U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to________________
Commission file number 1-1200
EUROWEB INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3696015
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Vaci ut 141, 1138 Budapest, Hungary
(Address of principal executive offices)
+36-1-8897000 +36-1-8897100
Issuer's telephone number Issuer's facsimile number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes [_] 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 5,342,533
----------------------------- ---------
(Class) (Outstanding at May 13, 2005)
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 March 31, 2005 2
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the three months ended March 31, 2005 and 2004 (restated) 3
Condensed Consolidated Statements of Stockholders' equity for the three months ended
March 31, 2005 and twelve months ended December 31, 2004 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2005 and 2004 (restated) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Controls and Procedures 23
PART II. Other Information 24
Signature 25
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2005
--------------
ASSETS
Current Assets
Cash and cash equivalents $ 2,926,222
Trade accounts receivable, net of allowance for doubtful accounts of 6,311,707
$ 1,052,004
Unbilled receivables 1,084,987
Prepaid and other current assets 754,938
Deferred tax assets 221,747
------------
Total current assets of continuing operations 11,299,601
Total assets of discontinued operations 1,646,993
------------
Total current assets 12,946,594
Property and equipment, net 7,157,280
Intangibles - customer contracts, net 1,796,677
Goodwill 5,806,181
Other assets 469,294
------------
Total assets $ 28,176,026
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 4,833,574
Pantel loan payable - current portion 513,599
Current portion of bank loans 303,967
Current portion of notes payable 763,870
Other current liabilities 740,521
Accrued expenses 2,837,852
Deferred IRU revenue 46,000
Deferred other revenue 728,893
------------
Total current liabilities of continuing operations 10,768,276
Total liabilities of discontinued operations 1,173,847
------------
Total current liabilities 11,942,123
Noncurrent Liabilities
Deferred tax liabilities 221,747
Deferred IRU revenue 935,332
Pantel loan payable 513,599
Bank loans 629,904
Lease obligations 158,596
------------
Total liabilities 14,401,301
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;
5,342,533 shares issued and outstanding 24,807
Additional paid-in capital 50,795,184
Accumulated deficit (36,208,145)
Accumulated other comprehensive income 278,291
Treasury stock - 175,490 common shares, at cost (1,115,412)
------------
Total stockholders' equity 13,774,725
------------
Total liabilities and stockholders' equity $ 28,176,026
============
See accompanying notes to condensed consolidated financial statements.
2
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
Three months ended
March 31
2005 2004
(Restated)
------------ ------------
Revenues
Third party revenues $ 9,165,154 $ 3,652,260
Related party revenues 1,768,358 1,490,767
------------ ------------
Total revenues 10,933,512 5,143,027
Cost of revenues (Exclusive of depreciation and
amortization shown separately below)
Third party cost of revenues 6,398,438 2,275,019
Related party cost of revenues 1,164,692 1,251,354
------------ ------------
Total cost of revenues (Exclusive of 7,563,130 3,526,373
depreciation and amortization shown separately below)
Operating expenses
Compensation and related costs 793,541 524,807
Consulting, director and professional fees 936,790 350,595
Collection of written-off receivables (265,630) --
Other selling, general and administrative expenses 1,056,656 501,397
Depreciation and amortization 888,913 238,689
------------ ------------
Total operating expenses 3,410,270 1,615,488
Income (loss) from operations (39,888) 1,166
Interest income (expense)
Interest income 7,583 71,249
Interest expense (111,397) (69,811)
------------ ------------
Net interest income (expense) (103,814) 1,438
Income (loss) before income taxes (143,702) 2,604
------------ ------------
Provision for income taxes 86,987 31,583
Loss from continuing operations (230,689) (28,979)
------------ ------------
Income from discontinued operations - Euroweb Slovakia in 5,270 69,839
2005 and Euroweb Czech Republic & Slovakia in 2004
Net income (loss) $ (225,419) $ 40,860
------------ ------------
Other comprehensive income (loss) 170,025 (21,415)
------------ ------------
Comprehensive income (loss) $ (55,394) $ 19,445
============ ============
Loss per share, before discontinued operations $ (0.04) $ (0.00)
Discontinued operations $ 0.00 $ 0.01
Net income (loss) per share, basic $ (0.04) $ 0.01
Weighted average number of shares outstanding, basic and 5,342,533 4,665,332
diluted
See accompanying notes to condensed consolidated financial statements
3
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Accumulated
Common Stock Additional Other Total
-------------------------- Paid-in Accumulated Comprehensive Treasury Stockholders'
Shares Amount Capital Deficit Income (Loss) Stock Equity
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, January 1, 2004 4,665,332 $24,129 $48,227,764 $(33,105,716) $(25,502) $(1,115,412) $14,005,263
(restated) ============ ============ ============ ============ ============ ============ ============
Foreign currency translation
gain -- -- -- -- 162,573 -- 162,573
Reversal of unrealized
gain on securities -- -- -- -- (28,805) -- (28,805)
available for sale
Deemed distribution (2,142,556) (2,142,556)
Compensation charge on -- -- 94,212 94,212
share options issued to
consultants
Issuance of shares (Elender 677,201 678 2,458,108 -- -- -- 2,458,786
Rt acquisition)
Net loss -- -- -- (734,454) -- -- (734,454)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 5,342,533 $ 24,807 $ 50,780,084 $(35,982,726) $ 108,266 $ (1,115,412) $ 13,815,019
============ ============ ============ ============ ============ ============ ============
Foreign currency
translation gain -- -- -- -- 170,025 -- 170,025
Compensation charge on
share options issued -- -- 15,100 15,100
to consultants
Net loss -- -- -- (225,419) -- -- (225,419)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, March 31, 2005 5,342,533 $ 24,807 $ 50,795,184 $(36,208,145) $ 278,291 $ (1,115,412) $ 13,774,725
============ ============ ============ ============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements
4
EUROWEB INTERNATIONAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
--------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
2005 2004
(restated)
------------ ------------
Net cash provided by (used in) operating activities $ 435,919 $ (106,292)
------------ ------------
Cash flows from investing activities:
Maturity of securities -- 11,464,000
Collection on notes receivable -- 49,768
Acquisition of 51% of Euroweb Rt -- (2,142,000)
Acquisition of property and equipment (511,964) (259,093)
------------ ------------
Net cash provided by (used in) investing activities (511,964) 9,112,675
------------ ------------
Cash flows from financing activities:
Receipt (repayment) of loans (78,318) 24,649
Principal payments under capital lease obligations (58,758) (9,447)
------------ ------------
Net cash provided by (used in) financing activities (137,076) 15,202
------------ ------------
Effect of exchange rate changes on cash (92,326) (14,803)
------------ ------------
Net increase (decrease) in cash and cash equivalents (305,447) 9,006,782
Cash and cash equivalents, beginning of period 3,231,669 12,050,485
------------ ------------
Cash and cash equivalents, end of period $ 2,926,222 $ 3,043,703
------------ ============
See accompanying notes to condensed consolidated financial statements.
5
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and Business
Euroweb International Corp. ("Euroweb" or the "Company") is a Delaware
corporation, which was organized on November 9, 1992. The Company was a
development stage company through December 31, 1993.
The Company operates in Hungary and Romania, through its subsidiaries Euroweb
Hungary Rt. ("Euroweb Hungary") and Euroweb Romania S.A. ("Euroweb Romania"). On
December 16, 2004, the Company disposed of Euroweb Czech Republic and no longer
has operations in the Czech Republic. On April 15, 2005, the Company sold
Euroweb Slovakia a.s. ("Euroweb Slovakia") for cash of $2,700,000 and, as a
result, has ceased operations in Slovakia. Euroweb Slovakia is considered a
discontinued operation for U.S. financial reporting purposes.
The Company provides internet access, voice/ voice over internet protocol
(VOIP), international/domestic leased line and additional value added services
primary to business customers.
KPN Telecom owned approximately 43.54% of Euroweb's outstanding shares of common
stock as of December 31, 2004. In 2004, KPN Telecom announced its intention to
divest its interest in Pantel Rt. ("Pantel"), with certain sale agreements being
signed with a view to final consummation in 2005. On February 28, 2005, the sale
of KPN NV's 75.1% interest in the Pantel business to Hungarian Telephone and
Cable Corp. was completed. Therefore, Pantel is no longer considered a related
party effective March 1, 2005.
In addition, on January 28, 2005, KPN Telecom entered into a Stock Purchase
Agreement whereby it sold to CORCYRA d.o.o. ("CORCYRA") 289,855 shares of common
stock of the Company for $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.
2. Basis of Presentation and Significant Accounting Policies
The interim unaudited 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, 2004, appearing in the Annual Report on
Form 10-KSB of the Company for the year then-ended.
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 three months ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2005.
6
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
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.
All intercompany balances and transactions have been eliminated in
consolidation.
On December 16, 2004, the Company sold all of its shares in its wholly-owned
subsidiary, Euroweb Czech Republic, for cash of $500,000. As a part of the
transaction, the Company effectively forgave $400,000 of loans receivable from
Euroweb Czech Republic . On April 15, 2005, the Company sold Euroweb Slovakia
for cash of $2,700,000. The Company believes that the sale of Euroweb Czech and
Euroweb Slovakia meet 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
all periods are restated to reflect Euroweb Czech Republic and Euroweb Slovakia
as discontinued operations.
Stock-Based compensation
Under the accounting provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net income (loss) and net income
(loss) per share for the three months ended March 31, 2005 and 2004 would have
been increased to the pro forma amounts indicated below:
Q1 2005 Q1 2004
(restated)
Net income (loss):
Net income (loss), as reported $(225,419) $ 40,860
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax effects (169,322) (132,578)
Pro forma net loss (394,751) (91,718)
Basic and diluted income (loss) per share:
As reported $ (0.04) $ 0.01
Pro forma (0.07) (0.02)
3. Bank Loans, Overdrafts, and Notes Payable
On June 1, 2004, Elender Rt. (which has been merged with Euroweb Hungary Rt.)
entered into a bank loan agreement with Commerzbank (Budapest) Rt. The agreement
consists of a loan facility of HUF 300 million (approximately $1.67 million) of
which approximately $933,871 was outstanding at March 31, 2005. The loan is
being repaid in quarterly installments of HUF 14.5 million (approximately
$80,000), commencing November 30, 2004. The interest rate is BUBOR (Budapest
Interbank Offered Rate) + 1.35%.
7
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
In addition, the bank also provided an overdraft facility of HUF 150 million
(approximately $800,000) to Elender Rt. The Company did not need to utilize this
facility as at March 31, 2005. The interest rate is BUBOR (Budapest Interbank
Offered Rate) + 1%.
Notes payable of approximately $763,870 as of March 31, 2005 relate to
outstanding liabilities to three previous shareholders of Elender Rt.: Vitonas
Investments Limited, Certus Kft. and Rumed 2000 Kft. The outstanding amount is
payable in four equal quarterly installments of HUF 36.438 million
(approximately $190,967), with the final payment on December 31, 2005.
4. Pantel Loan Payable
During 2002 Pantel, a related party prior to March 1, 2005, provided a loan of
HUF 245,000,000 (approximately $ 1.28 million using March 31, 2005 exchange
rate) to a subsidiary of the Company of which approximately $1,027,198 was
outstanding at March 31, 2005. The loan bears interest at a rate of 13% and is
repayable in five equal installments from December 2004 semi-annually until the
end of 2006.
5. Discontinued Operations and disposal of subsidiaries
Euroweb Slovakia sold on April 15, 2005 and Euroweb Czech sold on December 16,
2004 are considered discontinued operations for U.S. financial reporting
purposes and therefore, all periods are restated. For the three months ended
March 31, 2005 and 2004, the results of discontinued operations are as follows:
--------------------------------------------------------------------------------
Country Q1 2005 Q1 2004 Change
(restated) in %
--------------- ------------- --------------------- ----------------------------
Slovakia $5,270 $126,346 -95%
--------------- ------------- --------------------- ----------------------------
Czech Republic -- $(56,507) N/A
--------------- ------------- --------------------- ----------------------------
Total $5,270 $69,839 -93%
--------------- ------------- --------------------- ----------------------------
6. Stock-based Compensation
On March 22, 2004, the Company granted 125,000 options to the Chief Executive
Officer, 195,000 options to five employees and 45,000 options to two consultants
of the Company. On March 22, 2005, the Company granted 200,000 options to two of
the directors.
In accordance with Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees," no compensation expense was recorded for the options
granted to the Chief Executive Officer, directors and the five employees.
However, in accordance with SFAS 123, 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 quarter ended March 31, 2005 was $15,100).
The stock options granted to the directors on March 22, 2005 vest at the rate of
50,000 on each September 22 of 2005, 2006, 2007, and 2008. The exercise price of
the options ($3.40) is equal to the market price on the date the grants were
made.
8
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
7. Related party transactions
The provision of international/domestic leased line, voice and VOIP services are
being provided in conjunction with Pantel Rt., an entity which was majority
owned and controlled by KPN Telecom B.V. (which also owned a majority interest
in the Company as at December 31, 2004). In the first quarter of 2005 and fiscal
2004, Pantel Telecommunication Rt. Hungary was the most significant trading
partner of the Company with approximately 55% of the 2005 quarterly revenues of
Euroweb Romania (translating into 21% of the consolidated revenues of the
Company) were derived from providing services to Pantel.
From March 1, 2005, Pantel is no longer related party with the Company, because
Hungarian Telecom and Cable Corporation completed the acquisition of Pantel.
Therefore, transactions with Pantel from March 1, 2005 are no longer classified
as transactions with a related party.
8. Commitments and Contingencies
(a) Employment Agreements
A fixed-term 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
$200,000 and a bonus of up to $150,000 in each of 2005 and 2006, as well as an
annual car allowance of $30,000.
Fixed-term employment agreements for officers of the Company provide for an
aggregate monthly compensation of $ 10,000 until December 31, 2005.
(b) Lease agreements
The Company's subsidiaries have entered into various capital leases for vehicles
and internet equipment, as well as non-cancelable agreements for office
premises.
(c) 20 years' usage rights
In 2002, Euroweb Romania provided an Indefeasible Right of Use ("IRU") for
transmission capacity on 12 pairs of fiber 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.
9
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
(e) Elender Rt. acquisition
On June 9, 2004 the Company acquired all of the outstanding shares of Elender
Rt., a leading internet service provider in Hungary, for $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
common stock (in the name of the Company) 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.
Pursuant to section 1 of the Registration Rights Agreement signed on June 1,
2004 with the sellers of Elender, if the shares of the Company's common stock
were 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. The Company has registered the shares of common
stock issued in connection with the Elender acquisition. The Company has made a
provision of $170,000 to accrue for potential penalties under this clause until
March 31, 2005.
(f) Euroweb Hungary purchase guarantee
In February 2004, the Company purchased the remaining 51% of Euroweb Hungary
from Pantel. The consideration paid by the Company for the 51% interest
consisted of EUR 1,650,000 ($2,105,000) in cash, and a purchase commitment that
Euroweb Hungary will purchase at least HUF 600 million (approximately $3
million) worth of services from Pantel in each of 2004-2006. In the event that
Euroweb Hungary and its subsidiaries do not satisfy this commitment, Pantel may
charge a penalty equal to 25% of the commitment amount less any services
purchased. Purchases in 2004 exceeded this amount.
(g) Indemnities provided upon sale of subsidiaries
On April 13, 2004, the Company sold its 100% shareholding in Neophone Rt. (a
non-operational subsidiary) 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. No claims
have been made to date.
Under the terms of the sale agreement for Euroweb Czech, 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. No claims have been made to date.
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
any representation, warranty and obligation as set forth in point 9.1.1 through
9.1.16 of the Contract or as the result of breach of any representation,
warranty and obligation set forth in other respective provisions of this
Contract, only up to the aggregate amount of 540,000. The buyer shall not be
entitled to make any claim under this Article 9 of the Contract after the fourth
anniversary of the date of the Contract. No claims have been made to date.
10
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
9. Geographic information
The Company manages its operations, and accordingly determines its reportable
operating segments, on a geographic basis. Consequently, the Company has two
reportable operating segments: Hungary and Romania. The performance of
geographic operating segments is monitored based on net income or loss from
continuing operations. There are no inter-segment sales revenues.
The following tables summarize financial information from continuing operations
by geographic segments for the quarters ended March 31, 2005 and 2004:
Geographic information for Q1 2005
Romania Hungary Corporate Total
Third party revenues $ 1,928,956 $ 6,365,923 -- $ 8,294,879
Pantel related revenues (January - March) 2,339,993 298,640 -- 2,638,633
Total revenues 4,268,949 6,664,563 -- 10,933,512
Depreciation 194,609 437,693 -- 632,302
Intangible amortization
(customer contract) -- 256,611 -- 256,611
Interest income 2,883 4,700 -- 7,583
Interest expense (10,459) (100,938) -- (111,397)
Net interest expense (7,576) (96,238) -- (103,814)
Income tax 86,987 -- -- 86,987
Income (loss) from continuing operations 381,400 (219,518) (392,571) (230,689)
Long-lived assets 2,744,219 4,882,355 -- 7,157,280
Capital expenditures 268,094 243,870 -- 511,964
Goodwill 566,000 5,240,181 5,806,181
Geographic information for Q1 2004
Romania Hungary Corporate Total
Third party revenues $ 1,190,104 $ 2,462,156 -- $ 3,652,260
Pantel related revenues 1,463,730 27,037 -- 1,490,767
Total revenues 2,653,834 2,489,193 -- 5,143,027
Depreciation 102,389 134,462 1,838 238,689
Interest income 1,678 23,545 46,026 71,249
Interest expense (8,336) (61,475) -- (69,811)
Net interest (expense)
income 6,658 (37,930) 46,026 1,438
Income tax 31,583 -- -- 31,583
Income (loss) from continuing operations 156,396 75,340 (260,715) (28,979)
Long-lived assets 1,680,384 803,630 -- 2,484,014
Capital expenditures 218,791 40,302 -- 259,093
Goodwill 566,000 -- -- 566,000
11
Euroweb International Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
10. Subsequent events
On April 15, 2005, the Company completed the sale of Euroweb Slovakia. The
Company treats Euroweb Slovakia as a discontinued operation for purposes of U.S.
GAAP reporting, with appropriate restatement of comparative prior period
amounts. The Company expects to record approximately $1,600,000 net profit as a
result of this disposition of Euroweb Slovakia in the second quarter of 2005.
12
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Overview
Euroweb International Corporation owns and operates Internet Service Providers,
or ISPs, in Hungary and Romania through its subsidiaries, Euroweb Hungary Rt.
("Euroweb Hungary") and Euroweb Romania S.A. ("Euroweb Romania"). On December
16, 2004, the Company sold Euroweb Czech and no longer has operations in the
Czech Republic. On April 15, 2005, the Company sold its interest in Euroweb
Slovakia a.s. ("Euroweb Slovakia") and, therefore, in 2005, Euroweb Slovakia is
considered a discontinued operation for U.S. reporting purposes.
The Company operates in one industry segment, providing Internet access, voice,
international/domestic leased lines and additional value added services to
mainly 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 / 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
2005 and 2004 was Pantel Rt, which was a related party. On February 28, 2005,
the completion of the sale of KPN NV's 75.1% interest in the Pantel business to
the Hungarian Telephone and Cable Corp. was announced. As a result, we are no
longer a related party with Pantel Rt. as of March 1, 2005; however, it still
remains the most significant customer and supplier of the Company.
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, virtual private
network - 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 Building of own optical fiber network in Romania; and
o Made acquisitions to ensure economies of scale and utilization of synergies.
This strategy has resulted in increased revenues and a reduction of losses since
2002 and/or has also increased the cash generating ability of the Company.
13
Related party transactions - 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 fiber 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 / 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.
On February 28, 2005, KPN Telecom (the majority owner of Pantel Rt. and our
largest shareholder), completed the sale of its entire interest in Pantel Rt.
Therefore, Euroweb is no longer related party with Pantel from March 1, 2005.
Profit and loss statements include related party revenues and costs for the
period January 1 to February 28 in 2005.
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
our Company and our subsidiaries:
- Internet and related services;
- National and international leased and telephone lines;
- VOIP / Voice services; and
- Consulting services
The total amount of these services purchased from Pantel was $1,798,418 during
the three months ended March 31, 2005 (three months ended March 31, 2004:
$1,251,354).
In addition, Pantel Rt. charged interest of $34,286 in the three months ended
March 31, 2005 (three months ended March 31, 2004: $38,191).
(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; and
- Consulting services
The total value of these services sold was approximately $2,638,633 in the three
months ended March 31, 2005 (three months ended March 31, 2004: $1,490,767).
Direct sales to Pantel were 21% of total consolidated revenue in the three month
ended March 31, 2005 (three months ended March 31, 2004: 29%). 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).
14
Effective dependency on Pantel: Direct sales to Pantel and Pantel-related sales
represent approximately 30% of total consolidated revenues of the Company and
approximately 78% of total sales of Euroweb Romania. There is no such sales
dependency in the case of Euroweb Hungary.
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 always consider alternative suppliers for each individual
project.
It cannot be predicted in advance whether the changes in ownerships will have an
influence on the business relationship between the Company and Pantel Rt.
However, 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.
Disposals
On April 15, 2005, the Company completed the sale of 100% of the outstanding
stock of its subsidiary in Slovakia for $2,700,000. As a result of these
transactions, the Company expects to record over $1,600,000 profit in the second
quarter of 2005. The historical results of Euroweb Slovakia are reported in the
Company's consolidated financial statements as a discontinued operation.
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 the Company 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 its Annual Report on
Form 10-KSB for the year ended December 31, 2004.
Results of Operations
Three months Period Ended March 31, 2005 Compared to Three Months Period
Ended March 31, 2004
Due to the acquisition of Elender Rt. on June 9, 2004, the profit and loss
statements for the quarter ended March 31, 2005 and 2004 are not comparable from
an organic growth point of view.
On December 16, 2004, the Company sold all of its shares in its wholly-owned
subsidiary, Euroweb Czech, for cash of $500,000. As a part of the transaction,
the Company effectively forgave $400,000 of loans receivable from Euroweb Czech.
On April 15, 2005, the Company sold Euroweb Slovakia for cash of $2,700,000. The
Company believes that the sale of Euroweb Czech and Euroweb Slovakia meet 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, all periods are
restated to reflect Euroweb Czech Republic and Euroweb Slovakia as discontinued
operations.
15
Three months ended March 31, 2005 2004 (restated)
---- ---------------
Total Revenues $ 10,933,512 $ 5,143,027
We experienced a 112% revenue growth, or an increase of $5,790,485 for the three
months ended March 31, 2005 compared to the three months ended March 31, 2004.
The increase was mainly due to the acquisition of Elender Rt. and increase in
VOIP services.
The following table summarizes the main changes in revenue compared to the
previous year with respect to the revenue structure:
--------------------------------------------------------------------------------
Revenue/services Q1 of 2005 Q1 of 2004 % change
(restated)
--------------------------------------------------------------------------------
ISP activity $ 6,580,318 $ 2,236,024 +194%
--------------------------------------------------------------------------------
Int./dom. leased line *(a) $ 1,917,687 $ 1,401,186 +37%
--------------------------------------------------------------------------------
Voice / VOIP (Hungary
and Romania) $ 2,422,016 $ 1,449,147 +67%
--------------------------------------------------------------------------------
Facilities (a) $ 13,491 $ 56,670 -76%
--------------------------------------------------------------------------------
Total $10,933,512 $ 5,143,027 112%
--------------------------------------------------------------------------------
* - primarily Pantel or Pantel related sales,
(a) substantially all generated by the Romanian subsidiary
ISP revenue analysis
Approximately $3.4 million of the increase in ISP revenue or 78% of the increase
in ISP revenue relates to Hungary, mainly due to the acquisition of Elender Rt.
The remaining growth of ISP revenue (21%) can be attributed to the weakness of
the US Dollar (approximately 12% depreciation of dollar) and organic growth in
Romania 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, organic revenue growth possibilities in this
segment are limited due to the structural change in utilized service types by
the customers.
International/national Leased Line revenue analysis
Revenue from international/national leased lines and internet protocol data
services produced by Euroweb Romania has increased compared to last year. This
service 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. Despite price erosion, the Company
was able to secure new contracts (including a government contract) in order to
offset the negative trends in the international leased line segment.
Additionally, Euroweb Romania has started to increase the proportion of domestic
leased lines and ISP customers, which has almost doubled comparing to the last
period and reached over 320.
16
VOIP Service revenue analysis
--------------------------------------------------------------------------------
VOIP services revenue Q1 of 2005 Q1 of 2004 (restated) % change
--------------------------------------------------------------------------------
Retail voice origination (Ro+Hu) $ 118,123 $ 149,081 -20%
--------------------------------------------------------------------------------
Wholesale voice termination (Ro) $1,645,000 $ 824,026 +99%
--------------------------------------------------------------------------------
Neophone prepaid phonecard (Hu) $ 466,950 $ 476,040 -3%
--------------------------------------------------------------------------------
Neophone Deal (Hu) $ 171,347 0 N/A
--------------------------------------------------------------------------------
Neophone-X (Hu) $ 20,596 0 N/A
--------------------------------------------------------------------------------
Total $2,422,016 $1,449,147 +67%
--------------------------------------------------------------------------------
Hu- Hungarian related, Ro- Romanian related
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. 50% of revenue is generated
in Romania, while the remaining 50% is generated in Hungary. From 2005, the
Hungarian subsidiary introduced a new voice product, Neophone Deal, which is a
more convenient and cheaper way for companies to reduce their voice costs.
Consequently, future increases from this product are limited. The services are
mostly denominated in local currency; therefore in US Dollar terms, the overall
decrease is higher due to the 13% depreciation of the US Dollar against the
Romanian Lei and the 11% depreciation of the US Dollar against the Hungarian
Forint in the first quarter of 2005 compared to the first quarter of 2004.
Wholesale voice termination represents voice minutes received from Pantel Rt.
and forwarded to Romanian telecommunication companies. Such services have
increased by 99%. 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. Such volume reductions may occur at any time, although the impact
on the result of operation will be limited as margins are low. Approximately 6%
of the increase can be attributed to the weakening of the US Dollar from 2004 to
2005 against the Euro, which is the denominated currency of this service.
Neophone prepaid phonecards enable users (private individuals) to make cheaper
domestic or 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 increased. For the
three months ended March 31, 2005, revenues from phone card traffic decreased by
3% compared to the previous period, which decrease is actually higher in local
currency by approximately 12% due to the appreciation of the Hungarian Forint.
From late 2003, the competition has introduced aggressively low prices;
consequently, the Company also had to reduce its prices, so this development
impaired the revenue generated by this product.
Neophone Deal is offered to small and medium size companies in the form of
carrier pre-selection. The subscriber keeps its existing phone number and
remains the client of the previous telecommunication company; however outgoing
calls initiated by the customer will go through Euroweb voice network leaving
out the telecommunication company. The outgoing traffic is invoiced by Euroweb
Hungary with discount prices comparing to the rates of the incumbent telecom
operator.
Neophone-X, which was first introduced in February 2005, ensures a voice service
by building on the system that comprises of users' personal computers and the
Internet. In this case the phone call is implemented with the intermediation of
computers and the Internet instead of the classical phone network. During
computer based phone calls voice is transmitted in digital data packages, then
it is transformed into human voice again at the receiving party. Revenue
generated in the first quarter of 2005 was $20,596.
17
Facilities revenue analysis
Revenues from facilities consist of lease and sale of fiber optic cables owned
by Euroweb Romania and related maintenance fee. In 2004, a fiber optic sale
transaction resulted in revenues of approximately $34,000, while the remaining
part is maintenance revenue. There was no fiber optic sale in 2005.
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 Q1 of 2005 Q1 of 2004 Change
(restated) in %
--------------------------------------------------------------------------------
Hungary $ 6,664,563 $ 2,489,193 +167%
--------------------------------------------------------------------------------
Romania $ 4,268,949 $ 2,653,834 +60%
--------------------------------------------------------------------------------
Total $10,933,512 $ 5,143,027 +112%
--------------------------------------------------------------------------------
Elender Rt. has been consolidated from June 9, 2004, and consequently the
Hungarian operations have increased by 167% or $4,175,370 mainly due to this
acquisition. Approximately 5% of the increase in Hungary is the result of the
strengthening of the Hungarian Forint against the US Dollar when comparing the
first quarter of 2005 and 2004.
The Romanian operations have experienced a 60% or $1,615,115 revenue increase
compared to the prior period. Approximately 43% or $0.8 million of this increase
can be attributed to the increased wholesale voice termination, approximately
$0.5 million can be attributed to the increase of domestic/international leased
lines revenue, while the remaining is mainly in connection with the organic
growth from ISP activity and currency appreciation of the Romanian Lei against
the US Dollar in the first quarter of 2005 compared to the first quarter of
2004.
Cost of revenues (excluding depreciation and amortization)
The following table summarizes the cost of revenues (excluding depreciation and
amortization) for the quarter ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
--------- ---------
Total cost of revenues 7,563,130 3,526,373
Cost of revenues (excluding depreciation and amortization) comprise mostly
telecommunication expenses. The increase of 114% is fairly consistent with the
overall increase of revenues of 112%.
18
Compensation and related costs
The following table summarizes the compensation and related costs for the
quarter ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
--------- ---------
Compensation and related costs $ 793,541 $ 524,807
Overall compensation and related costs increased by 51%, or $268,734, mainly due
to the acquisition of Elender Rt. in June 2004 and the effect of the
appreciation of Hungarian and Romanian currencies against the US Dollar in the
first quarter of 2005 compared to the first quarter of 2004.
Consulting and professional fees
The following table summarizes the consulting and professional fees for the
quarter ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
-------- ---------
Consulting, director and
professional fees $ 936,790 $ 350,595
The consulting, director and professional fees increased by $586,195, which can
mainly be attributed to the acquisition of Elender Rt. in June 2004, the
outsourcing of certain services and to increased legal and consultancy costs
associated with growth of the business.
Collection of written-off receivable
The following table summarizes the collection of written-off receivables for the
quarter ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
-------- ---------
Collection of written-off receivable $(265,630) $ 0
In March 2005, the Company received and collected a check of $265,630 from
Teleglobe Inc. which went bankrupt in 2003. The Company had previously written
off this uncollected receivable.
Other selling, general and administrative expenses
The following table summarizes our other selling, general and administrative
expenses for the quarter ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
-------- ---------
Other selling, general and administrative $1,056,656 $ 501,397
expenses
19
Overall other selling, general and administrative expenses increased by 111%
($555,259) mainly due to the acquisition of Elender Rt. in June 2004. The main
categories are as follows: increase in marketing cost mainly due to the
introduction of new neophone products ($251,768), increase in rental fee of
offices ($66,953), increase in exchange rate losses ($45,260), and an increase
in local taxes in Hungary and Romania ($72,837). The remainder of the increase
can be attributed to other cost categories and the appreciation of the Hungarian
and Romanian currencies against the US Dollar in the first quarter of 2005
compared to the first quarter of 2004.
Depreciation and amortization
The following table summarizes our depreciation and amortization for the quarter
ended March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
-------- ---------
Depreciation
Amortization of intangibles $632,302 $ 238,689
Total depreciation and amortization $256,611 $ 0
$888,913 $ 238,689
Depreciation increased by $393,613 in the quarter ended March 31, 2005 compared
to the same period in 2004, which can be attributed mainly to the acquisition
and consolidation of Elender Rt.
Amortization of intangibles of $256,611 in the quarter ended March 31, 2005
relates to certain customer contracts of Elender Rt, which were recognized as
intangible assets upon acquisition.
Net interest income
The following table summarizes our net interest income for the quarters ended
March 31, 2005 and 2004:
Three months ended March 31,
2005 2004
(restated)
--------- ---------
Interest income $ 7,583 $ 71,249
Interest expense $(111,397) $ (69,811)
--------- ---------
Net interest income (expense) $(103,814) $ 1,438
The decrease in net interest income (expense) 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 the
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 more than $40,000 due to loans outstanding, and consequently
have reduced net interest income.
20
Liquidity and Capital Resources
In recent years, we maintained approximately $11 million invested in US
Government Securities, which matured in February 2004. The main source of these
funds was capital injections by KPN in previous years.
As of March 31, 2005, our cash and cash equivalents were $2.9 million, a
decrease of approximately $305,447 from the end of fiscal year 2004 (restated).
The decrease is primarily due to the capital expenditure and loan repayment,
which exceeded the cash flow generated from operations.
Cash flow from operations in the three months ended March 31, 2005 was $435,919,
an increase of $542,211 from the three months ended March 31, 2004 due to the
increased cash generation of the Romanian and Hungarian subsidiary.
Investing activities decreased the cash at hand of the Company by $511,964 due
to fixed asset additions.
Cash used in financing activities was $137,076 in the three months ended March
31, 2005. Approximately $78,318 was used to repay bank loans, while $58,758 was
used to repay capital leased obligations. At March 31, 2005, the overdraft
facility was available but not utilized, with the unutilized portion of the loan
facility being approximately $500,000.
Although we cannot provided guarantees, management believes that the synergy
effects and potential business opportunities of the merged Hungarian entities
may contribute to improving our cash generating ability during 2005 comparing
2004. We intend to reduce the loans and trade liabilities of our company from
any such cash generated.
In the event we make future acquisitions in Central and Eastern Europe,
the excess cash on hand, additional bank loans or fund raising may be used to
finance such future acquisitions. The Company may also consider the sale of
non-strategic assets or subsidiaries. Due to our strategy of aggressive
acquisition, we may seek to incur additional material debts.
Inflation and Foreign Currency
We maintain our books in local currencies: Hungarian Forint for Euroweb Hungary
and the Romanian Lei for Euroweb Romania.
Our operations are primarily outside of the United States through our wholly
owned subsidiaries. As a result, fluctuations in currency exchange rates may
significantly effect our sales, profitability and financial position when the
foreign currencies, primarily the Hungarian Forint, of our international
operations are translated into U.S. dollars for financial reporting. In
additional, we are also subject to currency fluctuation risk with respect to
certain foreign currency denominated receivables and payables. Although we
cannot predict the extent to which currency fluctuations may or will effect, our
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 our currency exposure. In the
future, we may engage in hedging transactions to mitigate foreign exchange risk.
21
During the first quarter of 2005, the Romanian Lei appreciated 13% against the
US dollar and the Hungarian Forint appreciated 11% against the US dollar,
compared to the first quarter of 2004.
Effect of Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"). SFAS 123(R)
requires an entity to recognize the grant-date fair value of stock options and
other equity-based compensation issued to employees in the income statement, but
expresses no preference for a type of valuation model. For small business
issuers, the SFAS 123(R) is effective as of the beginning of the first interim
or annual reporting period that begins after December 15, 2005. Early adoption
is encouraged for interim or annual periods for which financial statements or
interim reports have not been issued. The Company is currently assessing the
impact SFAS 123(R) will have on its financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets: an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 eliminates a
company's ability to use the similar productive assets concept to account for
nonmonetary exchanges at book value without recognizing a gain. Nonmonetary
exchanges will have to be accounted for at fair value, with gain or loss
recognized, if the transactions meet a commercial-substance criterion and fair
value is determinable. SFAS 153 is effective for nonmonetary asset exchanges in
fiscal periods beginning after June 15, 2005, and early application is permitted
for nonmonetary asset exchanges occurring in fiscal periods beginning after
December 16, 2004. The Company is currently assessing the impact SFAS 153 may
have on its financial statements.
In December 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment
of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends Accounting Research
Bulletin No. 43, Chapter 4, "Inventory Pricing" ("ARB 43") to eliminate the "so
abnormal" criterion in ARB 43 and requires companies to recognize abnormal
freight, handling costs, and amounts of wasted material (spoilage) as
current-period charges. Additionally, SFAS 151 clarifies that fixed production
overhead cost should be allocated to inventory based on the normal capacity of
the production facility. SFAS 151 is effective for inventory costs incurred
during annual periods beginning after June 15, 2005. The Company is currently
assessing the impact SFAS 151 may have on its financial statements.
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.
22
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.
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 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
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 Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the 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.
23
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings as of the date of
this report.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On January 31, 2005 Hans Lipman and Daniel Kwantes resigned as board
members of the Company. Also on January 31, 2005, the Board of
Directors of the Company appointed Ilan Kenig and Yossi Attia to
fill the vacancies created by the resignations of Mr. Lipman and
Kwantes.
On March 21, 2005, Mr. Cooper resigned as a director of the Company
and a member of the Audit Committee.
On March 21, 2005, the Board of Directors appointed Mr. Attia and
Mr. Kenig, both independent members of the board of directors, to
serve as members of the Audit Committee and Compensation Committee
On April 15, 2005, Moshe Schnapp was appointed as the president and
a director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits (numbers below reference Regulation S-B, Item 601)
(3) (a) Certificate of Incorporation filed November 9, 1992((1))
(b) Amendment to Certificate of Incorporation filed July 9,
1997(2)
(c) Restated Certificate of Incorporation filed May 29, 2003
-------------------
(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)
24
(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 of Euroweb
International Corp. pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
(32) (a) Certification of the Chief Executive Officer of Euroweb
International Corp. pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(32) (b) Certification of the Chief Accounting Officer of Euroweb
International Corp. pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 16th day of May 2005.
EUROWEB INTERNATIONAL CORP.
By /s/ Csaba Toro
----------------------
Csaba Toro
Chief Executive Officer
25