,500). No
options were granted under the plan in 2003 and 2002.

(b) Other Options

The Company has issued exercisable options pursuant to employment agreements. As
of December 31, 2003 fully vested options are outstanding and exercisable for
63,000 shares pursuant to the employment agreement with Mr. Csaba Toro, CEO. The
options were granted on April 2, 1999 (with exercise price equal to stock price
at date of grant) and expire on April 2, 2005. The options are exercisable at $
10.00 per share.

F-32

On October 13 2003, the Company granted two Directors 100,000 options each, at
an exercise price (equal to the fair value on that day) of $4.21 per share, with
25,000 options vesting on each April 13 of 2004-2007.

Stock options and employment agreement options are all considered options which
come under the guidelines of stock-based compensation. For options granted to
employees at exercise prices equal to the fair market value of the underlying
common stock at the date of grant, no compensation cost is recognized. In 2003,
grants were made to two Directors where the exercise price was equal to the fair
market price at the date of grant and therefore no expense was recognized as the
Company has elected to continue to apply the intrinsic value-based method of
accounting described in APB 25 (See Note 1 (p)).

SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123"),
requires the Company to provide pro forma information regarding net income and
earnings per share as if compensation cost for the Company's stock options had
been determined in accordance with the fair value-based method prescribed in
SFAS No. 123. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model. No grants were made
in 2002 and consequently in 2002 the reported loss is the same as the pro forma
loss, as all previous grants vested prior to 2002.

The amount calculated as total compensation expense in 2003 under SFAS No. 123
is $632,766 (calculated at grant date using Black-Scholes valuation model with
volatility of 88%, interest rate of 4%, expected life of 6 years and a
no-dividend assumption) for the options granted to the directors on October 13,
2003. Under the accounting provisions of SFAS No. 123, this compensation expense
is recorded over the vesting period of the options and the Company's 2003 net
loss and net loss per share would have increased to the pro forma amounts
indicated below:

2003 2002
Net loss:

Net loss as reported $(1,791,027) $(6,703,027)
Compensation expense (22,826) -
Pro forma net loss (1,813,853) (6,703,027)

Basic and diluted loss per share:
As reported $ (0.38) $ (1.44)
Pro forma (0.39) (1.44)

The following table summarizes the total number of shares for which options have
been issued (Stock Option Plan, Employment Agreements and grants to Directors)
and are outstanding:

2003 2002
---------------- --------------
Weighted Weighted
average average
exercise exercise
Options Price Options Price
--------- --------- --------- --------
Outstanding, January 1, 124,500 $9.00 319,500 $8.99
Granted 200,000 4.21 - -
Cancelled - - (185,000) 8.93
Expired (15,500) 7.65 (10,000) 10.00
--------- --------- --------- --------
Outstanding, December 31, 309,000 5.95 124,500 9.00
========= ========= ========= ========

F-33

The 200,000 options granted to Directors in 2003 are exercisable as follows:
50,000 exercisable on each April 14 of 2004, 2005, 2006, and 2007. The remaining
109,000 options outstanding as at December 31, 2003 are all exercisable as at
December 31, 2003.

No options were exercised in 2003 and 2002.

At December 31, 2003 the range of exercise prices and weighted average remaining
contractual life of outstanding options was $4.21 - $10.47 and 1.56 years-,
respectively.

16. Stock Warrants

As at December 31, 2003 and 2002, the total number of shares for which warrants
have been issued and are exercisable (at $ 11 per share) is 10,000. The warrants
expired unexercised on May 2, 2004.

17. Geographic information

The Company's operations fall into one industry segment: providing Internet
access and additional value added services to business customers. The Company
manages its operations, and accordingly determines its operating segments, on a
geographic basis. Consequently, the Company has four operating segments: Euroweb
Czech, Euroweb Hungary, Euroweb Romania, and Euroweb Slovakia. The performance
of geographic operating segments is monitored based on net income or loss from
operations (before income taxes, interest, and foreign exchange gains/losses).
The accounting policies of the segments are the same as those described in the
summary of accounting policies in Note 1. There are no inter-segment sales
revenues.

The following tables summarize financial information by geographic segment for
the year ended December 31, 2003 and 2002:

Geographic information for 2003

Slovakia Czech Romania Hungary Corporate Total

3rd party revenues 3,424,633 1,163,662 4,539,215 8,412,501 - $17,540,011
Pantel related revenues - - 5,633,864 106,845 - 5,740,709
Total revenues 3,424,633 1,163,662 10,173,079 8,519,346 - 23,280,720

Depreciation 328,182 91,663 466,853 841,098 1,727,796
Intangible impairment - - 100,364 - 100,364
Goodwill impairment 563,000 92,581 324,957 - 980,538

Interest income 18,990 463 3,934 82,012 390,349 495,748
Interest expense 28,269 213 24,333 93,132 5,231 151,178
Net interest (expense)
income (9,279) 250 (20,399) (11,120) 385,118 344,570

Income tax - - 61,590 - - 61,590

Net loss (457,092) (404,734) (399,232) (214,967) (315,002) (1,791,027)

Fixed assets, net 326,788 48,068 1,575,851 879,385 2,830,092
Fixed asset additions 94,954 8,978 752,848 310,270 1,167,050
Goodwill - - 566,000 - 566,000

Geographic information for 2002:

2002 Slovakia Czech Romania Hungary Corporate Total

3rd party revenues 2,651,744 1,415,541 4,000,005 6,428,356 - $14,495,646
Pantel related revenues 105,342 - 4,767,999 108,433 - 4,981,774
Total revenues 2,757,086 1,415,541 8,768,004 6,536,789 - 19,477,420

Depreciation 391,396 88,312 550,058 664,073 8,400 1,702,239
Intangible impairment - - 448,500 - - 448,500
Goodwill impairment 442,000 746,000 828,000 914,271 - 2,930,271

Interest income 5,584 1,281 4,696 77,353 450,863 539,777
Interest expense 35,408 2,624 23,835 108,898 15,380 186,145
Net interest (expense)
income (29,824) (1,343) (19,139) (31,545) 435,483 353,632

Net profit/(loss) 87,024 (728,491) (137,069) (808,793) (5,115,698) (6,703,027)

F-34

Fixed assets, net 511,546 117,915 1,700,462 1,269,652 - 2,969,575
Fixed asset additions 372,811 117,729 198,378 608,177 3,340 1,300,435
Goodwill 563,300 92,581 890,657 - - 1,546,538
Customer lists - - 167,273 - - 167,273

Goodwill and related impairment amounts are recorded in the books of the
Corporate entity and allocated to reporting units.

18. Subsequent events

(a) Acquisition of Elender Business Communications Rt.

On June 9, 2004 the Company acquired all of the outstanding shares of Elender
Business Communications Rt., a leading ISP in Hungary for USD 6,500,000 in cash
and 677,201 of the Company's shares of common stock. Under the terms of this
agreement, the Company has placed 248,111 unregistered shares of newly issued
(in the name of the Company) common stock with an escrow agent as security for
approximately $1.5 million loans payable to former shareholders of Elender. The
shares will be returned to the Company from escrow once the outstanding loans
have been fully repaid. However, if there is a default on the outstanding loan,
then the shares will be issued to the other party and the Company is then
obliged to register these shares.

Summarized historical financial information of Elender Rt. is shown below:

2003 2002

Total Assets $ 7,760,000 $10,172,000
Net Assets $(88,800) $(397,900)

Total Revenues $20,994,000 $20,596,000
Net (Loss) Income $(518,000) $153,000

F-35

(b) VAT in Romania

During 2003, the Romanian Tax Authorities conducted an audit relating to the
Company's accounting for VAT with respect to foreign invoices. Due to this
investigation, the Tax Authorities did not process VAT reclaims of $766,589
which were recorded in `prepaids and other current assets' as at December 31,
2003. The Tax Authorities have finalized their report and assessed penalties of
$ 168,154, which are recorded in other selling, general and administrative
expenses. In February 2004, the VAT receivable, net of the $168,154 penalty was
refunded by the Tax Authority.

On April 13, 2004, the Company sold its 100% shareholding in Neophone Rt. (a
non-operational subsidiary of Euroweb Hungary) for approximately $60,000. Under
the terms of the sale the Company has indemnified the Buyer for any unaccrued
costs, fines, penalties and lawsuits which relate to a period prior to the sale.

(d) Granting of stock options

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 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. As the Company follows
APB 25 with respect to accounting for grants made to employees, no compensation
expense will be recorded for the options granted to the Chief Executive Officer
and the five employees. However, 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.

(e) Capital expenditure committment

(f) Sale of Euroweb Czech Republic

On November 29, 2004, the Company signed an agreement to dispose of all of its
shares in its wholly-owned subsidiary, Euroweb Czech for cash of $500,000.
However, as a part of the transaction, the Company effectively forgave $400,000
of loans receivable from Euroweb Czech. The closing occurred on December 16,
2004. Under the terms of the agreement, the Buyer has a right to make claims
against the Company for up to $200,000 under representation and warranties
provisions of the sale agreement. This provision is applicable for claims made
within 12 months of closing. The sale of Euroweb Czech will be accounted for as
discontinued operations in the financials statements of the Company. The Company
recognized a gain in the fourth quarter of 2004 of approximately US $405,000 on
the sale of Euroweb Czech.

F-36

Financial statements Of Elender Business Communications Services Rt.

F-37

Independent Auditors' Report

To the Shareholders of Elender Business Communications Services Rt.

We have audited the accompanying balance sheets of Elender Business
Communications Services Rt. (the "Company") as of December 31, 2003 and 2002,
and the related statements of operations, shareholders' deficit and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Elender Business Communications
Services Rt. as of December 31, 2003 and 2002, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte
------------
Deloitte
Budapest, Hungary

July 2, 2004

F-38

Elender Business Communications Services Rt.

Balance Sheets
December 31, 2003 and 2002
In HUF'000

2003 2002
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents .............................................................. 76,702 145,069
Trade accounts receivable, net ......................................................... 201,152 548,471
Related party receivables .............................................................. 54,663 181,477
Prepaid and other current assets ....................................................... 257,631 150,692
---------- ----------
Total current assets .............................................................. 590,148 1,025,709

Property and equipment, net .............................................................. 920,909 1,156,048
Investment in affiliate .................................................................. 102,248 108,605
---------- ----------
Total assets ........................................................................... 1,613,305 2,290,362
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................................................. 324,444 172,535
Related party payables ................................................................. 36,083 173,640
Short term related party loan .......................................................... 166,515 367,793
Short term portion of long term loan payable ........................................... 94,196 137,277
Other current liabilities .............................................................. 58,278 124,655
Accrued expenses ....................................................................... 203,361 160,331
Deferred revenue ....................................................................... 11,196 266,092
---------- ----------
Total current liabilities ........................................................... 894,073 1,402,323

Long term related party loan ........................................................... 679,339 829,037
Long term loan payable ................................................................. 56,597 148,592
Long term capital lease obligation ..................................................... 1,756 --
---------- ----------
Total long term liabilities ........................................................ 737,692 977,629

---------- ----------
Total liabilities ................................................................... 1,631,765 2,379,952
---------- ----------

Commitments and contingencies (note 11)

Shareholders' deficit
Common stock, HUF 10,000 par value (2,000 and 300 shares ............................... 20,000 3,000
authorized, issued and outstanding as of December 31, 2003
and 2002, respectively)
Additional paid in capital .............................................................. 501,874 331,874
Accumulated deficit ..................................................................... (540,334) (424,464)
---------- ----------
Total shareholders' deficit .......................................................... (18,460) (89,590)
---------- ----------

Total liabilities and shareholders' deficit .......................................... 1,613,305 2,290,362
========== ==========

See accompanying notes to financial statements

F-39

Elender Business Communications Services Rt.

Statements of Operations
Years Ended December 31, 2003 and 2002
In HUF'000

2003 2002
---------- ----------

Third party revenue ................................... 4,624,783 5,202,704
Related party revenue ................................. 70,740 113,947
---------- ----------
Total revenue ......................................... 4,695,523 5,316,651

Cost of revenue (exclusive of depreciation and ....... 3,168,711 3,408,184
amortization shown separately below)

Operating expenses
Personnel expenses ................................ 252,950 405,337
Consulting, professional and directors fees ........ 297,215 224,149
Other selling, general and administrative expenses
(including THUF 234,570 and THUF 250,037 related
party expenses in 2003 and 2002 respectively) ...... 638,397 824,429
Depreciation and amortization ...................... 340,684 302,915
---------- ----------
Total operating expenses .............................. 1,529,246 1,756,830

(Loss)/income from operations ......................... (2,434) 151,637

Other income/(expense)
Interest income ....................................... 350 13,106
Interest expense ...................................... (110,195) (53,295)
Foreign exchange gain, net ............................ 2,766 5,446
---------- ----------
Total other expense ................................... (107,079) (34,743)
---------- ----------

(Loss)/income before income taxes and equity in loss of
affiliate ............................................. (109,513) 116,894
Income taxes .......................................... -- --
---------- ----------
(Loss)/income before equity in loss of affiliate ...... (109,513) 116,894
---------- ----------
Equity in loss of affiliate ........................... (6,357) (77,436)
---------- ----------

Net (loss)/income ..................................... (115,870) 39,458
========== ==========

See accompanying notes to financial statements.

F-40

Elender Business Communications Services Rt. Statements of Changes in
Shareholders' Deficit Years Ended December 31, 2003 and 2002 In HUF'000 (except
number of shares)

Common Stock Additional Accumulated Shareholders'
Shares* Amount paid in capital Deficit Deficit

January 1, 2002 300 3,000 - (463,922) (460,922)
========= =========== ============ =========== ==============
Net income - - - 39,458 39,458
Return of capital to parent (210,959) (210,959)
Forgiveness of related party loan - - 542,833 - 542,833
--------- ----------- ------------ ----------- --------------
December 31, 2002 300 3,000 331,874 (424,464) (89,590)
========= =========== ============ =========== ==============
Issuance of common stock 1,700 17,000 - - 17,000
Net loss - - (115,870) (115,870)
-
Forgiveness of related party loan - - 170,000 - 170,000
--------- ----------- ------------ ----------- --------------
December 31, 2003 2,000 20,000 501,874 (540,334) (18,460)
========= =========== ============ =========== ==============

* number of shares

See accompanying notes to financial statements.

F-41

Elender Business Communications Services Rt.

Statements of Cash Flows
Year Ended December 31, 2003 and 2002
In HUF'000

2003 2002

Net (loss)/income .............................................. (115,870) 39,458
Adjustments to reconcile net (loss)/income to net cash used in
operating activities:
Depreciation and amortization .................................. 340,684 302,915
Loss on sale of property and equipment ......................... 21,702 16,520
Equity in loss of affiliate .................................... 6,357 77,436
Increase in allowance for doubtful receivables ................. 16,239 8,337
Changes in assets and liabilities:
Receivables ................................................. 430,780 553,602
Prepaid and other assets .................................... 31,429 21,934
Related party payables ...................................... (137,557) (982,846)
Payables and other current liabilities ...................... 198,022 538,906
Deferred revenue ............................................ (254,896) 198,091
-------- --------
Net cash provided by operating activities ...................... 536,890 774,353

Cash flows from investing activities:
Redemption of marketable securities ............................ -- 155,034
Investment in affiliate ........................................ -- (186,041)
Purchase of property and equipment ............................. (184,871) (708,389)
Proceeds from sale of property and equipment ................... 48,666 165,667
-------- --------
Net cash used in investing activities .......................... (136,205) (573,729)

Cash flows from financing activities:
Draw down of short-term and long-term loans from related parties 103,514 497,812
Repayment of short-term and long-term loans from related parties (454,487) (242,801)
Draw down of short-term and long-term loans .................... 125,000 --
Repayment of short-term and long-term loans .................... (260,079) (618,312)
Proceeds from issuance of shares ............................... 17,000 --
-------- --------
Net cash used in financing activities .......................... (469,052) (363,301)

Decrease in cash and cash equivalents .......................... (68,367) (162,677)
Cash and cash equivalents, beginning of year ................... 145,069 307,746
-------- --------
Cash and cash equivalents, end of year ......................... 76,702 145,069
======== ========

Supplemental Disclosures:

Cash paid for income taxes ..................................... -- --
======== ========
Cash paid for interest ......................................... (81,777) (19,996)
======== ========

Non-cash financing transactions:

Capital lease .................................................. 2,201 --
======== ========
Forgiveness of related party loan .............................. 170,000 542,833
======== ========

See accompanying notes to financial statements.

F-42

1. Organization and Business

Elender Business Communications Services Rt was formed on October 23, 2003 at
which time it legally merged with Elender Kft., an Internet Service Provider
("ISP") and three content providers Webigen Rt., Acquarius 2002 Rt. and Elender
Web Kft., all of which were under common control at the time of the merger.
Elender Rt., Elender Kft., Webigen Rt., Acquarius 2002 Rt. and Elender Web Kft
are collectively referred to as "Elender" or the "Company." The Company began
its operations in October 1995.

The Company operates in one industry segment, providing a full range of Internet
related services. The Internet services provided by the Company include Internet
access, web related services, consulting, application development, and other
content services.

On February 23, 2004, Euroweb International Corp., a Delaware corporation,
entered into a Shares Purchase Agreement with Vitonas Investments Limited, a
company with registered seat in Cyprus ("Vitonas"), Certus Kft., a Hungarian
corporation ("Certus") and Rumed 2000 Kft., a Hungarian corporation ("Rumed" and
collectively with Vitonas and Certus the "Seller"), to acquire Seller's 100%
interest in Elender.

2. Summary of Significant Accounting Policies

Accounting Principles

The financial statements and accompanying notes have been prepared in conformity
with accounting principles generally accepted in the United States of America.

Basis of presentation

The financial statements comprise the accounts of Elender Rt, Elender Kft,
Webigen Rt, Aquarius 2002 Rt and Elender Web Kft. Elender Kft acquired Webigen
Rt. in December 2002 from a related party at book value, while Aquarius 2002 Rt
and Elender Web Kft together with Webigen Rt. merged with Elender Kft. as of
October 13, 2003. The acquisitions and mergers were made from an entity under
common control (all of the companies were owned or controlled by Wallis group at
the time of mergers in October 2003) and accordingly, the transactions were
accounted in a manner similar to a pooling-of-interest in accordance with
accounting principles generally accepted in the United States of America, with
all prior periods being restated as if the entities were combined for all
periods presented.

All material intercompany balances and transactions have been eliminated.

2. Summary of Significant Accounting Policies Continued

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

F-43

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.

Business segment reporting

Management has determined that the Company operates in one industry segment,
providing Internet access and additional value added services to business
customers and individuals. All of the Company's revenues are derived from the
provision of such services.

Fair value of financial instruments

The carrying values of cash equivalents, notes and loans receivable, accounts
payable, loans payable and accrued expenses approximate their fair values.

Cash and cash equivalents

Cash and cash equivalents include cash at bank and short-term deposits with
maturity date of less than three months at the date of purchase.

2. Summary of Significant Accounting Policies

Property and equipment

Property and equipment are stated at cost less accumulated depreciation.
Equipment purchased under capital leases is stated at the present value of
minimum lease payments at the inception of the lease less accumulated
depreciation. Leased assets are depreciated using a straight-line method over
the estimated useful lives of the leased asset. The Company provides for
depreciation of property and equipment using the straight-line method over the
following estimated useful lives:

Software 3 years
Computer equipment 3 years
Other furniture equipment and fixtures 3-5 years
Vehicles 5 years

Recurring maintenance on property and equipment is expensed as incurred.

Long-lived assets

In accordance with Statements of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the
Company periodically reviews long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives of those assets are
no longer appropriate. Each impairment test is based on a comparison of the
undiscounted cash flows to the recorded value of the asset. If impairment is
indicated, the asset is written down to its estimated fair value based on a
discounted cash flow analysis.

Invesment in affiliate

The Company uses the equity method to account for its investments in
non-marketable equity securities where it has an ownership interest of between
20-50%.

F-44

2. Summary of Significant Accounting Policies Continued

Revenue recognition

Revenue is recognized when earned. Revenues from Internet services are
recognized in the month in which the services are provided, either based on
monthly usage or on fixed monthly fees. Revenues for consulting services are
recognized as the service is performed. The Company defers revenue recognition
for payments on contracts for which services have not been performed.

Cost of revenues (excluding depreciation and amortization)

Cost of revenues (excluding depreciation and amortization) comprised principally
of telecommunication network expenses, costs of content services and cost of
leased lines.

Barter transactions

The Company periodically barters services for advertising credits. The Company
is able to determine fair value based on comparable cash transactions for the
services provided and for which the advertiser has the financial ability to pay
cash. Revenue related to bartered services is recognized when the services are
rendered. The barter advertising credits are initially recorded as an asset in
"Prepaid and other current assets" and expensed in "Other selling, general and
administrative expenses" when they are utilized. Barter transactions totaled
approximately THUF 50,650 and THUF 102,902 during the years ended December 31,
2003 and 2002, respectively

Advertising costs

Advertising costs are expensed as incurred and amounted THUF 156,832 and THUF
64,336 for the years ended December 31, 2003 and 2002, respectively.

Foreign currency translation

The Company considers the Hungarian Forint ("HUF") to be its functional
currency.

Gains and losses from foreign currency transactions and the translation of
monetary assets or liabilities not denominated in Hungarian forints are included
in the income statements in the period in which they occur

2. Summary of Significant Accounting Policies Continued

Income taxes

F-45

effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

Recent accounting pronouncements

On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149") which amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" to address (1) decisions reached by the
Derivatives Implementation Group, (2) developments in other Board projects that
address financial instruments, and (3) implementation issues related to the
definition of a derivative. The Company has adopted this pronouncement and it
has no material impact on its financial statements.

3. Trade accounts receivable

2003 2002
--------------------------------------------------------------------------------
Receivable 227,728 558,808
Less allowance for doubtful debts (26,576) (10,337)
--------------------------------------------------------------------------------
Total 201,152 548,471
======= =======

The Company establishes allowance for bad debt to reduce receivables to their
net realizable value. The allowance is determined on an account by account
basis.

4. Prepaid and other current assets

2003 2002
--------------------------------------------------------------------------------
Unbilled revenues 92,787 53,059
Prepaid costs 15,773 7,600
Barter credits 92,050 64,936
Value added tax receivable 7,578 -
Loans 15,000 10,023
Others 34,443 15,074
--------------------------------------------------------------------------------
Total 257,631 150,692
======= =======

F-46

5. Property and equipment

Property and equipment as at December 31, 2003 and 2002 in THUF were as follows:

2003 2002
--------------------------------------------------------------------------------
Software 392,826 323,733
Computer equipment 983,077 958,606
Vehicles, furniture, fixtures and other 310,453 298,472
Total 1,686,356 1,580,811
Less accumulated depreciation (765,447) (424,763)
Total property and equipment 920,909 1,156,048
======= =========

The gross value of assets recorded under capital lease obligation was THUF
2,319, while accumulated depreciation was THUF 89 as of December 31, 2003. As of
December 31, 2002 there were no assets under capital lease obligations.

6. Investment in affiliates

The Company owned 30.9% of the outstanding shares in Index Rt. as of December
31, 2003 and 2002. In March 2004, the Company sold its investment for THUF
171,920 to a related party. (See note 12). During 2003 and 2002 the Company
recorded losses of THUF 77,436 and THUF 6,357, respectively, reflecting its
proportional share of the operating losses of Index Rt.

7. Related party transactions

The Company has entered into transactions with related parties both during the
course of its normal operating activities and for financing its operations.
These transactions are summarized below:

Financing transactions

The balance of long term related party loan liabilities as of December 31, 2003
and 2002 were as follows:

2003 2002
--------------------------------------------------------------------------------
Vitonas Limited 528,818 609,652
Certus Kft. 76,427 102,552
Rumed Kft. 74,094 89,304
Wems - Wallis related entity - 27,529
--------------------------------------------------------------------------------
Total long-term related party loans 679,339 829,037
======= =======

The expiration date of all of the related party loans was October 7, 2007.
Interest rate is BUBOR (interbank credit interest rate in Budapest) + 1.5%
(13.24% and 9.12% as of December 31, 2003 and 2002, respectively).

Based on the share purchase agreement of the Company, the repayment schedule of
the related party loans was amended such that the maturity date is now December
31, 2005.

F-47

The balance of short term related party loan liabilities as of December 31, 2003
and 2002 were as follows:

2003 2002
--------------------------------------------------------------------------------
Wallis Rt. 166,515 367,793
--------------------------------------------------------------------------------
Total short-term related party loans 166,515 367,793
======= =======

Interest rate is BUBOR + 1.5% (13.24% and 9.12% as of December 31, 2003 and
2002, respectively).

The Company recorded related party interest expense in the accompanying income
statement of THUF 94,377 and THUF 16,552 in 2003 and 2002, respectively.

During 2003 and 2002, certain loan liabilities were waived by related parties
amounting to THUF 170,000 and THUF 542,833, respectively. The effect of the
waivers has been shown as increase in additional paid-in-capital in the
accompanying financial statements.

The schedule of principal payments on related party loans is as follows as of
December 31, 2003:

Payments due in 2004 166,515
Payments due in 2005 679,339
-------
Total related party loans 845,854
=======

Operating transactions

The Company provides Internet access and related services to the related
parties. Total revenues generated from these services was THUF 70,740 and THUF
113,947 during 2003 and 2002, respectively

Related parties also provided the following services to the Company:

- Office rental
- Car rental
- Consulting and advisory
- Labour outsourcing
- Advertising and public relations
- Telephone

Total amount of these services purchased by Elender was approximately THUF
234,570 and THUF 250,037 during 2003 and 2002, respectively.

F-48

8. Long-term loans

The Company has entered a loan agreement with Raiffeisen Bank Rt ("Bank") in a
value of HUF 275,000,000 with an interest rate of BUBOR +2.25% (13.99% and 9.87%
as of December 31, 2003 and 2002, respectively). The loan is payable in
quarterly installments through October 22, 2005. The loan is guaranteed by the
shares of the Company pledged as collateral and also guaranteed by Wallis Rt. In
addition to the loan agreement, the Company also concluded an overdraft facility
with the Bank in a value of HUF 100,000,000 with interest rate of BUBOR + 0.7%
(12.44% and 8.32% as of December 31, 2003 and 2002). The facility will expire on
August 31, 2004.

The outstanding balances were in THUF as follows at December 31:

2003 2002
--------------------------------------------------------------------------------
Long term loan 150,793 285,869
Short term portion of long term loan (94,196) (137,277)
--------------------------------------------------------------------------------
Total long term loan payable 56,597 148,592
====== =======

The schedule of principal payments on long term loans is as follows as of
December 31, 2003:

-----------------------------------------------------------------
Loan payable in 2004 94,196
Loan payable in 2005 56,597
-----------------------------------------------------------------
Total 150,793
=======

There were no amounts drawn on the bank overdraft at December 31, 2003 and 2002.

9. Other current liabilities

2003 2002
--------------------------------------------------------------------------------
Value added tax payable - 47,545
Local tax payable 22,286 21,291
Wages related taxes 29,199 36,935
Other 6,793 18,884
--------------------------------------------------------------------------------
Total other current liabilities 58,278 124,655
====== =======
F-49

10. Accrued expenses

2003 2002
--------------------------------------------------------------------------------
Telecommunication expenses 112,042 78,964
Interest 28,068 20,193
Subcontractors and consultants 35,281 20,970
Other 27,970 40,204
--------------------------------------------------------------------------------
Total 203,361 160,331
======= =======
11. Commitments and Contingencies

Lease agreements

Capital lease - In 2003, the Company entered into capital lease, which expires
over the next four years. The following is a schedule of future capital lease
payments (with initial or remaining lease terms in excess of one year) as of
December 31, 2003 in THUF:

Short term lease obligation 445
Long term lease obligation 1,756
--------------------------------------------------------------------------------
Total lease payments 2,201
=====

The current portion of the capital lease obligation is included in `Other
current liabilities' in the accompanying balance sheets.

Operating lease - On January 1, 2002, the Company has entered a non-cancelable
rental contract for its office space for the period of seven years with a
related party. The monthly rental fee is HUF 5,400,000 (EUR 21,560). Rent
expense included in the accompanying income statements was THUF 64,800 and THUF
64,800 in 2003 and 2002, respectively.

Following are the Company's commitments under its non-cancelable lease
obligations:

Capital lease Operating lease
2004 745 64,800
2005 745 64,800
2006 745 64,800
2007 683 64,800
2008 - 64,800
--------------------- ----------------------
Total 2,917 324,000
--------------------- ======================
Less amount representing interest (716)
---------------------
Net minimum lease payments 2,201
=====================

There are no restrictions on dividends imposed by lease contracts.

F-50

12. Income taxes

The statutory corporate tax rate was 18% as of December 31, 2003 and 2002. The
statutory rate will be 16 % effective from January 1, 2004. Owing to the taxable
losses, the Company did not have any corporate income taxes payable for the
years of 2003 and 2002.

The following summarizes the Company's net deferred tax assets as of December
31:

2003 2002
--------------------------------------------------------------------------------
Investment in affiliate 13,407 12,390
Net operating loss carry forwards 21,891 13,483
--------------------------------------------------------------------------------
Total deferred tax assets 35,298 25,873
Less allowance (35,298) (25,873)
--------------------------------------------------------------------------------
Total 0 0

The losses incurred in the previous years can be carried forward for offset
against future taxable profit. The carried forward taxable losses as of December
31, 2003 and 2002 were THUF 136,819 and THUF 84,272, respectively. Such losses
expire beginning 2007 through 2008. The Company has recorded a full valuation
allowance against its deferred tax assets, as management does not believe the
assets will be realized.

13. Subsequent events

In the first quarter of 2004, Elender Rt. has sold its investment in its
affiliate (Index Rt) for HUF 171,920,000 to Wallis. The sale was affected
through a reduction of the short-term related party loan liabilities due to
Wallis.

The Company has concluded a new bank loan agreement with Commerzbank Rt on June
1, 2004. This loan agreement was signed and replaced the existing loan
facilities with Raiffeisen and to increase the current loan facilities to HUF
350 million and the overdraft facilities limit to 450 million HUF. Amounts
outstanding on the Raiffeisen Loan were repaid.

F-51

Elender Business Communications Services Rt.

Unaudited Condensed Balance Sheets
March 31, 2004 and December 31, 2003
In HUF'000

March 31, December 31,
2004 2003
---------- ----------
ASSETS

Current assets:
Cash and cash equivalents .................................................. 881 76,702
Trade accounts receivable, net ............................................. 364,622 201,152
Related party receivables .................................................. -- 54,663
Prepaid and other current assets ........................................... 275,053 257,631
---------- ----------
Total current assets .................................................. 640,556 590,148

Property and equipment, net .................................................. 892,181 920,909
Investment in affiliate ...................................................... -- 102,248
---------- ----------

Total assets ............................................................ 1,532,737 1,613,305
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ..................................................... 380,559 324,444
Related party payables ..................................................... -- 36,083
Short term related party loan .............................................. 182,191 166,515
Short term portion of long term loan payable ............................... 127,335 94,196
Other current liabilities .................................................. 54,407 58,278
Accrued expenses ........................................................... 267,607 203,361
Deferred revenues .......................................................... 6,932 11,196
---------- ----------
Total current liabilities ............................................... 1,019,031 894,073

Long term related party loan ............................................... 471,147 679,339
Long term loan payable ..................................................... 970 56,597
Long term capital lease obligation ......................................... 1,632 1,756
---------- ----------
Total long term liabilities ............................................ 473,749 737,692

---------- ----------
Total liabilities ....................................................... 1,492,780 1,631,765

Commitments and contingencies

Shareholders' deficit
Common stock, HUF 10,000 par value (2,000 shares authorized, ................ 20,000 20,000
issued and outstanding)
Additional paid in capital .................................................. 501,874 501,874
Accumulated deficit ......................................................... (481,917) (540,334)
---------- ----------
Total shareholders' deficit .............................................. 39,957 (18,460)

Total liabilities and shareholders' equity/(deficit) ..................... 1,532,737 1,613,305
========== ==========

See accompanying notes to unaudited condensed financial statements

F-52

Elender Business Communications Services Rt. Unaudited Condensed Statements of
Operations Quarters Ended March 31, 2004 and 2003 In HUF'000

2004 Q1 2003 Q1

Third party revenue .................................... 1,180,403 1,146,974
Related party revenue .................................. 20,458 14,342
Total revenue .......................................... 1,200,861 1,161,316

Cost of revenues (exclusive of depreciation and ........ 825,502 851,512
amortization shown separately below)

Operating expenses
Personnel expenses .................................. 56,249 73,174
Consulting, professional and directors fees ......... 85,428 98,931
Other selling, general and administrative expenses .. 126,353 134,736
Depreciation and amortization ....................... 90,600 71,317
---------- ----------
Total operating expenses .......................... 358,630 378,158

Income/(loss) from operations .......................... 16,729 (68,354)

Interest income ........................................ 727 133
Interest expense ....................................... (32,341) (25,180)
Foreign exchange gain, net ............................. 3,630 2,494
---------- ----------
Total other expense .................................... (27,984) (22,553)

Loss before income taxes and equity in loss of affiliate (11,255) (90,907)
Income taxes ........................................... -- --
---------- ----------
Loss before equity in loss of affiliate ................ (11,255) (90,907)
Net gain from sale of equity investment ................ 69,672 --
---------- ----------

Net income/(loss) ...................................... 58,417 (90,907)
========== ==========

See accompanying notes to unaudited condensed financial statements.

F-53

Elender Business Communications Services Rt. Unaudited Condensed Statements of
Cash Flows Quarters Ended March 31, 2004 and 2003 In HUF'000

2004 Q1 2003 Q1

Cash flows from operating activities
Net profit/(loss) ............................................... 58,417 (90,907)
Adjustments to reconcile net profit to net cash used in operating
activities:
Depreciation and amortization ................................... 90,600 71,317
Gain from sale of equity investment ............................. (69,672) --
Changes in assets and liabilities
Receivables ..................................................... (108,807) 410,677
Prepaid and other assets ........................................ 24,267 (65,211)
Payables and other current liabilities .......................... 38,718 (73,075)
Deferred revenue ................................................ (4,264) (247,989)
-------- --------
Net cash provided by operating activities ....................... 29,259 4,812

Cash flows from investing activities:
Purchase of property and equipment .............................. (61,872) (8,526)
-------- --------
Net cash used in investing activities ........................... (61,872) (8,526)

Cash flows from financing activities:
Repayment of short-term and long-term loans ..................... (43,208) (39,988)
-------- --------
Net cash used in financing activities ........................... (43,208) (39,988)

Decrease in cash and cash equivalents ........................... (75,821) (43,702)
-------- --------
Cash and cash equivalents, beginning of period .................. 76,702 100,068
Cash and cash equivalents, end of period ........................ 881 56,366
======== ========

See accompanying notes to unaudited condensed financial statements.

F-54

Basis of presentation

Elender Business Communications Services Rt. (the "Company") is a Hungarian
Corporation, which is owned by Vitonas Investments Limited, a company with
registered seat in Cyprus ("Vitonas"), Certus Kft., a Hungarian corporation
("Certus") and Rumed 2000 Kft. The Company is an Internet service provider in
Hungary.

The accompanying unaudited condensed financial statements of the Company are
stated in Hungarian Forints ("HUF") (the currency in Hungary) and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, these financial statements include all
adjustments, consisting mainly of normal recurring accruals, necessary for a
fair presentation of the results for the interim periods presented. Results for
the interim periods are not necessarily indicative of the results for a full
fiscal year. These unaudited condensed financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto as
of and for the year ended December 31, 2003.

Material events

In the first quarter of 2004, the Company sold its investment in its affiliate
(Index Rt) for HUF 171,920,000 to Wallis. The sale was affected through a
reduction of the short-term related party loan liabilities due to Wallis.

The Company has concluded a new bank loan agreement with Commerzbank Rt on June
1, 2004. This loan agreement was signed and replaced the existing loan
facilities with Raiffeisen and to increase the current loan facilities to HUF
350 million and the overdraft facilities limit to HUF 450 million. Amounts
outstanding on the Raiffeisen Loan were fully repaid

F-55

EUROWEB INTERNATIONAL CORP.
AND ELENDER RT

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of Preparation

The accompanying unaudited pro forma consolidated financial statements give
effect to the acquisition by Euroweb International Corporation ("Euroweb" or the
"Company") of 100% of Elender Business Communications Rt. ("Elender") for
$6,634,219 in cash consideration (including direct transaction costs of
$134,219) and 677,201 shares of Euroweb's common stock with an estimated fair
value of $2,508,353 excluding registration costs. The acquisition is accounted
for using the purchase method of accounting. Under this method, the purchase
price has been allocated to the assets and liabilities based on preliminary
estimates. The final purchase price allocation will be calculated based on the
transaction value and the fair values of Elender identifiable assets and
liabilities at the date of closure as of June 9, 2004. 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 early 2005.
Therefore, the actual goodwill amount, as well as other balance sheet items,
could differ from the preliminary unaudited pro forma consolidated financial
statements presented herein, and in turn affect items in the preliminary pro
forma condensed consolidated statement of operations, such as intangible asset
amortization.

In addition, the unaudited pro forma consolidated financial statements also
reflect the effect of the sale of 100% of Euroweb Czech Republic ("Euroweb
Czech"), a wholly owned subsidiary of the Company, which occurred on December
16, 2004. Pro forma presentation of all periods is required for discontinued
operations that are not yet required to be reflected in historical statements.
The unaudited pro forma consolidated financial information reflects the pro
forma impact on the Company's financial position and results of operations of
the sale of Euroweb Czech for the historical periods presented. The Company
believes that the sale of Euroweb Czech meets the criteria for presentation as a
discontinued operation under the provisions of Statements of Financial
Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets." Therefore, pro forma adjustments to reflect the
disposition of Euroweb Czech are presented in the pro forma consolidated balance
sheet and statements of operations. In the future historical results of Euroweb
Czech will be reported in the Company's consolidated financial statements as a
discontinued operation. The gain of $405,000 on the sale of Euroweb Czech is not
reflected in these pro forma financial statements due to the non-recurring
nature of this transaction.

The accompanying unaudited pro forma consolidated financial statements were
prepared based on the Company's interpretation of guidance issued by the United
States Securities and Exchange Commission (specifically Article 11 of Regulation
S-X). The unaudited pro forma consolidated balance sheet gives effect to the
disposition of Euroweb Czech as if it occurred on September 30, 2004. The
unaudited pro forma consolidated statements of operations give effect to the
acquisition of Elender as if it occurred on January 1, 2003 and the disposition
of Euroweb Czech as if it occurred on January 1, 2002.

The pro forma adjustments described in the accompanying notes are based upon
available information and certain assumptions that management believes are
reasonable. The unaudited pro forma consolidated statements of operations are
for illustrative purposes only and are not necessarily indicative of the actual
results of operations that would have occurred had the transactions described
above occurred on the date indicated, nor are they necessarily indicative of
future operating results. No account has been taken within the unaudited pro
forma consolidated financial statements to any synergy or any severance and
restructuring costs that may, or may be expected to, occur following the
acquisition. The unaudited pro forma consolidated financial statements are only
a summary and should be read in conjunction with the historical consolidated
financial statements and related notes of Euroweb and Elender and other
information included in this registration statement.

All pro forma amounts are presented in U.S. dollars, the reporting currency of
Euroweb.

There were no business transactions between Euroweb and its subsidiaries and
Elender during the periods presented.

F-56

Euroweb International Corporation
Unaudited Pro Forma Consolidated Balance Sheet
September 30, 2004

Euroweb Pro Forma
Historical adjustments Pro forma
------------ -------------- ------------

ASSETS
Current Assets
Cash and cash equivalents $ 4,607,608 449,159 (1) $ 5,056,767
Trade accounts receivable, net 3,166,749 (109,642) (2) 3,057,107
Related party receivables 1,439,565 - 1,439,565
Current portion of note receivable 21,771 - 21,771
Prepaid and other current assets 2,315,421 (30,848) (2) 2,284,573
------------ -------------- --- ------------
Total current assets 11,551,114 308,669 11,859,783

Property and equipment, net 7,057,793 (32,181) (2) 7,025,612
Assets under construction 435,023 - 435,023
Intangibles - customer contracts 2,167,015 - 2,167,015
Goodwill 5,943,821 - 5,943,821
------------ -------------- ------------
Total assets $27,154,766 276,488 $27,431,254
============ ============== ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Trade accounts payable $4,079,193 (70,638) (2) $4,008,555
Related party payables 928,955 - 928,955
Related party loan payable - short term portion 488,729 - 488,729
Overdrafts and current portion of bank loans 435,637 - 435,637
Current portion of notes payable 1,053,975 - 1,053,975
Other current liabilities 715,039 (87,535) (2) 627,504
Accrued expenses 2,157,728 4,591 (2)(3) 2,162,319
Deferred IRU revenue 46,000 46,000
Deferred other revenue 1,116,985 (11,995) (2) 1,104,990
------------ -------------- --- ------------
Total current liabilities 11,022,241 (165,577) 10,856,664

Non-current portion of deferred IRU revenue 808,834 - 808,834
Non-current portion of related party loan payable 733,093 - 733,093
Non-current portion of bank loans 711,111 - 711,111
Non-current portion of notes payable 181,712 - 181,712
Non-current portion of lease obligations 144,605 - 144,605
------------ -------------- ------------

Total liabilities 13,601,596 (165,577) 13,436,019
------------ -------------- ------------
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 24,807 - 24,807
shares respectively
Additional paid-in capital 50,755,993 - 50,755,993
Accumulated deficit (36,066,607) 405,410 (4) (35,661,197)
Accumulated other comprehensive losses: (45,611) 36,655 (5) (8,956)
Treasury stock - 175,490 common shares, at cost (1,115,412) - (1,115,412)
------------ -------------- --- ------------
Total stockholders' equity 13,553,170 442,065 13,995,235
------------ -------------- ------------

Total liabilities and stockholders' equity $27,154,766 $276,488 $27,431,254
============ ============== ============

See notes to unaudited pro forma condensed consolidated balance sheet

F-57

Euroweb International Corporation
Notes to Unaudited Pro Forma Consolidated Balance Sheet

1) Adjustment to reflect the cash proceeds received upon the sale of
Euroweb Czech of $ 500,001 and the elimination of $ 50,842 of cash at
Euroweb Czech

2) Adjustment to eliminate assets sold and liabilities assumed upon the
sale of Euroweb Czech

3) Pro forma adjustment to reflect the accrual of the estimated direct
transaction costs of $10,000 to be paid in connection with the sale of
Euroweb Czech

4) Adjustment reflects the estimated pro forma gain on the sale of the
Euroweb Czech net of the estimated tax liability (expected to be
zero). The gain is net of $405,000 in forgiven loans and release of
accumulated deficit. The actual gain may differ as a result of
operating results of the Euroweb Czech through the measurement date,
disposal and other costs.

5) Cumulative other comprehensive losses derived from Euroweb Czech are
eliminated in the pro-forma adjustments.

F-58

Euroweb International Corp.

Unaudited Pro Forma Consolidated Statement of
Operations for the Nine Months Ended Septermber 30, 2004

Euroweb Pro forma Pro forma Elender Pro Pro forma
historical adjustments results January 1, forma results after
reflecting after 2004 - June adjustments disposition
disposition disposition 8, 2004 reflecting of Euroweb
of Euroweb of Euroweb (C) acquisition Czech and
Czech Czech of Elender reflecting
(E) acquisition
of Elender
------------ ------------ ------------ ------------ ------------ --- ------------

Revenues

Third party $19,631,983 $(736,844) $18,895,139 $10,455,801 $98,124 (B) $29,449,064
Related party 5,533,618 - 5,533,618 98,124 (98,124) (B) 5,533,618

------------ ------------ ------------ ------------ ------------ --- ------------
Total Revenues 25,165,601 (736,844) 24,428,757 10,553,925 - 34,982,682

Cost of revenues (excluding
depreciation and amortization
shown separately below)

Third party 11,606,917 (461,368) 11,145,549 6,854,582 - 18,000,131
Related party 4,454,898 - 4,454,898 8,020 - 4,462,918
------------ ------------ ------------ ------------ ------------ ------------

Total Cost of
revenues (excluding depreciation
and amortization shown separately
below) 16,061,815 (461,368) 15,600,447 6,862,602 - (22,463,049)

Operating expenses
Compensation and related
costs 3,306,058 (181,216) 3,124,842 502,073 - 3,626,915
Consulting and
professional fees 2,158,069 (13,573) 2,144,496 766,074 - 2,910,570
Other selling, general
and administrative expenses 2,836,855 (97,219) 2,739,636 1,307,151 - 4,046,787
Depreciation and
amortization 1,466,329 (23,726) 1,442,603 1,138,432 603,189 (A) 3,184,224
------------ ------------ ------------ ------------ ------------ --- ------------
Total operating
expenses 9,767,311 (315,734) 9,451,577 3,713,730 603,189 13,768,496

Loss from operations (663,525) 40,258 (623,267) (22,407) (603,189) (1,248,863)

Net interest (expense)
income (130,113) 4,334 (125,779) (280,339) - (406,118)
Gain from sale of
subsidiaries 28,751 - 28,751 334,174 - 362,925

Loss before income taxes (764,887) 44,592 (720,295) 31,428 (603,189) (1,292,056)
------------ ------------ ------------ ------------ ------------ --- ------------
Provision for income taxes 50,455 - 50,455 - - (D) 50,455
------------ ------------ ------------ ------------ ------------ --- ------------
Income (loss) from
continuing operations $(815,342) $44,592 $ (770,750) $31,428 $(603,189) $(1,342,511)
------------ ------------ ------------ ------------ ------------ ------------
Loss from continuing
operations per share, basic
and diluted $(.16) $(.25) $(.25)

Weighted average number of
shares outstanding, basic
and diluted 4,948,753 4,948,753 (F) 5,342,533

See accompanying notes to the unaudited pro forma consolidated financial
statements.

F-59

Euroweb International Corporation
Unaudited Pro Forma Consolidated Statement of Operations
Nine months ended September 30, 2003

Euroweb
Historical Pro Forma Pro Forma
Restated Adjustments
(E)
----------- ----------- -----------

Revenues
Third party $13,191,279 (894,315) 12,296,964
Related party 3,990,294 - 3,990,294
----------- ----------- -----------
Total Revenues 17,181,573 (894,315) 16,287,258

Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Third party 6,764,310 (513,473) 6,250,837
Related party 4,126,802 4,126,802
----------- ----------- -----------
-
Total Cost of revenues (exclusive of 10,891,112 (513,473) 10,377,639
depreciation and amortization shown separately below)

Operating expenses
Compensation and related costs 2,418,226 (264,877) 2,153,349
Consulting and professional fees 1,299,616 (19,473) 1,280,143
Other selling, general and administrative expenses 1,963,853 (182,098) 1,781,755
Depreciation and amortization 1,301,017 (62,210) 1,238,807
----------- ----------- -----------

Total operating expenses 6,982,712 (528,658) 6,454,054
----------- ----------- -----------
Loss from continuing operations (692,251) 147,816 (544,435)

----------- -----------
Loss from continuing operations per share, basic and diluted (.15) (.12)
----------- -----------
Weighted average number of shares outstanding, basic and 4,665,332 4,665,332
diluted ----------- -----------

See notes to unaudited pro forma condensed consolidated statements of operations

F-60

Euroweb International Corp.

Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2003

Euroweb Pro forma Pro forma Elender Pro Pro forma
historical adjustments results historical forma results after
reflecting after adjustments disposition
disposition disposition reflecting of Euroweb
of Euroweb of Euroweb acquisition Czech and
Czech Czech of Elender reflecting
(E) acquisition
of Elender
----------- ------------ ------------ ------------ ------------ --- ------------

Revenues

Third party $17,540,011 $(1,163,662) $16,376,349 $20,677,738 $316,283 (B) $37,370,370
Related party 5,740,709 - 5,740,709 316,283 (316,283) (B) 5,740,709

----------- ------------ ------------ ------------ ------------ --- ------------
Total Revenues 23,280,720 (1,163,662) 22,117,058 20,994,021 - 43,111,079

Cost of revenues (exclusive of depreciation and amortization shown separately below)

Third party 8,827,513 (671,677) 8,155,836 14,167,535 - 22,323,371
Related party 5,796,350 - 5,796,350 - - 5,796,350
----------- ------------ ------------ ------------ ------------ ------------
Total Cost of
revenues 14,623,863 (671,677) 13,952,186 14,167,535 - (28,119,721)

Operating expenses
Compensation and related
costs 3,173,720 (358,852) 2,814,868 1,130,957 - 3,945,825
Consulting and
professional fees 2,135,056 (60,491) 2,074,565 1,328,870 - 3,403,435
Other selling, general
and administrative expenses 2,723,011 (194,330) 2,528,681 2,854,319 - 5,383,000
Goodwill impairment 980,538 (92,581) 887,957 - - 887,957
Impairment of intangibles 100,364 - 100,364 - - 100,364
Depreciation and
amortization 1,727,796 (91,663) 1,636,133 1,523,222 804,253 (A) 3,963,608
----------- ------------ ------------ ------------ ------------ --- ------------
Total operating 10,840,485 (797,917) 10,042,568 6,837,368 804,253 17,684,189
expenses

Loss from operations (2,183,628) 305,932 (1,877,696) (10,882) (804,253) (2,692,831)

Net interest (expense)
income 344,570 (250) 344,320 (491,125) - (146,805)
Foreign exchange gain, net - - 12,366 - 12,366
Gain from sale of
subsidiaries 109,621 - 109,621 - - 109,621

Loss before income taxes (1,729,437) 305,682 (1,423,755) (489,641) (804,253) (2,717,649)
----------- ------------ ------------ ------------ ------------ ------------
Provision for income taxes 61,590 - 61,590 - - (D) 61,590
----------- ------------ ------------ ------------ ------------ --- ------------
Equity in earnings (loss)
of affiliate - - (28,422) (28,422)

Income (loss) from
continuing operations $(1,791,027) $ 305,682 $(1,485,345) $ (518,063) $(804,253) $(2,807,661)
----------- ------------ ------------ ------------ ------------ ------------
Loss from continuing
operations per share, basic
and diluted $(.38) $(.28) $(.53)

Weighted average number of
shares outstanding, basic
and diluted 4,665,332 4,665,332 (F) 5,342,533

See accompanying notes to the unaudited pro forma consolidated financial
statements.

F-61

Euroweb International Corporation
Unaudited Pro Forma Consolidated Statement of Operations
Year ended December 31, 2002

Euroweb
Historical Pro Forma
Restated Adjustment Pro Forma
(E)
------------- ------------- -------------

Revenues
Third party $ 14,495,646 (1,415,541) $ 13,080,105
Related party 4,981,774 - 4,981,774
------------- ------------- -------------
-
Total Revenues 19,477,420 (1,415,541) 18,061,879

Cost of revenues (exclusive of depreciation and
amortization shown separately below)
Third party 7,490,713 (713,422) 6,777,291
Related party 4,226,778 - 4,226,778
------------- ------------- -------------
Total Cost of revenues (exclusive 11,717,491 (713,422) 11,004,069
of depreciation and amortization shown
separately below)

Operating expenses
Compensation and related costs 3,309,788 (325,450) 2,984,338
Severance to officers 2,020,832 - 2,020,832
Consulting, professional and directors fees 1,558,864 (79,431) 1,479,433
Other selling, general and administrative 2,846,094 (169,171) 2,676,923
expenses
Goodwill impairment 2,930,271 (746,000) 2,184,271
Impairment of intangibles 448,500 - 448,500
Depreciation and amortization 1,702,239 (88,312) 1,613,927
------------- ------------- -------------
Total operating expenses 14,816,588 (1,408,364) 13,408,224
------------- ------------- -------------

Loss from continuing operations (7,056,659) 706,245 (6,350,414)
------------- -------------

Loss from continuing operations per share, basic (1.51) (1.36)
------------- -------------
Weighted average number of shares outstanding
4,665,332 4,665,332
------------- -------------

F-62

NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of presentation:

These unaudited pro forma consolidated financial statements reflect the
preliminary allocation of the purchase price ($9,142,572) based on a preliminary
fair value assessment of the assets acquired and liabilities assumed, and as
such, the Company has assigned $2,412,759 to customer contracts (identified
intangible assets) and $1,351,991 to Elender Rt.'s recorded assets acquired and
liabilities assumed. The difference of $5,377,822 between the purchase price and
the identified assets acquired and liabilities assumed has been treated as
Goodwill.

The customer contracts will be amortized over a period of three years, which has
been reflected as a pro forma adjustment in the pro forma consolidated
statements of operations.

The preliminary allocation was made using managements' best estimate of fair
value of assets and liabilities. For recorded assets (including tangible fixed
assets) and liabilities, book values were taken as proxy for fair values..
Depreciation rates for acquired tangible fixed assets are consistent with the
Company's own depreciation policy (See note 6 of the 2003 audited financial
statements). The purchase price allocation will be finalized upon the completion
of intangible, assets and liabilities valuation, which will be performed by an
independent firm. The Company expects to finalize these matters by early 2005.

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
goodwill is not amortized. Accordingly, there is no goodwill amortization
expense in the pro forma consolidated statements of operations.

The estimated total purchase price of $9,142,571 consists of $6,500,000 cash,
677,201 shares of Euroweb's common stock with an estimated fair value of
$2,508,353 excluding registration costs, and estimated direct transaction costs
of $134,219. Under US GAAP, securities issued in a purchase business combination
should be valued at market prices for a reasonable period before and after the
measurement date in determining the fair value of the securities issued. For the
purposes of these unaudited pro forma consolidated financial statements, the
purchase consideration has been estimated using a closing date of the
transaction, June 9, 2004, as the measurement date (as the number of shares was
not known until such date). Accordingly, Euroweb's shares issued in
consideration are valued based on the average closing price of the Company's
common stock for the five consecutive trading days between June 7, 2004 and June
14, 2004, which was $3.704 per share.

Pro forma adjustments:

(A) To reflect the additional amortization of customer contracts on a
straight-line basis over the expected life of three years. No pro-forma
adjustments were made for depreciation of tangible assets due to the fact that
the preliminary allocation of the purchase price was based on the book value of
the tangible assets, which in managements' best estimate, approximates the fair
value.

(B) The revenues classified as "Related Party revenues" in the historical
Elender statement of operations were sales to certain significant shareholders
of Elender which became shareholders of Euroweb. Each selling party will have
less than 10% of ownership in Euroweb, so they are not categorized as related
parties and those transactions are shown as third party transactions.

(C) The historical results of operations of Elender have been derived from
Elender's historical financial statements (denominated in Hungarian Forint) and
translated, for the purpose of preparing pro forma financial information, into
U.S. dollars using the following exchange rates:

Pro forma consolidated statement of operations for the year ended December 31,
2003 - 223.66 HUF/US$ (average exchange rate)

Pro forma consolidated statement of operations for the nine months ended
September 30, 2004 - 207.16 HUF/US$ (average exchange rate)

(D) No adjustments were made to reflect the income tax effect of increased
amortization of intangibles since Euroweb has significant net operating loss
carryforwards and, therefore, does not expect to have taxable income in the
foreseeable future.

(E) The historical results of operations of Euroweb Czech have been derived from
Euroweb's historical financial statements (denominated in Czech Crowns) and
translated, for the purpose of preparing pro forma financial information, into
U.S. dollars using the following exchange rates:

Pro forma consolidated statement of operations for the year ended December 31,
2003 - 28.07 CZK/US$ (average exchange rate) Pro forma consolidated statement of
operations for the year ended December 31, 2002 - 32.77 CZK/US$ (average
exchange rate)

F-63

Pro forma consolidated statement of operations for the nine months ended
September 30, 2004 - 26.30 CZK/US$ (average exchange rate)

Pro forma consolidated statement of operations for the nine months ended
September 30, 2003 - 28.50 CZK/US$ (average exchange rate)

(F) To reflect the additional 677,201 shares issued to the former shareholders
of Elender

F-64

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:

NATURE OF EXPENSE AMOUNT

SEC Registration fee $ 243.68
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 4,323.00
TOTAL $49,566.68*
===========

* Estimated.

II-1

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

On February 23, 2004, we entered into a Shares Purchase Agreement with Vitonas
Investments Limited, a company with registered seat in Cyprus, Certus Kft., a
Hungarian corporation and Rumed 2000 Kft., a Hungarian corporation, to acquire
their 100% interest in Elender is a Hungarian corporation. Elender is an
Internet service provider located in Hungary that provides internet access to
the corporate and institutional (public) sector and, amongst others, 2,300
schools in Hungary. The Elender acquisition was closed on June 9, 2004. The
total purchase price paid by our company for the acquisition included cash in
the amount of $6,500,000 and 677,201 shares of our common stock.

* All of the above offerings and sales were deemed to be exempt 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 were made to a limited number of persons, all of whom were
accredited investors, business associates of our company or executive officers
of our company, and transfer was restricted by our company in accordance with
the requirements of the Securities Act of 1933. In addition to representations
by the above-referenced persons, we have made independent determinations that
all of the above-referenced persons 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, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.

II-2

ITEM 27. EXHIBITS.

The following exhibits are included as part of this Form SB-2. References to
"the Company" in this Exhibit List mean Euroweb International Corp., a Delaware
corporation.

Exhibit Number Description
-------------- -----------------------------------------------------------------
2.1 Subscription Agreement and Option Agreement with KPN(1)(2)

3.1 Certificate of Incorporation filed November 9, 1992(1)

3.2 Amendment to Certificate of Incorporation filed July 9,1997(2)

3.3 Restated Certificate of Incorporation(6)

3.4 Amendment to the Restated Certificate of Incorporation(7)

3.5 By-laws(2)

4.1 Form of Common Stock Certificate(1)

4.2 Intentionally left blank

4.3 Placement Agreement between Registrant and J.W. Barclay & Co.,
Inc. and form of Placement Agent Warrants issued in connection
with private placement financing(1)

5.1 Opinion of Sichenzia Ross Friedman Ference LLP (previously filed)

10.1 Shares Purchase Agreement between PanTel Tavkozlesi es
Kommunikacios rt., a Hungarian company, and Euroweb International
Corp., a Delaware corporation (3)

10.2 Guaranty by Euroweb International Corp., a Delaware corporation,
in favor of PanTel Tavkozlesi es Kommunikacios rt., a Hungarian
company (3)

10.3 Shares Purchase Agreement between Vitonas Investments Limited, a
Hungarian corporation, Certus Kft., a Hungarian corporation,
Rumed 2000 Kft., a Hungarian corporation and Euroweb
International Corp., a Delaware corporation, dated as of February
23, 2004. (4)

14.1 Code of Ethics and Business Conduct of Officers, Directors and
Euroweb International Corp.

23.1 Consent from KPMG Hungaria Kft.

23.2 Consent from Deloitte Auditing and Consulting Ltd.

23.3 Consent from Counsel (incorporated in Exhibit 5.1)

(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 as an exhibit to Form 8-K on February 27, 2004.
(4) Filed as an exhibit to Form 8-K on March 9, 2004.
(5) Filed as an exhibit to Form 10-KSB for the year ended December 31, 2003.
(6) Filed as exhibit A to the Definitive Proxy filed on May 7, 2003.
(7) Filed as exhibit A to the Definitive Proxy filed on May 12, 2004.

ITEM 28. UNDERTAKINGS.

The undersigned Company hereby undertakes to:

(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:

II-3

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");

(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and

(iii) Include any additional or changed material information on the plan of
distribution.

(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.

(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorizes this registration statement
to be signed on its behalf by the undersigned, in the City of New York, State of
New York, on February 10, 2005.

EUROWEB INTERNATIONAL CORP.

By:/s/ Csaba Toro
--------------
Name: Csaba Toro
Title: Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.

---------------------- --------------------------------------- -----------------
By: /s/Csaba Toro Chief Executive Officer and Director February 10, 2005
---------------- (Principal Executive Officer)
Csaba Toro

---------------------- --------------------------------------- -----------------
By:/S/ Peter Szigeti Chief Accounting Officer (Principal February 10, 2005
-------------------- Accounting and Financial Officer)
Peter Szigeti

---------------------- --------------------------------------- -----------------
By: Chairman February 10, 2005
--------------------
Stewart Reich

---------------------- --------------------------------------- -----------------
By: /s/Howard Cooper Director February 10, 2005
--------------------
Howard Cooper

---------------------- --------------------------------------- -----------------
By: /s/ Gabor Ormosy Director February 10, 2005
--------------------
Gabor Ormosy

---------------------- --------------------------------------- -----------------
By: Director February 10, 2005
-------------------
Yossi Attia

---------------------- --------------------------------------- -----------------
By: /s/ Ilan Kenig Director February 10, 2005
-----------------
Ilan Kenig

---------------------- --------------------------------------- -----------------

II-5