United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2006
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ________________ to ________________
Commission file number 001-12000
EUROWEB INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3696015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
468 North Camden Drive, Suite 256(I), Beverly Hills, California 90210
(Address of principal executive offices)
(310) 860-5697 (310) 860-5600
Issuer's telephone number Issuer's facsimile number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of Exchange Act). Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.001 par value 5,758,898
(Class) (Outstanding at August 11, 2006)
Transitional Small Business Disclosures Format (Check one): Yes |_| No |X|
EUROWEB INTERNATIONAL CORP.
INDEX
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of June 30, 2006 3
Condensed Consolidated Statements of Operations and Comprehensive Income
for the three months ended June 30, 2006 and 2005 and the six months
ended June 30, 2006 and 2005 4
Condensed Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 2006 and twelve months ended December 31, 2005 5
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
Item 3. Controls and Procedures 31
PART II. Other Information 32
Signature 34
2
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 2006
-------------
ASSETS
Current Assets
Cash and cash equivalents $ 17,593,108
Trade accounts receivable, net of allowance for doubtful
accounts of $189,670 1,178,573
Unbilled receivables 295,995
Prepaid expenses and other current assets 1,260,553
------------
Total current assets 20,328,229
Property and equipment, net 1,044,350
Long term loan 2,767,500
Intangibles - customer contracts, net 2,437,320
Goodwill 865,640
Other assets 149,710
============
Total assets $ 27,592,749
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 1,507,859
Current portion of bank loan and overdraft 619,433
Other current liabilities 463,602
Accrued expenses 669,705
------------
Total current liabilities 3,260,599
------------
Deferred tax liability 389,971
Bank loan 324,082
Commitments and contingencies
Stockholders' Equity
Common stock, $.001 par value - authorized 35,000,000 shares;
5,818,067 shares issued and outstanding 25,282
Additional paid-in capital 52,017,056
Accumulated deficit (28,371,739)
Accumulated other comprehensive income 13,517
Treasury stock - 25,000 common shares, at cost (66,019)
------------
Total stockholders' equity 23,618,097
------------
Total liabilities and stockholders' equity $ 27,592,749
============
See accompanying notes to condensed consolidated financial statements.
3
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
Three months ended Six months ended
June 30 June 30
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues $ 1,602,231 $ -- $ 3,394,517 $ --
Cost of revenues (Exclusive of depreciation and amortization shown
separately below) 481,570 -- 1,143,788 --
Operating expenses
Compensation and related costs 707,646 199,956 1,469,412 297,855
Severance to officer 750,000 -- 750,000 --
Consulting, director and professional fees 476,354 218,100 898,030 396,638
Other selling, general and administrative expenses 421,731 112,256 701,164 228,390
Goodwill impairment 7,285,032 -- 7,285,032 --
Depreciation and amortization 461,916 -- 917,136 --
----------- ----------- ----------- -----------
Total operating expenses 10,102,679 530,312 12,020,774 922,883
Operating loss (8,982,018) (530,312) (9,770,045) (922,883)
Interest income 84,172 -- 84,172 --
Interest expense (23,873) -- (55,055) --
----------- ----------- ----------- -----------
Net interest income 60,299 -- 29,117 --
Other income -- 170,000 -- 170,000
Loss from continuing operatings before income taxes (8,921,719) (360,312) (9,740,928) (752,883)
Income tax expense, current (18,804) -- (39,879) --
Income tax benefit, deferred 55,599 -- 111,197 --
----------- ----------- ----------- -----------
Income tax benefit 36,795 -- 71,318 --
Loss from continuing operations (8,884,924) (360,312) (9,669,610) (752,883)
Income from discontinued operations, net of tax 15,845,188 2,038,118 15,600,302 2,205,270
Net income 6,960,264 1,677,806 5,930,692 1,452,387
Other comprehensive (loss) income (379,384) (126,321) (86,164) 43,704
----------- ----------- ----------- -----------
Comprehensive income $ 6,580,880 $ 1,551,485 $ 5,844,528 $ 1,496,091
=========== =========== =========== ===========
Loss per share, from continuing operations, basic and diluted $ (1.52) $ (0.07) $ (1.66) $ (0.14)
Income per share from discontinued operations, basic and
diluted $ 2.71 $ 0.38 $ 2.67 $ 0.41
Net income per share, basic and diluted $ 1.19 $ 0.31 $ 1.01 $ 0.27
=========== =========== =========== ===========
Weighted average number of shares outstanding, basic and
diluted 5,842,059 5,342,533 5,840,606 5,342,533
See accompanying notes to condensed consolidated financial statements.
4
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Accumulated
------------------- Additional Other Total
Number of Paid-in Accumulated Comprehensive Treasury Stockholders'
shares Amount Capital Deficit Gain(Loss) Stock Equity
--------- ------- ----------- ------------ ------------- ----------- -------------
Balances, January 1, 2005 5,342,533 $24,807 $50,780,084 $(35,982,726) $ 108,266 $(1,115,412) $13,815,019
--------- ------- ----------- ------------ ---------- ----------- -----------
Foreign currency translation loss -- -- -- -- (8,585) -- (8,585)
Compensation charge on share
options and warrants issued to
consultants -- -- 192,294 -- -- -- 192,294
Issuance of shares (Navigator Rt
acquisition) 441,566 441 1,681,693 -- -- -- 1,682,134
Cancellation of treasury stock -- -- (1,115,412) -- -- 1,115,412 --
Net income for the period -- -- -- 1,680,295 -- -- 1,680,295
--------- ------- ----------- ------------ ---------- ----------- -----------
Balances, December 31, 2005 5,784,099 25,248 51,538,659 (34,302,431) 99,681 -- 17,361,157
--------- ------- ----------- ------------ ---------- ----------- -----------
Foreign currency translation gain -- -- -- -- (86,164) -- (86,164)
Compensation charge on share
options and warrants issued to
employees, directors and
consultants -- -- 301,373 301,373
Issuance of shares to the
President 58,968 59 177,024 -- -- -- 177,083
Treasury stock (25,000) (25) (66,019) (66,044)
Net income for the period -- -- -- 5,930,692 -- -- 5,930,692
--------- ------- ----------- ------------ ---------- ----------- -----------
Balances, June 30, 2006 5,818,067 $25,282 $52,017,056 $(28,371,739) $ 13,517 $ (66,019) $23,618,097
========= ======= =========== ============ ========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------
2006 2005
----------- -----------
Net cash (used in) provided by operating activities $(2,272,490) $ 1,379,145
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Euroweb Hungary and Euroweb Romania,
net of cash 21,496,533
Proceeds from sale of Euroweb Slovakia -- 2,700,000
Long term loans to real estate projects (ERC) (2,767,500)
Purchase of property and equipment (250,284) --
Investing activities from discontinued operations -- (1,189,206)
----------- -----------
Net cash provided by investing activities 18,478,749 1,510,794
----------- -----------
Cash flows from financing activities:
Repayment of bank loans (136,905) --
Utilization of bank overdraft 49,414 --
Principal payments under capital lease obligations (28,522) --
Payments to acquire treasury stock (66,044)
Financing activities from discontinued operation -- (953,197)
----------- -----------
Net cash used in financing activities (182,057) (953,197)
----------- -----------
Effect of exchange rate changes on cash and cash equivalents 216 --
----------- -----------
Net increase in cash and cash equivalents 16,024,418 1,936,742
Cash and cash equivalents, beginning of period 1,568,690 2,379,552
----------- -----------
Cash and cash equivalents, end of period $17,593,108 $ 4,316,294
=========== ===========
Supplemental disclosure:
Cash paid for interest $ 49,839 --
Summary of non-cash transactions:
Shares issued to the President $ 177,083 --
See accompanying notes to condensed consolidated financial statements.
6
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Business
Euroweb International Corp. ("Euroweb") is a Delaware corporation, which was
incorporated on November 9, 1992. Euroweb and its subsidiaries are collectively
referred to herein as the "Company". The Company was a development stage company
through December 31, 1993.
The Company operates in Hungary through our wholly-owned subsidiary Navigator
Informatika Rt. ("Navigator") and currently in the United States ("USA") through
our wholly-owned subsidiary Euroweb RE Corp. ("ERC"), a Nevada corporation.
The Company operates in two industry segments, providing a full range of
information technology ("IT") outsourcing services through Navigator in Hungary
and real estate development business through ERC in the USA. The IT outsourcing
services provided by the Company are primarily comprised of IT maintenance,
procurement, consultancy and related services. In June 2006, the Company
commenced operations in the real estate industry through ERC, which includes
development and subsequent rent or sale of real estate, as well as investment in
the form of loans provided to, or ownership acquired in, property development
companies. In addition to these two segments, the Company also separately
manages and analyzes the activity of the parent company, Euroweb International
Corporation, a legal entity registered in the State of Delaware.
On April 15, 2005, the Company disposed of Euroweb Slovakia a.s. ("Euroweb
Slovakia") for cash in the amount of $2,700,000 and, as a result, has ceased
operations in Slovakia. On December 15, 2005, the Board of Directors decided to
sell 100% of Euroweb Internet Szolgaltato Rt. ("Euroweb Hungary") and Euroweb
Romania S.A. ("Euroweb Romania"). On December 19, 2005, the Company entered into
a share purchase agreement with Invitel Tavkozlesi Szolgaltato Rt. ("Invitel"),
a Hungarian joint stock company, to sell 100% of the Company's interest in
Euroweb Hungary and Euroweb Romania. The closing of the sale of Euroweb Hungary
and Euroweb Romania occurred on May 23, 2006 upon our receipt of the first part
of purchase price of $29,400,000. The remaining part of purchase price of
$613,474 was fully paid in two instalments: $232,536 in June and $380,938 in the
beginning of July 2006. The purchased price was partly utilized for the
repayment of $6,044,870 Commerzbank loan in order to ensure debt free status of
the subsidiaries, and with the arrangement of $2,091,133 transaction costs.
Approximately 89% of the consolidated revenue for the six months ended June 30,
2006 was generated from the four most significant customers of the Company as
follows:
Revenue
Generated As a %
---------- ------
Company 'A': $ 874,873 25.77
Company 'B': 847,303 24.96
Company 'C': 732,160 21.57
Company 'D': 574,370 16.92
Other companies: 365,811 10.78
---------- ------
Total revenue: $3,394,517 100.00
========== ======
7
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation. The interim unaudited condensed consolidated financial
statements of Euroweb and its consolidated subsidiaries included herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") regarding interim financial information and,
accordingly, do not include all of the information and note disclosures required
by accounting principles generally accepted in the United States of America
("U.S. GAAP") for complete financial statements. These unaudited interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2005, appearing in the Annual Report on Form 10-KSB of the Company for the
year then-ended.
All intercompany balances and transactions have been eliminated in
consolidation.
Prior periods have been reclassified to conform to current period presentation.
Use of Estimates. The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with U.S. GAAP and reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature. The results of operations for the six months
ended June 30, 2006 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006.
In preparing the interim unaudited consolidated financial statements, management
is required to make estimates and assumptions that affect the amounts reported
in the financial statements. Actual results could differ from those estimates.
Stock-based compensation. Prior to January 1, 2006, the Company accounted for
its stock-based employee compensation arrangements under the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"), as allowed by Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-based Compensation
("SFAS No. 123"), as amended by SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure ("SFAS No. 148"). As a result, no
expense was recognized for options to purchase its common stock that were
granted with an exercise price equal to fair market value at the date of grant
and no expense was recognized in connection with purchases under our employee
stock purchase plan for the years ended December 31, 2005 or 2004, nor in the
three and six months ended June 30, 2005.
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004) Share-Based Payment ("SFAS No. 123R"), which replaces
SFAS No. 123 and supersedes APB No. 25. SFAS No. 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values beginning with
the first interim or annual period after December 15, 2005 for small business
issuers. Subsequent to the effective date, the pro forma disclosures previously
permitted under SFAS No. 123 are no longer an alternative to financial statement
recognition. Effective January 1, 2006, the Company have adopted SFAS No. 123R
using the modified prospective method.
8
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Under this method, compensation cost recognized during the three-month and six
months ended June 30, 2006, includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of June 30, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123 amortized on an straight-line basis over the options' vesting
period, and (b) compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS No. 123R amortized on a straight-line
basis over the options' vesting period. The Company utilizes a Black-Scholes
option-pricing model to measure the fair value of stock options granted to
employees. See Note 5 to the Company's Unaudited Condensed Consolidated
Financial Statements for a further discussion on stock-based compensation. Pro
forma results for prior periods have not been restated. The adoption of SFAS No.
123R had no impact on cash flows from operations, investing or financing.
The Company estimates the fair value of each option award on the date of the
grant using the Black-Scholes option valuation model. Expected volatilities are
based on the historical volatility of the Company's common stock over a period
commensurate with the options' expected term. The expected term represents the
period of time that options granted are expected to be outstanding and is
calculated in accordance with the SEC guidance provided in the SEC's Staff
Accounting Bulletin 107, ("SAB 107"), using a "simplified" method. The risk-free
interest rate assumption is based upon observed interest rates appropriate for
the expected term of the Company's stock options.
The following table summarizes the weighted-average assumptions used in the
Black-Scholes model for options granted during the six months of 2005.
Six months
Ended June 30, 2005
-------------------
Expected volatility ....... 88%
Expected dividends ........ --
Expected term (in years) .. 6
Risk-free rate ............ 4%
No options have been granted or exercised in the six months ended June 30, 2006.
Prior to 2006, the Company accounted for stock-based compensation in accordance
with APB No. 25 using the intrinsic value method, which did not require that
compensation cost be recognized for the Company's stock options, provided the
option exercise price was not less than the common stock's fair market value on
the date of the grant. The Company provided pro-forma disclosure amounts in
accordance with SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, as if the fair value method defined by SFAS No. 123
had been applied to its stock-based compensation. The net loss amount utilized
within the following table illustrates the effect on net loss and net loss per
share had the Company applied the fair value recognition provisions of SFAS No.
123 to account for its employee stock option and employee stock purchase plans
for the three and six months ended June 30, 2005 because stock-based employee
compensation was not accounted for using the fair value recognition method
during that period.
9
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
For purposes of pro forma disclosure, the estimated fair value of the stock
awards, as prescribed by SFAS No. 123, is amortized to expense over the vesting
period of such awards:
Six months ended June 30,2005
---------------- ------------
Net income:
Net income, as reported $1,452,387
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax effects (395,682)
----------
Pro forma net income 1,056,705
==========
Basic and diluted income per share:
As reported, basic $ 0.27
Pro forma, basic 0.20
As reported, diluted $ 0.27
Pro forma, diluted 0.20
Three months ended June 30,2005
------------------ ------------
Net income:
Net income, as reported $1,677,806
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax effects (326,360)
----------
Pro forma net income 1,351,446
==========
Basic and diluted income per share:
As reported, basic $ 0.31
Pro forma, basic 0.25
As reported, diluted $ 0.31
Pro forma, diluted 0.25
The historical pro forma impact of applying the fair value method prescribed by
SFAS No. 123 is not representative of the impact that may be expected in the
future due to changes in option grants in future years and changes in
assumptions such as volatility, interest rates and expected life used to
estimate fair value of future grants.
10
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note that the above pro forma disclosure was not presented for the three and six
month periods ended June 30, 2006, because stock-based employee compensation has
been accounted for using the fair value recognition method under SFAS No. 123R
for these periods. As a result of adopting SFAS No. 123R, the impact to the
Consolidated Statement of Operations was to increase expenses and reduce net
income by $112,446 and $231,483 for the three and six months ended June 30,
2006.
The following table shows total stock-based employee compensation expense (see
Note 5 for types of stock-based employee arrangements) included in the condensed
consolidated statement of operations for the three and six month periods ended
June 30, 2006:
Categories of Three months ended Six months ended
cost and expenses June 30, 2006 June 30, 2006
----------------- ------------------ ----------------
Compensation and related costs $ 36,591 $ 73,182
Consulting, directors and professional fees 75,855 158,301
-------- --------
Total stock-based compensation expense $112,446 $231,483
======== ========
There was no capitalized stock-based employee compensation cost as of June 30,
2006. There were no material recognized tax benefits during the three and six
months ended June 30, 2006.
Earnings per Share. The following is a reconciliation from basic earnings per
share to diluted earnings per share for the three and six month periods ended
June 30, 2006 and 2005:
Three months ended Sixmonths ended
June 30, June 30,
----------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Net income attributable to
Common stockholders (A) $6,960,264 $1,677,806 $5,930,692 $1,452,387
---------- ---------- ---------- ----------
Determination of shares
Weighted average common shares
outstanding - basic (B) 5,842,059 5,342,533 5,840,606 5,342,533
Assumed conversion of dilutive stock
options and warrants -- -- -- --
Weighted average common shares
Outstanding - diluted (C) 5,842,059 5,342,533 5,840,606 5,342,533
---------- ---------- ---------- ----------
Net income (loss) per common share
Basic (A/B) $ 1.19 $ 0.31 $ 1.01 $ 0.27
Diluted (A/C) $ 1.19 $ 0.31 $ 1.01 $ 0.27
The Company had potentially dilutive common stock equivalents of 773,330 and
788,330 (2005: 765,000 and 765,000) for the three and six months ended June 30,
2006, which were not included in the computation of diluted net loss per share,
because they were antidilutive.
11
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
3. Bank Loans and Overdrafts
On April 6, 2005, the Company entered into a long-term loan agreement with
Commerzbank Bank Rt (the "Bank") for $907,431 at the June 30, 2006 exchange
rate, with an interest rate of three month Budapest Interbank Offered Rate
("BUBOR") +2.5%. At June 30, 2006, $583,348 was outstanding. The loan is
repayable in 14 quarterly installments of $64,816 plus quarterly interest
beginning on May 31, 2005. The shares of Navigator were pledged as collateral
for this loan, as well as a general lien established on all of the assets of
this subsidiary of Euroweb.
In addition to the long-term loan agreement, the Company also entered into an
overdraft facility with the Bank for $586,166 at the June 30, 2006 exchange rate
on July 20, 2005. At June 30, 2006, $360,167 was outstanding. The interest rate
is BUBOR + 1.5%.
4. Discontinued Operations and Disposal of Subsidiaries
Completed sale of Euroweb Slovakia
On April 15, 2005, the Company sold Euroweb Slovakia for cash in the amount of
$2,700,000.
Completed sale of Euroweb Hungary and Euroweb Romania
On December 15, 2005, the Board of Directors of the Company decided to sell its
interest its wholly-owned subsidiaries in Euroweb Hungary and Euroweb Romania.
On December 19, 2005, the Company entered into a share purchase agreement with
Invitel Tavkozlesi Szolgaltato Rt., a Hungarian joint stock company, to sell
Euroweb Hungary and Euroweb Romania, subject to various conditions including,
but not limited to, shareholders' approval. The closing of the sale of Euroweb
Hungary and Euroweb Romania occurred on May 23, 2006 upon our receipt of the
first part of purchase price of $29,400,000. The remaining part of purchase
price of $613,474 was fully paid in two instalments: $232,536 in June and
$380,938 in the beginning of July 2006. The purchased price was partly utilized
for the repayment of $6,044,870 Commerzbank loan in order to ensure debt free
status of the subsidiaries, and with the arrangement of $2,091,133 transaction
costs.
The sale of Euroweb Slovakia, Euroweb Hungary and Euroweb Romania met the
criteria for presentation as a discontinued operation under the provisions of
Statement of Financial Accounting Standards No. 144, "Accouting for the
Impairment or Disposal of Long Lived Assets ("SFAS No. 144"). Therefore, amounts
relating to Euroweb Slovakia, Euroweb Hungary and Euroweb Romania have been
reclassified as discontinued operations in 2005.
12
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table provides the details of result of discontinued operation per
reporting unit for the three and six months ended June 30, 2006 and 2005:
Three months ended Six months ended
June 30 June 30
------------------------ ------------------------
2006 2005 2006 2005
----------- ---------- ----------- ----------
Income from discontinued
Slovakian operations (including
the 2005 gain on disposal of
$1,701,200), net of tax $ -- $1,728,200 $ -- $1,733,470
Income (loss) from discontinued
Hungarian operations (292,621) 38,940 (928,122) (180,578)
Income from discontinued
Romanian operations 197,951 270,978 588,566 652,378
Gain on disposal of the
Hungarian and Romanian operations,
net of tax 15,939,858 -- 15,939,858 --
----------- ---------- ----------- ----------
Income from discontinued operations $15,845,188 $2,038,118 $15,600,302 $2,205,270
=========== ========== =========== ==========
5. Stock-based Compensation
Effective January 1, 2006, the Company adopted SFAS No. 123R, which
requires the Company to measure the cost of employee services received in
exchange for all equity awards granted based on the fair value of the award as
of the grant date. SFAS No. 123R supersedes SFAS No. 123 and APB No. 25. The
Company adopted SFAS No. 123R using the modified prospective transition method,
which requires the Company to record compensation cost related to unvested stock
awards as of December 31, 2005 by recognizing the unamortized grant date fair
value of these awards over the remaining requisite service periods of those
awards, with no change in historical reported earnings. Awards granted after
December 31, 2005 are valued at fair value in accordance with the provisions of
SFAS No. 123R and are recognized on a straight-line basis over the requisite
service periods of each award. The new standard also requires the Company to
estimate forfeiture rates for all unvested awards, which it has done for 2006
based on its historical experience.
As of June 30, 2006, the Company has one share-based compensation plan:
the 2004 Stock Incentive Plan (the "Plan").
13
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Pursuant to the Plan, 800,000 shares have been provided for the grant of
stock options to employees, directors, consultants and advisors of the Company.
The plan was approved by the Company's Annual Meeting of Stockholders in May
2004. In 2005, the Plan was adjusted to increase the number of shares of common
stock issuable under such plan from 800,000 shares to 1,200,000 shares. The
adjustment was approved at the Company's Annual Meeting of Stockholders in June
2005. Option awards must be granted with an exercise price at not less than the
fair market price of the Company's common stock on the date of the grant; those
option awards generally vest over a three or four-year period in equal
increments of 33% or 25%, beginning 6 months after the date of the grant. All
options granted have contractual terms of six years from the date of the grant
and expire 3 months subsequent to the holder leaving the Company. The grant date
fair value is calculated using the Black-Scholes option valuation model.
The Company has granted the following options under the Plan:
On April 26, 2004, the Company granted 125,000 options to its Chief Executive
Officer, an aggregate of 195,000 options to five employees and an aggregate of
45,000 options to two consultants of the Company. The stock options granted to
the Chief Executive Officer vest at the rate of 31,250 options on November 1,
2004 and each October 1 of 2005, 2006 and 2007. The stock options granted to the
other employees and consultants vest at the rate of 80,000 options on November
1, 2004 and October 1 of 2005 and 2006. The exercise price of the options
($4.78) is equal to the market price on the date the granted. Of the 195,000
options granted to employees, 60,000 options have been expired unexercised due
to termination of two employee contracts during 2005. An additional 15,000
options granted to one of the consultants have been expired unexercised in April
2006 due to the termination of the consultant's contract.
In accordance with APB No. 25, compensation expense was not recorded for the
options granted to the Chief Executive Officer, and the five employees until
December 31, 2005. The adoption of SFAS No. 123R on January 1, 2006 resulted in
a compensation charge of $36,591 and $73,182 for the three and six months ended
June 30, 2006, respectively.
In accordance with SFAS No. 123R, the Company will recognize total compensation
charges of approximately $162,000 for the grants made to the two consultants as
such consultants do not qualify as employees. Such compensation charges are
recognized over the vesting period of three years. Compensation expense for the
three and six months ended June 30, 2006 was $3,720 and $9,300 (2005: $15,100
and $30,200, respectively).
On March 22, 2005, the Company granted an aggregate of 200,000 options to two of
the Company's directors. The stock options granted to the directors on March 22,
2005 vest at the rate of 50,000 options on each September 22 of 2005, 2006, 2007
and 2008, respectively. The exercise price of the options ($3.40) is equal to
the market price on the date theoptions were granted. In accordance with APB No.
25, compensation charges were not recorded accounted with respect tothese grants
until December 31, 2005. The adoption of SFAS No. 123R on January 1, 2006
resulted in a compensation charge of $43,244 and $86,488, respectively, in the
three and six months ended June 30, 2006.
14
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
On June 2, 2005, the Company granted 100,000 options to a director of the
Company, which vest at the rate of 25,000 options on December 2 of 2005, 2006,
2007, and 2008, resepectively. In accordance with APB 25, compensation charges
were not recorded accounted with respect to these grants until December 31,
2005. The adoption of SFAS No. 123R on January 1, 2006 resulted in a
compensation charge of $25,644 and $51,288, respectively, in the three and six
months ended June 30, 2006.
The following table summarizes the option activity under the Plan as of
June 30, 2006 and changes during the six months then ended:
Weighted
Average
Weighted Remaining
Average Contractual Aggregate
Number of Exercise Term Intrinsic
Stock Options Shares Price (in years) Value
------------- --------- -------- ----------- ---------
Outstanding at January 1, 2006 .. 605,000 $4.20
Granted ......................... -- --
Exercised ....................... -- --
Forfeited or expired ............ (15,000) $4.78
------- -----
Outstanding at June 30, 2006 .... 590,000 $4.19 4.3 $0
Exercisable at June 30, 2006 .... 247,500 $4.43 4.1 $0
The aggregate intrinsic value in the table above represents the total pretax
intrinsic value (the difference between the Company's closing stock price on the
last trading day of the second quarter of 2006 and the exercise price,
multiplied by the number of in-the money options) that would have been received
by the option holders had all option holders exercised their options on June 30,
2006. The amount of aggregate intrinsic value will change based on the fair
market value of the Company's stock. The intrinsic value of stock options
exercised during the three and six months ended June 30, 2006 was $0,
respectively.
As of June 30, 2006, there was $363,201 of total unrecognized compensation cost
related to non-vested share-based compensation granted under the Plan, which is
expected to be recognized over a weighted-average period of 2 years. No options
were in money as of June 30, 2006.
Other option outside of the Plan:
On October 13, 2003, the Company granted one of the directors 100,000 options at
an exercise price (equal to the fair value on that day) of $4.21 per share, with
25,000 options vesting on April 13 2004, 2005, 2006 and 2007, respectively
2004-2007. In accordance with APB No. 25, compensation charges were not recorded
accounted with respect to these grants until December 31, 2005. Compensation
charge according to SFAS 123R adopted from January 1, 2006 was $6,967 and
$20,525 in the three and six months period ended June 30, 2006. The option was
not exercised. The intrinsic value of these stock options exercised during the
three and six months ended June 30, 2006 was $0. As of June 30, 2006, there was
$17,897 of total unrecognized compensation cost related to non-vested
share-based compensation granted under this grant, which is expected to be
recognized over a weighted-average period of less than 1 year. The options were
not in money as of June 30, 2006.
15
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The President and a director of the Company is eligible to receive an annual
compensation of $250,000 starting from April 15, 2005, which is payable in
Euroweb shares of common stock. The number of shares to be paid is calculated
based on the average closing price 10 days prior to each employment year. The
number of shares for the year ended April 14, 2006 is 82,781. Compensation
expense for the three and six months ended June 30, 2006 was $62,501 and
$125,000 (2005: $52,083 and $52,083).
On June 7, 2005, the Company granted 100,000 warrants to a consulting company as
compensation for investor relations services at exercise prices as follows:
40,000 warrants at $3.50 per share, 20,000 warrants at $4.25 per share, 20,000
warrants at $4.75 per share and 20,000 warrants at $5 per shares. The warrants
have a term of five years and tranches vest proportionately at a rate of a total
8,333 warrants per month over a one year period. The warrants are being expensed
over the performance period of one year. Compensation expense for the three and
six months ended June 30, 2006 was $0 and $60,590 (2005: $20,206 and $20,206).
In February 2006, the Company terminated its contract with the consultant
company providing investor relation services. The warrants granted under the
contract are reduced time-proportionally to 83,330, based on the time in service
by the consultant company.
6. Commitments and Contingencies
(a) Employment Agreements
The Company entered into a six-year agreement with its 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 and
2005. The amended agreement provided for an annual salary of $200,000 and a
bonus of up to $150,000 in 2006, 2007 and 2008, as well as an annual car
allowance of $30,000 for the same period.
On May 24, 2006, the Company entered into a Severance Agreement with Mr. Toro in
order to define the severance relationship between the two parties. In
consideration for Toro agreeing to relinquish and release all rights and claims
under the Employment Agreement including the payment of his annual salary, the
Company agreed to pay Toro $750,000. In addition, Toro has submitted his
resignation as Chief Executive Officer and as a director of the Company
effective June 1, 2006. The severance was paid in full in May 2006.
The Company entered into a two-year employment agreement with Moshe
Schnapp as President and Director of the Company starting from April 15, 2005,
which provides for an annual compensation in the amount of $250,000 to be paid
in the form of Euroweb shares of common stock. The number of shares to be
received by Mr. Schnapp is calculated based on the average closing price 10 days
prior to the commencement of each employment year. For the year ended April 14,
2007, Mr. Schnapp will receive 76,103 Euroweb shares of common stock.
(b) Lease Agreements
The Company's subsidiary has entered into various capital leases for service
equipment, as well as non-cancelable agreement for office premises.
16
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(c) Legal Proceedings
Except as set forth below, there are no known significant legal procedures that
have been filed and are outstanding against the Company:
On April 26, 2006, a lawsuit was filed in Delaware Court of Chancery (the
"Court") by a stockholder of the Company against the Company, each of the
Company's directors and CORCYRA d.o.o., a stockholder of the Company that
beneficially owns 39.81% of the Company's outstanding common stock of the
Company. The Complaint is entitled Laurence Paskowitz v. Csaba Toro et al., C.A.
No. 2110-N and was brought individually and as a class action on behalf of
certain of the Company's common stockholders excluding defendants and their
affiliates. The plaintiff alleges the proposed sale of 100% of the Company's
interest in the Company's two Internet and telecom related operating
subsidiaries (the "Subsidiaries") constitutes a sale of substantially all of the
Company's assets and requires approval by a majority of the voting power of the
Company's outstanding common stock under Section 271 of the Delaware General
Corporation Law. The plaintiff also alleges the defendants breached their
fiduciary duties in connection with the sale of the subsidiaries and the
disclosures contained in the proxy statement filed on April 24, 2006. The
plaintiff applied for a temporary restraining order seeking to enjoin the
special meeting on May 15, 2006.
The Company denies any and all allegations of wrongdoing; however, in the
interests of conserving resources, on April 28, 2006, the parties to the
litigation entered into a Memorandum of Understanding providing for, subject to
confirmatory discovery by plaintiff, the negotiation of a formal stipulation of
a settlement of the litigation. Pursuant to the proposed settlement, the Board
of Directors of the Company has determined to: (i) increase the vote required to
approve the sale of 100% of the Company's interest in the Subsidiaries, (ii)
revise the disclosure within the proxy statement to eliminate the bonus of up to
US $400,000, which the Compensation Committee of the Company had the option to
pay to select members of management, as the Board of Directors had previously
elected to terminate the ability to pay such bonus and (iii) provide
supplemental disclosure as contained in the Supplemental Proxy Statement to be
mailed to stockholders and filed with the Securities and Exchange Commission on
May 3, 2006. The settlement will provide for dismissal of the litigation with
prejudice and is subject to Court approval. As part of the settlement, the
Company has agreed to pay an amount of attorneys' fees and expenses that are to
be negotiated between the two parties or, lieu of such agreement between the two
parties, will be determined by the Court.
(d) Elender Rt. Acquisition
On June 9, 2004 the Company acquired all of the outstanding shares of Elender
Rt. ("Elender") for $6,500,000 in cash and 677,201 of the Company's shares of
common stock. Under the terms of the agreement, the Company has placed 248,111
unregistered shares of common stock, newly issued and in the name of the
Company, with an escrow agent as security for approximately $1.5 million in
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 the
shares. As of December 31, 2005, the Company had repaid all of the loans that
were outstanding. In January 2006, the Company acquired and subsequently
cancelled the shares that were placed in escrow.
17
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Pursuant to the registration rights agreement signed on June 1, 2004 with the
sellers of Elender, if the shares of the Company's common stock issued to the
sellers were not registered within 120 days of Closing (June 9, 2004) for
reasons attributable to the Company, a penalty of $2,000 per day is payable
until the shares are registered. In case of disposal of Euroweb Hungary and
Euroweb Romania, the Company will have to re-register the shares issued in
connection with the acquisition of Elender. In case of late registration of
these shares may result penalty payment obligation. A registration statement was
filed in July 2006, but has not yet become effective.
(e) Navigator Acquisition
The Company entered into a registration rights agreement dated July 21, 2005,
whereby it has agreed to file a registration statement registering the 441,566
shares of Euroweb common stock issued in connection with the acquisition within
75 days of the closing of the transaction and have such registration statement
declared effective within 150 days from the filing thereof. In the event that
Euroweb fails to meet its obligations to register the shares it may be required
to pay a penalty equal to 1% of the value of the Shares per month. The Company
has obtained a written waiver from the seller stating that the seller will not
raise any claims in connection with the filing of registration statement until
May 30, 2006. The Company received a waiver extending the registration deadline
until September 30, 2006 without penalty.
(f) Indemnities Provided Upon Sale of Subsidiaries
On April 15, 2005, the Company sold Euroweb Slovakia. According to the
securities purchase contract (the "Contract"), the Company will indemnify the
buyer for all damages incurred by the buyer as the result of seller's breach of
certain representations, warranties or obligations as set in the Contract up to
an aggregate amount of $540,000. The buyer shall not be entitled to make any
claim under the Contract after the fourth anniversary of the date of the
Contract. No claims have been made to date. The Company has accrued $35,000 as
the estimated fair value of this indemnity.
On May 23, 2006, the Company sold Euroweb Hungary and Euroweb Romania. According
to the share purchase agreement (the "SPA"), the Company will indemnify the
buyer for all damages incurred by the buyer as the result of seller's breach of
certain representations, warranties or obligations as provided for in the SPA.
The Company shall not incur any liability with respect to any claim for breach
of representation and warranty or indemnity, and any such claim shall be wholly
barred and unenforceable unless notice of such claim is served upon Euroweb by
buyer no later than 60 days after the buyer's approval of Euroweb Hungary and
Euroweb Romania's statutory financial reports for the financial year 2006, but
in any event no later than June 1, 2007. In the case of Clause 8.1.6 (Taxes) or
Clause 9.2.4 of SPA, the time period is five years from the last day of the
calendar year in which the closing date occurs. No claims have been made to
date. The Company has accrued $201,020 as the estimated fair value of this
indemnity.
(g) Bank guarantee
According to the agreement with Commerzbank, the Company may utilize bank
guarantees as security for existing and future customer and suppliers. As of
June 30, 2006, the Company has $199,337 of outstanding bank guarantees provided
for one supplier and three future potential customers.
18
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(h) Investment commitment
On June 19, 2006, ERC entered into an Investment Agreement with a third party,
The Aquitania Corp. f/k/a AO Bonanza Las Vegas, Inc. ("AOB"), pursuant to which
ERC, within its sole discretion, has agreed to provide secured loans to AOB not
to exceed the amount of $10,000,000. ERC made the first loan to AOB in the
amount of $2,600,000 as of June 20, 2006, from funds available to ERC from the
Company. Each loan provided to AOB is due on demand or upon maturity on January
14, 2008. As of June 30, 2006, the outstanding balance of loan was $2,767,500.
All proceeds from the loan are placed in an escrow and are released for specific
purposes associated with the development of the Property.
7. Long term loan
On June 19, 2006, ERC entered into an Investment Agreement with a third party,
The Aquitania Corp. f/k/a/ AO Bonanza Las Vegas, Inc. ("AOB"), pursuant to which
ERC, within its sole discretion, has agreed to provide secured loans to AOB not
to exceed the amount of $10,000,000. ERC made the first loan to AOB in the
amount of $2,600,000 as of June 20, 2006, from funds available to ERC from
Euroweb. The outstanding loan amounts as of June 30, 2006 was $2,767,500. AOB
may request additional funds at anytime after July 15, 2006.
Each loan provided to AOB is due on demand or upon maturity on January 14, 2008.
All loans will be secured by a deed of trust, assignment of rents and security
agreement with respect to the property, along with ALTA American Land Title
Association title policy to be issued by a title company. All proceeds from the
loan are placed in an escrow and are released for specific purposes associated
with the development of the Property.
If ERC requests that the funds be paid on demand prior to maturity, then AOB
shall be entitled to reduce the amount requested to be prepaid by 10%. The 10%
discount will be paid to AOB in the form of shares of common stock of Euroweb,
which will be computed by dividing the dollar amount of the 10% discount by the
market price of Euroweb's shares of common stock.
The terms of the loans require that ERC to be paid-off the greater of (i) the
principal including 12% interest per annum or (ii) 33% of all gross profits
derived from the Property."
8. Treasury stock
On June 2006, Euroweb's Board of Directors approved a program to repurchase,
from time to time, at management's discretion, up to 700,000 shares of Euroweb's
common stock in the open market or in private transactions commencing on June
20, 2006 and continuing through December 15, 2006 at prevailing market prices.
Repurchases will be made under the program using our own cash resources and will
be in accordance with Rule 10b-18 under the Securities Exchange Act of 1934 and
other applicable laws, rules and regulations. The Shemano Group will act as
agent for our stock repurchase program. As of June 30, 2006, the Company
acquired 25,000 shares at a cost of $66,044.
19
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
9. Segment and geographic information
The Company's operations fall into two industry segment: providing IT outsource
services and the real estate development business. The Company's two industry
segment also serves as geographic basis. Consequently, the Company has two
operating segments: Navigator (Hungary) and ERC (USA). The performance of the
two operating segments is monitored based on net income or loss from continuing
operations (before income taxes, interest, and foreign exchange gains/losses).
There are no inter-segment sales revenues. In additional to the two segments,
the Company also separately manages and analizes the activity of the Parent
Company, Euroweb International Corporation, a legal entity registered in the
State of Delaware.
The following table summarizes financial information from continuing operations
by industry segment and geographic area for the three and six months ended June
30, 2006 and 2005 after intercompany eliminations and allocation of certain
salaries and revenues/direct cost to the respective segments/countries to more
accurately reflect the utilization of resources:
Segment and geographic information for six months ended 2006:
Navigator ERC Corporate Total
---------- --------- ---------- ----------
Total revenues 3,394,517 -- -- 3,394,517
Depreciation 221,956 200 -- 222,156
Intangible amortization
(customer contract) 694,980 -- -- 694,980
Goodwill impairment 7,285,032 -- -- 7,285,032
Interest income -- 8,932 75,240 84,172
Interest expense (55,055) -- -- (55,055)
Net interest expense (55,055) 8,932 75,240 29,117
Income tax benefit 71,318 -- -- 71,318
Loss from continuing operations (7,732,934) (50,993) (1,885,683) (9,669,610)
Long term bank loan -- 2,767,500 -- 2,767,500
Intangible - customer contracts 2,437,320 -- -- 2,437,320
Capital expenditures 225,284 25,000 -- 250,284
Goodwill 865,640 -- -- 1,849,917
Other assets 149,710 -- -- 149,710
Segment and geographic information for six months ended 2005:
Corporate Total
--------- -------
Total revenues -- --
Depreciation -- --
Intangible amortization
(customer contract) -- --
Interest income -- --
Interest expense -- --
Net interest (expense)
income -- --
Income tax -- --
Income (loss) from continuing operations (752,883) (752,883)
20
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Segment and geographic information for three months ended June 30, 2006:
Navigator ERC Corporate Total
---------- ------- ---------- ----------
Total revenues 1,602,231 -- -- 1,602,231
Depreciation 114,226 200 -- 114,426
Intangible amortization
(customer contract) 347,490 -- -- 347,490
Goodwill impairment 7,285,032 -- -- 6,300,755
Interest income -- 8,932 75,240 84,172
Interest expense (23,873) -- -- (23,873)
Net interest expense (23,873) 8,932 75,240 60,299
Income tax benefit 36,795 -- -- 36,795
Loss from continuing operations (7,554,013) (50,993) (1,279,918) (8,884,924)
Segment and geographic information for three months ended June 30, 2005:
Corporate Total
--------- --------
Total revenues -- --
Depreciation -- --
Intangible amortization
(customer contract) -- --
Interest income -- --
Interest expense -- --
Net interest (expense)
income -- --
Income tax -- --
Loss from continuing operations (360,312) (360,312)
10. Subsequent events
(a) Issuance of shares
In July 2006, the Company issued 46,007 shares of common stock to Moshe Schnapp,
President of the Company, including the service period from January 1, 2006
through July 31, 2006.
21
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Overview
Euroweb International Corp. ("Euroweb" or the "Company") operates in Hungary
through our wholly-owned subsidiary, Navigator Informatika Rt. ("Navigator"),
and currently in the United States of America ("USA") through our wholly-owned
subsidiary, Euroweb RE Corp. ("ERC"), a Nevada corporation.
On April 15, 2005, we disposed of Euroweb Slovakia a.s. ("Euroweb Slovakia") for
cash in the amount of $2,700,000 and, as a result, have ceased operations in
Slovakia. On December 15, 2005, our Board of Directors decided to sell 100% of
Euroweb Internet Szolgaltato Rt. ("Euroweb Hungary") and Euroweb Romania S.A.
("Euroweb Romania"). On December 19, 2005, the Company entered into a share
purchase agreement with Invitel Tavkozlesi Szolgaltato Rt. ("Invitel"), a
Hungarian joint stock company, to sell 100% of the Company's interest in Euroweb
Hungary and Euroweb Romania. The closing of the sale of Euroweb Hungary and
Euroweb Romania occurred on May 23, 2006 upon our receipt of the first part of
purchase price of $29,400,000. The remaining part of purchase price of $613,474
was fully paid in two installments: $232,536 in June and $380,938 in the
beginning of July 2006. The purchased price was partly utilized for the
repayment of $6,044,870 Commerzbank loan in order to ensure debt free status of
the subsidiaries, and with the arrangement of $2,091,133 transaction costs.
The sale of Euroweb Slovakia, Euroweb Hungary and Euroweb Romania met the
criteria for presentation as discontinued operations under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets.", Therefore, Euroweb Slovakia,
Euroweb Hungary and Euroweb Romania are reclassified as discontinued operations
in the financial statements of the Company in 2005.
The Company operates in two industry segments, providing a full range of
information technology ("IT") outsourcing services through Navigator in Hungary
and real estate development through ERC currently in the USA. In additional to
the two segments, the Company also separately manages and analyzes the activity
of the Parent Company, Euroweb International Corporation, a legal entity
registered in the State of Delaware.
The Company's two segments provides the following services:
(1) The IT outsourcing services provided by the Company through Navigator
primarily comprise IT maintenance, procurement, consultancy and related
services. Revenues come from the following three sources:
o Full service IT System operation comprising full service support and
maintenance with a cost-effective and competitive service desk
system, call center, hotline support and remote troubleshooting;
o IT system implementation and IT project management, including
consultancy, system design, development and implementation and
training; and
o Sale of IT devices.
22
(2) In June 2006, the Company commenced operations in the real estate industry
through ERC. ERC has commenced developments in the real estate industry, which
must satisfy the parameters set by the Board of Directors as follows:
o Any investment in the real estate opportunity (the "Proposed RE
Investment"), including loans, shall not exceed a period of three
years;
o The expected return on investment on the Proposed RE Investment will
be at minimum 15% per year;
o The Proposed RE Investment will not be leveraged in excess of more
than $1.50 for each $1.00 invested in equity; and
o Each Proposed RE Investment will have a clear exit strategy (i.e.
purchase, development and sale) and no Proposed RE Investment intent
will be to acquire income producing real estate.
On June 14, 2006, the Company entered into a line of credit agreement (the "Line
of Credit") with ERC, pursuant to which we agreed to loan ERC up to $10,000,000,
which such loans will be payable on demand and accrue interest of 12% per annum.
Pursuant to the terms of the Line of Credit, the Company advanced ERC $1,000,000
on June 14, 2006 for operational expenses.
On June 19, 2006, ERC entered into an Investment Agreement with a third party,
The Aquitania Corp. f/k/a AO Bonanza Las Vegas, Inc. ("AOB"), pursuant to which
ERC, within its sole discretion, has agreed to provide secured loans to AOB not
to exceed the amount of $10,000,000. ERC made the first loan to AOB in the
amount of $2,600,000 as of June 20, 2006 and an additional $167,500 until the
end of June, from funds available to ERC from the Company as described above.
AOB may request additional funds at anytime after July 15, 2006.
AOB is developing real property in downtown Las Vegas, Nevada, where it intends
to build 296 condominiums plus commercial space (the "Property"). AOB obtained
entitlements to the Property, and has advised that it expects to break ground
and commence sales during 2006.
Each loan provided to AOB is due on demand or upon maturity on January 14, 2008.
All loans will be secured by a deed of trust, assignment of rents and security
agreement with respect to the property, along with ALTA American Land Title
Association title policy to be issued by a title company. All proceeds from the
loan are placed in an escrow and are released for specific purposes associated
with the development of the Property.
If ERC requests that the funds be paid on demand prior to maturity, then AOB
shall be entitled to reduce the amount requested to be prepaid by 10%. The 10%
discount will be paid to AOB in the form of shares of common stock of Euroweb,
which will be computed by dividing the dollar amount of the 10% discount by the
market price of Euroweb's shares of common stock.
The terms of the loans require that ERC to be paid-off the greater of (i) the
principal including 12% interest per annum or (ii) 33% of all gross profits
derived from the Property.
23
In addition, ERC has the right to acquire the Property for a purchase price of
$15,000,000 (the "Purchase Price") through January 1, 2015. The Purchase is
payable in $10,000,000 in cash and $5,000,000 in shares of common stock of the
Company (the "AOB Shares"). The number of Shares is determined by dividing
$5,000,000 by the higher of (i) the book value of one share of Euroweb's common
stock based on Euroweb's balance sheet filed with the Securities and Exchange
Commission immediately prior to the exercise of the option or (ii) the 90 day
weighted average price of Euroweb's market price immediately prior to the
exercise of the option multiplied by 110%. In the event that the number of
shares of common stock issuable upon exercise of the option exceeds the number
of shares of common stock that may be issued pursuant to the regulations of the
exchange on which Euroweb is trading at the time of the exercise of the option,
then Euroweb shall use its best efforts to have such issuance approved by the
shareholders of Euroweb. If it is unable to obtain such approval, then ERC will
pay the balance of the $5,000,000 in cash.
During June and July 2006, ERC had entered into escrows to acquire vacant lots
in California for development of single family houses. These escrows are pending
and have not closed as of June 30, 2006.
At June 30, 2006,the Company recorded a goodwill impairment in the amount
of $7,285,032. The goodwill impairment is attributable to the following:
o Loss of key personnel - As of May 31, 2006, Csaba Toro, former CEO
of our company, has resigned. Mr. Toro was solely responsible for
Hungarian operational and acquisition related matters, including the
IT business line. The lack of Mr. Toro's business reputation and
experiences will negatively influence our presence within the
Hungarian market.
o Change in business climate and competition - In line with our future
plans for the IT business we were involved in extensive discussions
with competitors regarding a future merger with the Navigator group.
As a result of Mr. Toro's resignation, those discussions have been
suspended and significant movements and ownership changes at our
potential targets have occurred during the second quarter of 2006.
Presently, there are not target companies available to the Company,
which could negatively effects.
o Change in business climate and regulations - In April 2006, an
election was held in Hungary. The new government was forced to
introduce a restrictive fiscal policy resulting in higher taxes and
other regulations. The additional corporate taxes and labor costs
will have a negative impact on our labor intensive industry.
o Loss of synergy and common customer base - Due to the sale of
Euroweb Hungary and Romania, potential synergy effects cannot be
realized, including the utilization of a common customer base as a
potential target.
o Difficulties in obtaining new customers - In June 2006, a major IT
Group named KFKI was acquired by Magyar Telekom Ltd. The Company
believes that this consolidation will have a material effect on the
IT service industry in Hungary, and may increase our difficulties in
obtaining new customers. Due to the changes in the competitive
environment in the second quarter of 2006, we believe that obtaining
new large customers will become increasingly difficult, which is
essential in fulfilling the original middle term business plan.
24
Based on the events described above, the Company has updated its business
projections and performed an impairment test relating to the goodwill as of June
30, 2006. The Company compared the fair value of the reporting unit (Navigator)
to their carrying amounts, and recorded a goodwill impairment in the amount of
$7,285,032.
In June 2006, the Company's Board of Directors approved a program to
repurchase, from time to time, at management's discretion, up to 700,000 shares
of Euroweb's common stock in the open market or in private transactions
commencing on June 20, 2006 and continuing through December 15, 2006 at
prevailing market prices. Repurchases will be made under the program using our
own cash resources and will be in accordance with Rule 10b-18 under the
Securities Exchange Act of 1934 and other applicable laws, rules and
regulations. The Shemano Group will act as agent for our stock repurchase
program. As of June 30, 2006, the Company acquired 25,000 shares at a cost of
$66,044.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles
in the United States of America ("US GAAP"). This preparation requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. US GAAP provides the framework from which to make these
estimates, assumption and disclosures. The Company chooses accounting policies
within US GAAP that management believes are appropriate to accurately and fairly
report the Company's operating results and financial position in a consistent
manner. Management regularly assesses these policies in light of current and
forecasted economic conditions. Accounting policies that management believes to
be 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 are the same as those described in the Annual
Report on Form 10-KSB of the Company for the year ended December 31, 2005.
Results of Operations
Six Months Period Ended June 30, 2006 Compared to Six Months Period Ended
June 30, 2005
Due to the acquisition of Navigator on October 7, 2005, the new real estate
subsidiary started from June 2006 and the discontinued operation presentation of
Euroweb Hungary, Euroweb Romania and Euroweb Slovakia, the condensed
consolidated statements of operations for the six months ended June 30, 2006 and
2005 are not comparable. The financial figures for 2005 only include the
corporate expenses of the Company's legal entity registered in the State of
Delaware, while Navigator is consolidated since October 7, 2005 and ERC
consolidated from June 13, 2006.
Revenues
Six months ended June 30, 2006 2005
------------------------- ---------- ----
Revenues - IT $3,394,517 $0
Revenues - Real estate 0 0
Revenues - Corporate 0 0
---------- ---
Total revenues $3,394,517 $0
========== ---
The revenue increase reflects the consolidation of Navigator from October 7,
2005.
25
Cost of revenues (excluding depreciation and amortization)
The following table summarizes cost of revenues (excluding depreciation and
amortization) for the six months ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- ---------- ----
Cost of revenues - IT $1,143,788 $ 0
Cost of revenues - Real estate 0 0
Cost of revenues - Corporate 0 0
---------- ---
Total Cost of revenues $1,143,788 $ 0
========== ===
Cost of revenues (excluding depreciation and amortization) principally comprises
the cost of fixed assets sold during the course of IT outsourcing projects, the
cost of materials required to perform IT outsourcing activities and the cost of
project-dedicated sub-contractors, which have been consolidated since October 7,
2005, the date of the Navigator acquisition
Compensation and related costs
The following table summarizes compensation and related costs for the six months
ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- ---------- --------
Compensation and related costs - IT $1,176,841 $ 0
Compensation and related costs - Real estate 0 0
Compensation and related costs - Corporate 295,571 297,855
---------- --------
Total Compensation and related costs $1,469,412 $297,855
========== ========
Compensation and related costs increased by 393%, or $1,171,557. The increase is
exclusively attributable to the acquisition of Navigator in October 2005.
Severance to officer
The following table summarizes severance to officer costs for the six months
ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- -------- ----
Severance to officer - IT $ 0 $ 0
Severance to officer - Real Estate 0 0
Severance to officer - Corporate 750,000 0
-------- ---
Total Severance to officer $750,000 $ 0
======== ===
On May 24, 2006, the Company entered into a Severance Agreement with Mr. Csaba
Toro as a means to define the severance relationship between the two parties. In
consideration for Mr. Toro agreeing to relinquish and release all rights and
claims under the Employment Agreement, including the payment of his annual
salary, the Company agreed to pay Mr. Toro $750,000. In addition, Mr. Toro has
submitted his resignation as Chief Executive Officer and as a director of the
Company, effective June 1, 2006. The severance was paid in full in May 2006.
26
Consulting, director and professional fees
The following table summarizes consulting and professional fees for the six
months ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- -------- --------
Consulting, director and professional fees - IT $208,864 $ 0
Consulting, director and professional fees - Real estate 36,937 0
Consulting, director and professional fees - Corporate 652,229 396,638
-------- --------
Total Consulting, director and professional fees $898,030 $396,638
======== ========
Consulting, director and professional fees increased by 126%, or $501,392. The
increase is primarilyattributable to the acquisition of Navigator in October
2005, which included $208,864 in such costs, and the compensation charge on
stock option and warrants to directors and consultants in accordance with SFAS
No. 123R, "Share-Based Payment", amounting to $228,191.
Other selling, general and administrative expenses
The following table summarizes other selling, general and administrative
expenses for the six months ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- -------- --------
Other selling, general and administrative expenses - IT $412,253 $ 0
Other selling, general and administrative expenses -
Real estate 22,788 0
Other selling, general and administrative expenses -
Corporate 266,123 228,390
-------- --------
Total Other selling, general and administrative
expenses $701,164 $228,390
======== ========
Other selling, general and administrative expenses increased by 207%, or
$472,774 primarily as the result of the acquisition of Navigator in October
2005.
Goodwill impairment
The following table summarizes amortization for the six months ended June 30,
2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- ---------- ----
Goodwill impairment - IT $7,285,032 $ 0
Goodwill impairment - Real estate -- 0
Goodwill impairment - Corporate -- 0
---------- ---
Total Goodwill impairment $7,285,032 $ 0
========== ===
At June 30, 2006, the Company performed an impairment test relating to the
goodwill recorded in its books. Navigator was identified as `Reporting Unit' in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". The
Company compared the fair value of the reporting units to their carrying
amounts, noting that the carrying amount was higher than their fair values
taking into account the changes in the Company's organization, market
developments, actual performance and outlook as described previously. The
Company then compared the implied fair value of each reporting unit's goodwill
with their carrying amounts and recorded an impairment charge of $7,285,032
relating to Navigator. After the impairment as of June 30, 2006, the goodwill
relating to Navigator has a net book value of $865,640.
27
Depreciation and amortization
The following table summarizes depreciation and amortization for the six months
ended June 30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- -------- ----
Depreciation and amortization - IT $916,936 $0
Depreciation and amortization - Real estate 200 0
Depreciation and amortization - Corporate -- 0
-------- ---
Total Depreciation and amortization $917,136 $0
======== ===
Depreciation and amortization consist of depreciation in a value of $222,156 and
amortization in a value of $694,980 in 2006
Depreciation has increased by $222,156 in the six months ended June 30, 2006.
This increase is attributed almost exclusively to the acquisition of Navigator.
Amortization of intangibles of $694,980 in 2006 relates to certain customer
contracts of Navigator, which were recognized as intangible assets upon
acquisition.
Interest income
The following table summarizes interest income for the six months ended June 30,
2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- ------- ----
Interest income - IT $ 0 $0
Interest income - Real estate 8,932 0
Interest income - Corporate 75,240 0
------- ---
Total Interest income $84,172 $0
======= ===
The increase in interest income at Corporate is due to the deposit of over
$15,000,000 cash invested into Money Market Fund originated from the sale of
Euroweb Hungary and Euroweb Romania.
Interest income generated in real estate segment is calculated on the loan of
$2,767,500 provided to AOB with 12% annual interest.
Interest expense
The following table summarizes interest expense for the six months ended June
30, 2006 and 2005:
Six months ended June 30, 2006 2005
------------------------- ------- ----
Interest expense -IT $55,055 $0
Interest expense - Real estate 0 0
Interest expense - Corporate 0 0
------- ---
Total Interest expense $55,055 $0
======= ===
The increase in interest expense is due to the consolidation of Navigator. The
bank loan and outstanding overdraft facility associated with Navigator has
increased interest expense by $55,055.
28
Liquidity and Capital Resources
As of June 30, 2006, our cash, and cash equivalents were approximately $17.6
million, an increase of approximately $16.0 million from December 31, 2005. The
increase is exclusively the result of cash proceeds from the sale of Euroweb
Hungary and Euroweb Romania.
Cash flow used in operating activities for the six months ended June 30, 2006
was $2.3 million, compared to $1.4 million cash provided by operating activities
in the six months ended June 30, 2005. The $3.7 million fluctuion is
attributable to the current year disposal of the cash producing subsidiaries,
Euroweb Hungary and Euroweb Romania, which positively contributed to cash frow
from operating activities in 2005. In addition, the parent company has increased
losses from continuing operations in 2006 compared to the previous period.
Cash provided by investing activities amounted to $18.5 million in six months
ended June 30, 2006, which included $21.5 million net of cash collected from the
disposal of Euroweb Hungary and Euroweb Romania with the deduction of repayment
of Commerbank loans to ensure debt free status and the settlement of
transactions costs. In addition, Navigator and ERC related $0.2 million capital
expenditures and $2.8 million loan provided by ERC for real estate projects
decreased the cash from investing activities in the six months ended June 30,
2006. In the six months ended 2005, the Company sold Euroweb Slovakia for $2.7
million, while capital expenditures from the discontinued Hungarian and Romanian
operation was $1.2 million resulting $1.5 million cash provided by investing
activity.
Cash used in financing activities was $0.2 and $1.0 million, respectively, in
the six months ended June 30, 2006 and 2005. Navigator related cash used in
financing activity was $0.1 million mainly due to the repayment of bank loans,
while $0.1 million was spent on acquiring treasury stocks. In the six months
ended June 30, 2005, net cash used in financing activities was $1.0 million from
loan and note repayments and principal payments under capital lease obligations
from discontinued Hungarian and Romanian operations.
The Company currently anticipates that its available cash resources will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least the next 12 months. This is primarily
attributable to the sale of Euroweb Hungary and Euroweb Romania, which resulted
in over $17.5 million cash available for our Company as of June 30, 2006.
In the event the Company makes future acquisitions, particularly in real estate,
the excess cash on hand, additional bank loans or fund raising may be used to
finance such future acquisitions. The Company may consider the sale of
non-strategic assets or subsidiaries, or raising funds, or both.
Inflation and Foreign Currency
The Company maintains its books in local currency: Hungarian Forint for
Navigator and US Dollars for ERC. ERC is registered in Nevada, while the the
Parent Company is registered in the State of Delaware.
The Company's revenue generating operations are outside of the United States
through its wholly owned subsidiary Navigator. All the Company's customers are
currently in Hungary. As a result, fluctuations in currency exchange rates may
significantly affect the Company's sales, profitability and financial position
when the foreign currencies, primarily the Hungarian Forint, of its
international operations are translated into U.S. dollars for financial
reporting. In addition, we are also subject to currency fluctuation risk with
respect to certain foreign currency denominated receivables and payables.
Although the Company cannot predict the extent to which currency fluctuations
may or will affect the Company's business and financial position, there is a
risk that such fluctuations will have an adverse impact on the Company's sales,
profits and financial position. Because differing portions of our revenues and
costs are denominated in foreign currency, movements could impact our margins
by, for example, decreasing our foreign revenues when the dollar strengthens and
not correspondingly decreasing our expenses. The Company does not currently
hedge its currency exposure. In the future, we may engage in hedging
transactions to mitigate foreign exchange risk.
29
The translation of the Company's subsidiaries forint denominated balance sheets
into U.S. dollars, as of June 30, 2006, has been affected by the weakening of
the Hungarian forint against the U.S. dollar from 213.58 as of December 31,
2005, to 221.78 as of June 30, 2006, an approximate 4% depreciation in value.
The average Hungarian forint/U.S. dollar exchange rates used for the translation
of the subsidiaries forint denominated statements of operations into U.S.
dollars, for the six months ended June 30, 2006 and 2005 were 212.84 and 192.49,
respectively.
Effect of Recent Accounting Pronouncements
Effective January 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123R, Share-Based Payment, using the modified prospective
transition method and therefore did not restate results for prior periods. Prior
to January 1, 2006 the Company accounted for share-based compensation
arrangements in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees and complied with the disclosure provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123R requires all public
entities that used the fair-value method for either recognition or disclosure
under SFAS No. 123 to apply the modified prospective transition method as of the
required effective date. As a result, the Company adopted the provisions of SFAS
No. 123R using this method, effective January 1, 2006. Under the modified
prospective method, new awards are valued and accounted for prospectively upon
adoption. Outstanding prior awards that are unvested as of January 1, 2006 are
recognized as compensation cost over the remaining requisite service periods, as
prior periods may not be restated. The adoption of SFAS No. 123R increased our
expenses and reported net loss for the three months ended March 31, 2006 by $0.1
million.
Management forecasts that the impact of adopting SFAS No. 123R for the
twelve months ending December 31, 2006 will be approximately $0.3 million. This
forecast is based on the Black-Scholes option-pricing model, the price of our
stock at the time of grants, the volatility of our stock price and the expected
forfeiture rates. As such, our actual stock option expense may differ from this
estimate.
Forward-Looking Statements
When used in this Form 10-QSB, in other filings by the Company with the
Securities and Exchange Commission ("SEC"), in the Company's press releases or
other public or stockholder communications, or in oral statements made with the
approval of an authorized executive officer of the Company, the words or phrases
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made, are based on certain
assumptions and expectations which may or may not be valid or actually occur,
and which involve various risks and uncertainties. In addition, sales and other
revenues may not commence and/or continue as anticipated due to delays or
otherwise. As a result, the Company's actual results for future periods could
differ materially from those anticipated or projected.
Unless otherwise required by applicable law, the Company does not undertake, and
specifically disclaims any obligation, to update any forward-looking statements
to reflect occurrences, developments, unanticipated events or circumstances
after the date of such statement. The Company advises you to review any
additional disclosures made in its 10-QSB, 8-K, and 10-KSB reports filed with
the SEC.
30
Item 3. Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Chief Accounting Officer (principal financial officer) of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief
Accounting Officer (principal financial officer) concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. There was no change in our internal controls or in
other factors that could affect these controls during our last fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
31
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 26, 2006, a lawsuit was filed in Delaware Court of Chancery (the
"Court") by a stockholder of Euroweb International Corp. (the "Company")
against the Company, each of the Company's directors and CORCYRA d.o.o., a
stockholder of the Company that beneficially owns 39.81% of the Company's
outstanding common stock of the Company. The Complaint is entitled
Laurence Paskowitz v. Csaba Toro et al., C.A. No. 2110-N and was brought
individually and as a class action on behalf of certain of the Company's
common stockholders excluding defendants and their affiliates. The
plaintiff alleges the proposed sale of 100% of the Company's interest in
the Company's two Internet and telecom related operating subsidiaries (the
"Subsidiaries") constitutes a sale of substantially all of the Company's
assets and requires approval by a majority of the voting power of the
Company's outstanding common stock under Section 271 of the Delaware
General Corporation Law. The plaintiff also alleges the defendants
breached their fiduciary duties in connection with the sale of the
subsidiaries and the disclosures contained in the proxy statement filed on
April 24, 2006. The plaintiff applied for a temporary restraining order
seeking to enjoin the special meeting on May 15, 2006.
The Company denies any and all allegations of wrongdoing; however, in the
interests of conserving resources, on April 28, 2006, the parties to the
litigation entered into a Memorandum of Understanding providing for,
subject to confirmatory discovery by plaintiff, the negotiation of a
formal stipulation of a settlement of the litigation. Pursuant to the
proposed settlement, the Board of Directors of the Company has determined
to: (i) increase the vote required to approve the sale of 100% of the
Company's interest in the Subsidiaries, (ii) revise the disclosure within
the proxy statement to eliminate the bonus of up to US $400,000, which the
Compensation Committee of the Company had the option to pay to select
members of management, as the Board of Directors had previously elected to
terminate the ability to pay such bonus and (iii) provide supplemental
disclosure as contained in the Supplemental Proxy Statement to be mailed
to stockholders and filed with the Securities and Exchange Commission on
May 3, 2006. The settlement will provide for dismissal of the litigation
with prejudice and is subject to Court approval. As part of the
settlement, the Company has agreed to pay an amount of attorneys' fees and
expenses that is to be negotiated between the two parties or, lieu of such
agreement between the two parties, will be determined by the Court.
The Company is not involved currently in other legal proceedings that
could reasonably be expected to have a material adverse effect on its
business, prospects, financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
None
32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits (numbers below reference Regulation S-B, Item 601)
(3) (a) Certificate of Incorporation filed November 9, 1992(1)
(b) Amendment to Certificate of Incorporation filed July 9, 1997(2)
(c) Restated Certificate of Incorporation filed May 29, 2003
(d) Restated By-laws (filed as an exhibit to the Form 10-QSB for the
quarter ended September 30, 2004)
(31) (a) Certification of the Chief Executive Officer of Euroweb
International Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
(31) (b) Certification of the Chief Accounting Officer (principal
financial officer) of Euroweb International Corp. pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
(32) (a) Certification of the Chief Executive Officer of Euroweb
International Corp. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(32) (b) Certification of the Chief Accounting Officer (principal
financial officer) of Euroweb International Corp. pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
----------
(1) Exhibits are incorporated by reference to Registrant's Registration
Statement on Form SB-2 dated May 12, 1993 (Registration No. 33-62672-NY, as
amended)
(2) Filed with Form 10-QSB for quarter ended June 30, 1998.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in Beverly Hills,
California, on August 14, 2006.
EUROWEB INTERNATIONAL CORP.
By /s/Yossi Attia
-------------------------------------
Yossi Attia
Chief Executive Officer
34