x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
Delaware
|
|
13-3696015
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
(310)
860-5697
|
|
(310)
860-5600
|
Issuer’s
telephone number
|
|
Issuer’s
facsimile number
|
Common
Stock, $.001 par value
|
|
5,414,370
|
(Class)
|
|
(Outstanding
at November 9, 2006)
|
PART I. |
Financial
Information
|
||
Item 1. |
Financial
Statements (Unaudited)
|
||
Condensed
Consolidated Balance Sheet as of September 30, 2006
|
3
|
||
Condensed
Consolidated Statements of Operations and Comprehensive Income for
the
three months ended September 30, 2006 and 2005 and the nine months
ended
September 30, 2006 and 2005
|
4
|
||
Condensed
Consolidated Statements of Stockholders' Equity for the nine months
ended
September 30, 2006 and twelve months ended December 31, 2005
|
5
|
||
Condensed
Consolidated Statements of Cash Flows for the nine months ended September
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
|
24
|
|
Item 3. |
Controls
and Procedures
|
36
|
|
PART II. |
Other
Information
|
37
|
|
Signature |
39
|
September
30,
2006
|
||||
|
||||
ASSETS
|
||||
Current
Assets
|
||||
Cash
and cash equivalents
|
$
|
9,127,905
|
||
Restricted
cash - certificate of deposit
|
4,018,558
|
|||
Trade
accounts receivable, net of allowance for doubtful accounts of
$156,281
|
1,063,928
|
|||
Prepaid
expenses and other current assets
|
1,199,855
|
|||
Total
current assets
|
15,410,246
|
|||
Property
and equipment, net
|
984,177
|
|||
Construction
in progress
|
7,486,086
|
|||
Long
term loan
|
4,399,270
|
|||
Intangibles
- customer contracts, net
|
2,089,831
|
|||
Goodwill
|
865,640
|
|||
Total
assets
|
$
|
31,235,250
|
||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||
Current
Liabilities
|
||||
Trade
accounts payable
|
$
|
1,097,097
|
||
Current
portion of bank loan and overdraft
|
646,167
|
|||
Current
portion of other real estate related loans
|
15,405
|
|||
Other
current liabilities
|
1,112,458
|
|||
Accrued
expenses
|
606,017
|
|||
Total
current liabilities
|
3,477,144
|
|||
Deferred
tax liability
|
334,373
|
|||
Bank
loan
|
266,524
|
|||
Other
real estate related loans
|
4,966,635
|
|||
Commitments
and contingencies
|
||||
Stockholders'
Equity
|
||||
Common
stock, $.001 par value - authorized 35,000,000 shares; 5,561,780
shares
issued and outstanding
|
25,026
|
|||
Additional
paid-in capital
|
52,304,577
|
|||
Accumulated
deficit
|
(29,456,946
|
)
|
||
Accumulated
other comprehensive income
|
8,304
|
|||
Treasury
stock - 327,294 common shares, at cost
|
(690,387
|
)
|
||
Total
stockholders' equity
|
22,190,574
|
|||
Total
liabilities and stockholders' equity
|
$
|
31,235,250
|
Three
months ended
|
Nine
months ended
|
||||||||||||
September
30
|
September
30
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Revenues
|
$
|
1,369,684
|
$
|
-
|
$
|
4,764,201
|
$
|
-
|
|||||
Cost
of revenues (Exclusive
of depreciation and amortization shown separately below)
|
303,698
|
-
|
1,447,486
|
-
|
|||||||||
Operating
expenses
|
|||||||||||||
Compensation
and related costs
|
878,607
|
99,226
|
2,348,019
|
397,081
|
|||||||||
Severance
to officer
|
-
|
-
|
750,000
|
-
|
|||||||||
Consulting,
director and professional fees
|
681,562
|
209,066
|
1,579,592
|
605,704
|
|||||||||
Other
selling, general and administrative expenses
|
416,856
|
84,939
|
1,118,020
|
313,329
|
|||||||||
Goodwill
impairment
|
-
|
-
|
7,285,032
|
-
|
|||||||||
Depreciation
and amortization
|
453,004
|
-
|
1,370,140
|
-
|
|||||||||
Total
operating expenses
|
2,430,029
|
393,231
|
14,450,803
|
(1,316,114
|
)
|
||||||||
Operating
loss
|
(1,364,043
|
)
|
(393,231
|
)
|
(11,134,088
|
)
|
(1,316,114
|
)
|
|||||
Interest
income
|
252,384
|
-
|
336,556
|
-
|
|||||||||
Interest
expense
|
(19,682
|
)
|
-
|
(74,737
|
)
|
-
|
|||||||
Net
interest income
|
232,702
|
-
|
261,819
|
-
|
|||||||||
Other
income
|
-
|
-
|
-
|
170,000
|
|||||||||
Loss
from continuing operatings before income taxes
|
(1,131,341
|
)
|
(393,231
|
)
|
(10,872,269
|
)
|
(1,146,114
|
)
|
|||||
Income
tax expense, current
|
(9,464
|
)
|
-
|
(49,343
|
)
|
-
|
|||||||
Income
tax benefit, deferred
|
55,598
|
-
|
166,795
|
-
|
|||||||||
Income
tax benefit
|
46,134
|
-
|
117,452
|
-
|
|||||||||
Loss
from continuing operations
|
(1,085,207
|
)
|
(393,231
|
)
|
(10,754,817
|
)
|
(1,146,114
|
)
|
|||||
Income
from discontinued operations, net of tax
|
-
|
729,981
|
15,600,302
|
2,935,251
|
|||||||||
Net
(loss) income
|
(1,085,207
|
)
|
336,750
|
4,845,485
|
1,789,137
|
||||||||
Other
comprehensive (loss) income
|
(5,213
|
)
|
(38,909
|
)
|
(91,377
|
)
|
4,795
|
||||||
Comprehensive
(loss) income
|
$
|
(1,090,420
|
)
|
$
|
297,841
|
$
|
4,754,108
|
$
|
1,793,932
|
||||
Loss
per share, from continuing operations, basic and
diluted
|
$
|
(0.19
|
)
|
$
|
(0.08
|
)
|
$
|
(1.85
|
)
|
$
|
(0.22
|
)
|
|
Income
per share from discontinued operations, basic and
diluted
|
-
|
$
|
0.14
|
$
|
2.68
|
$
|
0.55
|
||||||
Net
(loss) income per share, basic and diluted
|
$
|
(0.19
|
)
|
$
|
0.06
|
$
|
0.83
|
$
|
0.33
|
||||
Weighted
average number of shares outstanding, basic and
diluted
|
5,742,363
|
5,342,533
|
5,806,854
|
5,342,533
|
Common
Stock
|
||||||||||||||||||||||
Number
of shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Gain(Loss)
|
Treasury
Stock
|
Total
Stockholders'
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
|
-
|
-
|
-
|
-
|
(91,377
|
)
|
-
|
(91,377
|
)
|
|||||||||||||
Compensation
charge on share options and warrants issued to employees, directors
and
consultants
|
-
|
-
|
443,109
|
-
|
-
|
-
|
443,109
|
|||||||||||||||
Issuance
of shares to the President
|
104,975
|
105
|
322,809
|
-
|
-
|
-
|
322,914
|
|||||||||||||||
Treasury
stock
|
(327,294
|
)
|
(327
|
)
|
-
|
-
|
-
|
(690,387
|
)
|
(690,714
|
)
|
|||||||||||
Net
income for the period
|
-
|
-
|
-
|
4,845,485
|
-
|
-
|
4,845,485
|
|||||||||||||||
Balances,
September 30, 2006
|
5,561,780
|
$
|
25,026
|
$
|
52,304,577
|
$
|
(29,456,946
|
)
|
$
|
8,304
|
$
|
(690,387
|
)
|
$
|
22,190,574
|
Nine
Months Ended
September
30,
|
|||||||
2006
|
2005
|
||||||
Net
cash used in operating activities
|
$
|
(2,390,287
|
)
|
$
|
(431,150
|
)
|
|
Cash
flows from investing activities:
|
|||||||
Restricted
cash - certificate of deposit
|
(4,000,000
|
)
|
-
|
||||
Proceeds
from sale of Euroweb Hungary and Euroweb Romania, net of
cash
|
21,824,086
|
-
|
|||||
Proceeds
from sale of Euroweb Slovakia
|
-
|
2,700,000
|
|||||
Navigator
- pre-acquisition cost
|
-
|
(271,808
|
)
|
||||
Long
term loans to Bonanza project
|
(4,286,653
|
)
|
|||||
Construction
in progress
|
(7,486,086
|
)
|
-
|
||||
Purchase
of property and equipment
|
(276,162
|
)
|
-
|
||||
Investing
activities from discontinued operations
|
-
|
(1,859,191
|
)
|
||||
Net
cash provided by investing activities
|
5,775,185
|
569,001
|
|||||
Cash
flows from financing activities:
|
|||||||
Repayment
of bank loans
|
(158,125
|
)
|
-
|
||||
Utilization
of bank overdraft
|
69,501
|
-
|
|||||
Proceeds
from other real estate related loans
|
4,982,040
|
|
-
|
||||
Principal
payments under capital lease obligations
|
(28,522
|
)
|
-
|
||||
Payments
to acquire treasury stock
|
(690,714
|
)
|
-
|
||||
Financing
activities from discontinued operation
|
-
|
(1,237,491
|
)
|
||||
Net
cash used in financing activities
|
4,174,180
|
|
(1,237,491
|
)
|
|||
Effect
of exchange rate changes on cash and cash equivalents
|
137
|
-
|
|||||
Net
increase in cash and cash equivalents
|
7,559,215
|
(1,099,640
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
1,568,690
|
2,379,552
|
|||||
Cash
and cash equivalents, end of period
|
$
|
9,127,905
|
$
|
1,279,912
|
|||
Supplemental
disclosure:
|
|||||||
Cash
paid for interest
|
$
|
72,693
|
-
|
||||
Cash
paid for income taxes
|
$
|
20,895
|
Revenue
Generated
|
|
As
a %
|
|||||
Company
‘A’:
|
$
|
1,271,746
|
26.69
|
||||
Company
‘B’:
|
1,110,460
|
23.31
|
|||||
Company
‘C’:
|
986,567
|
20.71
|
|||||
Company
‘D’:
|
840,806
|
17.65
|
|||||
Other
companies:
|
554,622
|
11.64
|
|||||
Total
revenue:
|
$
|
4,764,201
|
100.00
|
|
Nine
months
Ended
September 30, 2005
|
Expected
volatility
|
88%
|
Expected
dividends
|
-
|
Expected
term (in years)
|
6
|
Risk-free
rate
|
4%
|
Nine
months ended
|
September
30,
2005
|
|||
Net
income:
|
$
|
1,789,137
|
||
Net
income, as reported
|
||||
Total
stock-based employee compensation expense
determined under fair value based method
for all awards, net of tax effects
|
(687,144
|
)
|
||
Pro
forma net income
|
1,101,993
|
|||
Basic
and diluted income per share:
|
||||
As
reported, basic
|
||||
Pro
forma, basic
|
$
|
0.33
|
||
As
reported, diluted
|
0.21
|
|||
Pro
forma, diluted
|
$
|
$0.33
|
||
0.21
|
||||
September
30,2005
|
||||
Three
months ended
|
||||
Net
income:
|
||||
Net
income, as reported
|
$
|
336,750
|
||
Total
stock-based employee compensation expense determined under fair
value
based method for all awards, net of tax effects
|
(291,462
|
)
|
||
Pro
forma net income
|
45,288
|
|||
Basic
and diluted income per share:
|
||||
As
reported, basic
|
$
|
0.06
|
||
Pro
forma, basic
|
0.01
|
|||
As
reported, diluted
|
$
|
0.06
|
||
Pro
forma, diluted
|
0.01
|
Categories
of cost and expenses
|
Three
months ended September 30, 2006
|
|
Nine
months ended September 30 ,2006
|
||||
Compensation
and related costs
|
$
|
75,889
|
$
|
149,071
|
|||
Consulting,
directors and professional fees
|
62,127
|
220,428
|
|||||
Total
stock-based compensation expense
|
$
|
138,016
|
$
|
369,499
|
Three
months ended September 30,
|
|
Nine
months ended September 30,
|
|||||||||||
2006
|
|
2005
|
|
2006
|
|
2005
|
|||||||
Net
(loss) income attributable to
|
|||||||||||||
Common
stockholders (A)
|
$
|
(1,085,207
|
)
|
$
|
336,750
|
$
|
4,845,485
|
$
|
1,789,137
|
||||
Determination
of shares
|
|||||||||||||
Weighted
average common shares outstanding - basic (B)
|
5,742,363
|
5,342,533
|
5,806,854
|
5,342,533
|
|||||||||
Assumed
conversion of dilutive stock options and warrants
|
— |
—
|
—
|
—
|
|||||||||
Weighted average common shares Outstanding - diluted (C) |
5,742,363
|
5,342,533
|
5,806,854
|
5,342,533
|
|||||||||
Net
(loss) income per common share
|
|||||||||||||
Basic
(A/B)
|
$
|
(0.19
|
)
|
$
|
0.06
|
$
|
0.83
|
$
|
0.33
|
||||
Diluted
(A/C)
|
$
|
(0.19
|
)
|
$
|
0.06
|
$
|
0.83
|
$
|
0.33
|
|
|
Three
months ended September 30
|
Nine
months ended September 30
|
||||||||||
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|||||
Income
from discontinued Slovakian operations (including the 2005 gain on
disposal of $1,701,200), net of tax
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
1,733,470
|
|||||
Income
(loss) from discontinued Hungarian operations
|
—
|
312,008
|
(928,122
|
)
|
131,430
|
||||||||
Income
from discontinued Romanian operations
|
—
|
417,973
|
588,566
|
1,070,351
|
|||||||||
Gain
on disposal of the Hungarian and Romanian operations, net of
tax
|
—
|
—
|
15,939,858
|
—
|
|||||||||
Income
from discontinued operations
|
$
|
—
|
$
|
729,981
|
$
|
15,600,302
|
$
|
2,935,251
|
Stock
Options
|
Number
of
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average
Remaining
Contractual
Term
(in
years)
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding
at January 1, 2006
|
605,000
|
$
|
4.20
|
||||||||||
Granted
|
—
|
—
|
|||||||||||
Exercised
|
—
|
—
|
|||||||||||
Forfeited
or expired
|
(275,000
|
)
|
$
|
4.78
|
|||||||||
Outstanding
at September 30, 2006
|
330,000
|
$
|
3.72
|
4.45
|
$
|
0
|
|||||||
Exercisable
at September 30, 2006
|
145,000
|
$
|
3.70
|
4.38
|
$
|
0
|
Value
of Land
|
|
Other
capitalized
costs
|
|
Total
balance as of 09/30/2006
|
||||||
Harper
project
|
$
|
1,000,000
|
$
|
18,386
|
$
|
1,018,386
|
||||
Huntley
project
|
1,250,000
|
398,672
|
1,648,672
|
|||||||
Stanley
project
|
1,650,000
|
16,000
|
1,666,000
|
|||||||
Lorraine
|
2,753,624
|
399,404
|
3,153,028
|
|||||||
Total
Construction in Progress
|
$
|
6,653,624
|
$
|
832,462
|
$
|
7,486,086
|
Project
name
|
Bank
name/financial institution
|
|
Principal
amount
|
|
InterestAnnually
|
|
Expiry
date year
|
||||||
Huntley
*
|
M&T
Mortgage
|
$
|
720,000
|
6.25
|
%
|
2034
|
|||||||
Huntley
*
|
Specialized
Loan Servicing
|
$
|
197,889
|
10.50
|
%
|
2019
|
|||||||
Huntley
*
|
Washington
Mutual Home loans
|
$
|
637,985
|
6.50
|
%
|
2035
|
|||||||
Stanley
*
|
Washington
Mutual Home loans
|
$
|
487,166
|
7.50
|
%
|
2032
|
|||||||
Stanley
*
|
Morequity
|
$
|
61,500
|
11.00
|
%
|
2032
|
|||||||
Lorraine
|
Countrywide
Home loans
|
$
|
1,000,000
|
6.88
|
%
|
2036
|
|||||||
Lorraine
|
Countrywide
Home loans
|
$
|
200,000
|
11.38
|
%
|
2036
|
|||||||
Lorraine
|
Chase
|
$
|
731,250
|
6.88
|
%
|
2036
|
|||||||
Lorraine
|
Chase
|
$
|
146,250
|
9.00
|
%
|
2036
|
|||||||
Harper
|
|
|
Lehmann
Brothers
|
$
|
750,000
|
7.75
|
%
|
2036
|
|||||
Harper
|
|
|
Lehmann
Brothers
|
$
|
50,000
|
9.63
|
%
|
2036
|
|||||
Total
principal amounts of other loans
|
$
|
4,982,040
|
|||||||||||
Less
current portion
|
$
|
15,405
|
|||||||||||
Long
term portion of other loans
|
$
|
4,966,635
|
|
Navigator
|
ERC
|
Corporate
|
Total
|
|||||||||
Total
revenues
|
$
|
4,759,067
|
$
|
5,134
|
—
|
$
|
4,764,201
|
||||||
Income
tax benefit
|
117,452
|
—
|
—
|
117,452
|
|||||||||
Depreciation
|
326,577
|
1,094
|
—
|
327,671
|
|||||||||
Intangible
amortization (customer contract)
|
1,042,469
|
—
|
—
|
1,042,469
|
|||||||||
Goodwill
impairment
|
7,285,032
|
—
|
—
|
7,285,032
|
|||||||||
|
|||||||||||||
Interest
income
|
—
|
112,
615
|
223,941
|
336,556
|
|||||||||
Interest
expense
|
(74,737
|
)
|
—
|
—
|
(74,73
|
)
|
|||||||
Net
interest expense
|
(74,737
|
)
|
112,615
|
223,941
|
261,819
|
||||||||
|
|||||||||||||
Loss
from continuing operations
|
(8,247,166
|
)
|
(231,032
|
)
|
(2,276,619
|
)
|
(10,754,817
|
)
|
|||||
|
|||||||||||||
Property
and equipment
|
960,271
|
23,906
|
—
|
984,177
|
|||||||||
Construction
in progress
|
—
|
7,486,086
|
—
|
7,486,086
|
|||||||||
Long
term bank loan
|
—
|
4,399,270
|
—
|
4,399,270
|
|||||||||
Intangible
- customer contracts
|
2,089,831
|
—
|
—
|
2,089,831
|
|||||||||
Goodwill
|
865,640
|
—
|
—
|
865,640
|
|||||||||
Capital
expenditures
|
251,162
|
25,000
|
—
|
276,162
|
|||||||||
Total
assets
|
5,329,393
|
12,140,048
|
$
|
13,855,809
|
31,235,250
|
|
|
Corporate
|
|
Total
|
|||
Total
revenues
|
—
|
—
|
|||||
Depreciation
|
—
|
—
|
|||||
Intangible
amortization
|
|||||||
(customer
contract)
|
—
|
—
|
|||||
Interest
income
|
—
|
—
|
|||||
Interest
expense
|
—
|
—
|
|||||
Net
interest (expense)
|
|||||||
Income
|
—
|
—
|
|||||
Income
tax
|
—
|
—
|
|||||
Loss
from continuing operations
|
(1,146,114
|
)
|
(1,146,114
|
)
|
Navigator
|
|
ERC
|
|
Corporate
|
|
Total
|
|||||||
Total
revenues
|
1,364,550
|
5,134
|
—
|
1,369,684
|
|||||||||
Depreciation
|
104,621
|
894
|
—
|
105,515
|
|||||||||
Intangible
amortization
|
|||||||||||||
(customer
contract)
|
347,489
|
—
|
—
|
347,489
|
|||||||||
Interest
income
|
—
|
103,683
|
148,701
|
252,384
|
|||||||||
Interest
expense
|
(19,682
|
)
|
—
|
—
|
(19,682
|
)
|
|||||||
Net
interest expense
|
(19,682
|
)
|
103,683
|
148,701
|
232,702
|
||||||||
Income
tax benefit
|
46,134
|
—
|
—
|
46,134
|
|||||||||
Loss
from continuing operations
|
(514,232
|
)
|
(180,039
|
)
|
(390,936
|
)
|
(1,085,207
|
)
|
|
Corporate
|
Total
|
|||||||||||
|
|||||||||||||
Total
revenues
|
—
|
—
|
|||||||||||
|
|||||||||||||
Depreciation
|
—
|
—
|
|||||||||||
Intangible
amortization
(customer
contract)
|
—
|
— | |||||||||||
|
|||||||||||||
Interest
income
|
—
|
— | |||||||||||
Interest
expense
|
|
|
—
|
—
|
|||||||||
Net
interest (expense)
|
|
—
|
—
|
|
|||||||||
Income
|
— | — | |||||||||||
Income
tax
|
—
|
—
|
|||||||||||
Loss
from continuing operations
|
(393,231
|
)
|
(393,231
|
)
|
· |
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;
|
· |
IT
system implementation and IT project management, including consultancy,
system design, development and implementation and training;
and
|
· |
Sale
of IT devices.
|
· |
Any
investment in the real estate opportunity (the “Proposed RE Investment”),
including loans, shall not exceed a period of three
years;
|
· |
The
expected return on investment on the Proposed RE Investment will
be at
minimum 15% per year;
|
· |
The
Proposed RE Investment will not be leveraged in excess of more than
$1.50
for each $1.00 invested in equity;
and
|
· |
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.
|
(a) |
Bonanza
project
|
(b) |
Harper
project
|
(c) |
Huntley
project
|
(d) |
Stanley
project
|
(e) |
Lorraine
project
|
· |
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.
|
· |
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.
|
· |
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.
|
· |
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.
|
· |
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.
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Revenues
- IT
|
$
|
4,759,067
|
$
|
0
|
|||
Revenues
- Real estate
|
5,134
|
0
|
|||||
Revenues
- Corporate
|
0
|
0
|
|||||
Total
revenues
|
$
|
4,764,201
|
$
|
0
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Cost
of revenues - IT
|
$
|
1,447,486
|
$
|
0
|
|||
Cost
of revenues - Real estate
|
0
|
0
|
|||||
Cost
of revenues - Corporate
|
0
|
0
|
|||||
Total
cost of revenues
|
$
|
1,447,486
|
$
|
0
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Compensation
and related costs - IT
|
$
|
1,762,274
|
$
|
0
|
|||
Compensation
and related costs - Real estate
|
117,493
|
0
|
|||||
Compensation
and related costs - Corporate
|
468,252
|
397,081
|
|||||
Total
compensation and related costs
|
$
|
2,348,019
|
$
|
397,081
|
Nine
months ended September 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
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Consulting,
director and professional fees - IT
|
$
|
510,478
|
$
|
0
|
|||
Consulting,
director and professional fees - Real estate
|
133,682
|
0
|
|||||
Consulting,
director and professional fees - Corporate
|
935,432
|
605,704
|
|||||
Total
Consulting, director and professional fees
|
$
|
1,579,592
|
$
|
605,704
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Other
selling, general and administrative expenses - IT
|
$
|
582,052
|
$
|
0
|
|||
Other
selling, general and administrative expenses - Real estate
|
96,513
|
0
|
|||||
Other
selling, general and administrative expenses - Corporate
|
439,455
|
313,329
|
|||||
Total
other selling, general and administrative expenses
|
$
|
1,118,020
|
$
|
313,329
|
Nine
months ended September 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
|
Nine
months ended September 30,
|
2006
|
|
2005
|
||||
Depreciation
and amortization - IT
|
$
|
1,369,046
|
$
|
0
|
|||
Depreciation
and amortization - Real estate
|
1,094
|
0
|
|||||
Depreciation
and amortization - Corporate
|
-
|
0
|
|||||
Total
depreciation and amortization
|
$
|
1,370,140
|
$
|
0
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Interest
income - IT
|
$
|
0
|
$
|
0
|
|||
Interest
income - Real estate
|
112,615
|
0
|
|||||
Interest
income - Corporate
|
223,941
|
0
|
|||||
Total
interest income
|
$
|
336,556
|
$
|
0
|
Nine
months ended September 30,
|
2006
|
2005
|
|||||
Interest
expense -IT
|
$
|
74,737
|
$
|
0
|
|||
Interest
expense - Real estate
|
0
|
0
|
|||||
Interest
expense - Corporate
|
0
|
0
|
|||||
Total
interest expense
|
$
|
74,737
|
$
|
0
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
(3) |
(a)
Certificate of Incorporation filed November 9,
1992(1)
|
|
Amendment
to Certificate of Incorporation filed July 9,
19972
|
||
(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.
|
EUROWEB INTERNATIONAL CORP. | ||
|
|
|
By | /s/ Yossi Attia | |
Yossi
Attia
Chief
Executive Officer
|