UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest reported): February 23, 2004 EUROWEB INTERNATIONAL CORP. (Exact name of registrant as specified in charter) Delaware 1-1200 13-3696015 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1122 Budapest, Varosmajor utca 13. Hungary (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: +36-1-8897101 INFORMATION INCLUDED IN REPORT Euroweb International Corp. filed a Form 8-K dated March 9, 2004 with regard to the acquisition of the 100% of the issued and outstanding shares of Elender Rt. without the required financial information. Accordingly, Euroweb International Corp. is filing this Form 8-K/A to include that financial information. ITEM 2. Acquisition or Disposition of Assets On February 23, 2004, Euroweb International Corp., a Delaware corporation (the "Company"), entered into a Shares Purchase Agreement with Vitonas Investments Limited, a company with registered seat in Cyprus ("Vitonas"), Certus Kft., a Hungarian corporation ("Certus") and Rumed 2000 Kft., a Hungarian corporation ("Rumed" and collectively with Vitonas and Certus the "Seller"), to acquire Seller's 100% interest in Elender Business Communications Services Ltd., a Hungarian corporation ("Elender" or "Elender Rt"). Elender is an Internet service provider located in Hungary that provides internet access to the corporate and institutional (public) sector and, amongst others, 2,300 schools in Hungary. The Closing of the Elender acquisition occurred on June 9, 2004. The total purchase price paid by the Company for Elender was $9,500,000 as follows: (i) cash in the amount of $6,500,000; and (ii) 677,201 shares of the Company's common stock. The number of shares was calculated by dividing $3,000,000 by $4.43, which is the average trade weighted stock market price during the 60 days prior to signing of the binding term sheet between the parties. At Closing, Elender had debt valued at $2,900,000, consisting of a bank loan and a non-transferable shareholders loan payable by Elender to the Sellers. The Company guarantees the full repayment of the non-transferable shareholders loan in a period of one and a half years and, in addition, the Company has also placed in escrow 248,111 shares, which are to be issued to the Sellers in the event that there is a default in connection with the non-transferable shareholders loan. During the period that the Sellers hold an aggregate of 5% of the outstanding shares of common stock of the Company, they will be entitled to appoint a director to the Company's board. In addition, as long as the non-transferable shareholders loan is outstanding, the Sellers shall also be entitled to appoint a director to Elender's board or, in the alternative, the board of the Company's subsidiary managing the Company's Hungarian operations. ITEM 7. Financial Statements and Exhibits (a) Financial Statements of businesses acquired. Audited Financial Statements of Elender Rt. as of and for the years ended December 31, 2003 and 2002 Unaudited Condensed Financial Statements of Elender Rt. as of March 31, 2004 and for the quarters ended March 31, 2004 and 2003 (b) Pro forma financial statements 1. Unaudited pro forma consolidated balance sheet as of March 31, 2004 2. Unaudited pro forma consolidated statement of operations for the year ended December 31, 2003 3. Unaudited pro forma consolidated statement of operations for the quarter ended March 31, 2004 (c) Exhibits. Exhibit No. Description 10.1 Shares Purchase Agreement between Vitonas Investments Limited, a Hungarian corporation, Certus Kft., a Hungarian corporation, Rumed 2000 Kft., a Hungarian corporation and Euroweb International Corp., a Delaware corporation, dated as of February 23, 2004. (Incorporated by reference to Form 8-K Current Report filed on March 9, 2004) ELENDER Business Communications Services Rt. Financial Statements December 31, 2003 and 2002 TABLE OF CONTENTS Page Independent Auditors' Report 2 Financial Statements: Balance Sheets 3 Statements of Operations 4 Statements of Changes in Shareholders' Deficit 5 Statements of Cash Flows 6 Notes to the Financial Statements 7-17 Independent Auditors' Report To the Shareholders of Elender Business Communications Services Rt. We have audited the accompanying balance sheets of Elender Business Communications Services Rt. (the "Company") as of December 31, 2003 and 2002, and the related statements of operations, shareholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Elender Business Communications Services Rt. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte ------------ Deloitte Budapest, Hungary July 2, 2004 Elender Business Communications Services Rt. Balance Sheets December 31, 2003 and 2002 In HUF'000 2003 2002 ----------------- --------------- ASSETS Current assets: Cash and cash equivalents 76,702 145,069 Trade accounts receivable, net 201,152 548,471 Related party receivables 54,663 181,477 Prepaid and other current assets 257,631 150,692 ----------------- --------------- Total current assets 590,148 1,025,709 Property and equipment, net 920,909 1,156,048 Investment in affiliate 102,248 108,605 ----------------- --------------- Total assets 1,613,305 2,290,362 ================= =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable 324,444 172,535 Related party payables 36,083 173,640 Short term related party loan 166,515 367,793 Short term portion of long term loan payable 94,196 137,277 Other current liabilities 58,278 124,655 Accrued expenses 203,361 160,331 Deferred revenue 11,196 266,092 ----------------- --------------- Total current liabilities 894,073 1,402,323 Long term related party loan 679,339 829,037 Long term loan payable 56,597 148,592 Long term capital lease obligation 1,756 - ----------------- --------------- Total long term liabilities 737,692 977,629 ----------------- --------------- Total liabilities 1,631,765 2,379,952 ----------------- --------------- Commitments and contingencies (note 11) Shareholders' deficit Common stock, HUF 10,000 par value (2,000 and 300 shares 20,000 3,000 authorized, issued and outstanding as of December 31, 2003 and 2002, respectively) Additional paid in capital 501,874 331,874 Accumulated deficit (540,334) (424,464) ----------------- --------------- Total shareholders' deficit (18,460) (89,590) ----------------- --------------- Total liabilities and shareholders' deficit 1,613,305 2,290,362 ================= =============== See accompanying notes to financial statements. 3 Elender Business Communications Services Rt. Statements of Operations Years Ended December 31, 2003 and 2002 In HUF'000 2003 2002 ------------------- ---------------- Third party revenue 4,624,783 5,202,704 Related party revenue 70,740 113,947 ------------------- ---------------- Total revenue 4,695,523 5,316,651 Cost of revenue (exclusive of depreciation and 3,168,711 3,408,184 amortization shown separately below) ------------------- ---------------- Gross profit 1,526,812 1,908,467 Operating expenses Personnel expenses 252,950 405,337 Consulting, professional and directors fees 297,215 224,149 Other selling, general and administrative expenses (including THUF 234,570 and THUF 250,037 related party expenses in 2003 and 2002 respectively) 638,397 824,429 Depreciation and amortization 340,684 302,915 ------------------- ---------------- Total operating expenses 1,529,246 1,756,830 (Loss)/income from operations (2,434) 151,637 Other income/(expense) Interest income 350 13,106 Interest expense (110,195) (53,295) Foreign exchange gain, net 2,766 5,446 ------------------- ---------------- Total other expense (107,079) (34,743) ------------------- ---------------- (Loss)/income before income taxes and equity in loss of affiliate (109,513) 116,894 Income taxes - - ------------------- ---------------- (Loss)/income before equity in loss of affiliate (109,513) 116,894 ------------------- ---------------- Equity in loss of affiliate (6,357) (77,436) ------------------- ---------------- Net (loss)/income (115,870) 39,458 =================== ================ See accompanying notes to financial statements. 4 Elender Business Communications Services Rt. Statements of Changes in Shareholders' Deficit Years Ended December 31, 2003 and 2002 In HUF'000 (except number of shares) Common Stock Additional Accumulated Shareholders' Shares* Amount paid in capital Deficit Deficit January 1, 2002 300 3,000 - (463,922) (460,922) ========= =========== ============ =========== ============== Net income - - - 39,458 39,458 Return of capital to parent (210,959) (210,959) Forgiveness of related party loan - - 542,833 - 542,833 --------- ----------- ------------ ----------- -------------- December 31, 2002 300 3,000 331,874 (424,464) (89,590) ========= =========== ============ =========== ============== Issuance of common stock 1,700 17,000 - - 17,000 Net loss - - (115,870) (115,870) - Forgiveness of related party loan - - 170,000 - 170,000 --------- ----------- ------------ ----------- -------------- December 31, 2003 2,000 20,000 501,874 (540,334) (18,460) ========= =========== ============ =========== ============== * number of shares See accompanying notes to financial statements. 5 Elender Business Communications Services Rt. Statements of Cash Flows Year Ended December 31, 2003 and 2002 In HUF'000 2003 2002 Net (loss)/income (115,870) 39,458 Adjustments to reconcile net (loss)/income to net cash used in operating activities: Depreciation and amortization 340,684 302,915 Loss on sale of property and equipment 21,702 16,520 Equity in loss of affiliate 6,357 77,436 Increase in allowance for doubtful receivables 16,239 8,337 Changes in assets and liabilities: Receivables 430,780 553,602 Prepaid and other assets 31,429 21,934 Related party payables (137,557) (982,846) Payables and other current liabilities 198,022 538,906 Deferred revenue (254,896) 198,091 ------------------ ----------------- Net cash provided by operating activities 536,890 774,353 Cash flows from investing activities: Redemption of marketable securities - 155,034 Investment in affiliate - (186,041) Purchase of property and equipment (184,871) (708,389) Proceeds from sale of property and equipment 48,666 165,667 ------------------ ----------------- Net cash used in investing activities (136,205) (573,729) Cash flows from financing activities: Draw down of short-term and long-term loans from related parties 103,514 497,812 Repayment of of short-term and long-term loans from related parties (454,487) (242,801) Draw down of short-term and long-term loans 125,000 - Repayment of short-term and long-term loans (260,079) (618,312) Proceeds from issuance of shares 17,000 - ------------------ ----------------- Net cash used in financing activities (469,052) (363,301) Decrease in cash and cash equivalents (68,367) (162,677) Cash and cash equivalents, beginning of year 145,069 307,746 ------------------ ----------------- Cash and cash equivalents, end of year 76,702 145,069 ================== ================= Supplemental Disclosures: Cash paid for income taxes - - ================== ================= Cash paid for interest (81,777) (19,996) ================== ================= Non-cash financing transactions: Capital lease 2,201 - ================== ================= Forgiveness of related party loan 170,000 542,833 ================== ================= See accompanying notes to financial statements. 6 1. Organization and Business Elender Business Communications Services Rt was formed on October 23, 2003 at which time it legally merged with Elender Kft., an Internet Service Provider ("ISP") and three content providers Webigen Rt., Acquarius 2002 Rt. and Elender Web Kft., all of which were under common control at the time of the merger. Elender Rt., Elender Kft., Webigen Rt., Acquarius 2002 Rt. and Elender Web Kft are collectively referred to as "Elender" or the "Company." The Company began its operations in October 1995. The Company operates in one industry segment, providing a full range of Internet related services. The Internet services provided by the Company include Internet access, web related services, consulting, application development, and other content services. On February 23, 2004, Euroweb International Corp., a Delaware corporation, entered into a Shares Purchase Agreement with Vitonas Investments Limited, a company with registered seat in Cyprus ("Vitonas"), Certus Kft., a Hungarian corporation ("Certus") and Rumed 2000 Kft., a Hungarian corporation ("Rumed" and collectively with Vitonas and Certus the "Seller"), to acquire Seller's 100% interest in Elender. 2. Summary of Significant Accounting Policies Accounting Principles The financial statements and accompanying notes have been prepared in conformity with accounting principles generally accepted in the United States of America. Basis of presentation The financial statements comprise the accounts of Elender Rt, Elender Kft, Webigen Rt, Aquarius 2002 Rt and Elender Web Kft. Elender Kft acquired Webigen Rt. in December 2002 from a related party at book value, while Aquarius 2002 Rt and Elender Web Kft together with Webigen Rt. merged with Elender Kft. as of October 13, 2003. The acquisitions and mergers were made from an entity under common control (all of the companies were owned or controlled by Wallis group at the time of mergers in October 2003) and accordingly, the transactions were accounted in a manner similar to a pooling-of-interest in accordance with accounting principles generally accepted in the United States of America, with all prior periods being restated as if the entities were combined for all periods presented. All material intercompany balances and transactions have been eliminated. 2. Summary of Significant Accounting Policies Continued Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported 7 amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Business segment reporting Management has determined that the Company operates in one industry segment, providing Internet access and additional value added services to business customers and individuals. All of the Company's revenues are derived from the provision of such services. Fair value of financial instruments The carrying values of cash equivalents, notes and loans receivable, accounts payable, loans payable and accrued expenses approximate their fair values. Cash and cash equivalents Cash and cash equivalents include cash at bank and short-term deposits with maturity date of less than three months at the date of purchase. 8 2. Summary of Significant Accounting Policies Continued Property and equipment Property and equipment are stated at cost less accumulated depreciation. Equipment purchased under capital leases is stated at the present value of minimum lease payments at the inception of the lease less accumulated depreciation. Leased assets are depreciated using a straight-line method over the estimated useful lives of the leased asset. The Company provides for depreciation of property and equipment using the straight-line method over the following estimated useful lives: Software 3 years Computer equipment 3 years Other furniture equipment and fixtures 3-5 years Vehicles 5 years Recurring maintenance on property and equipment is expensed as incurred. Long-lived assets In accordance with Statements of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Invesment in affiliate The Company uses the equity method to account for its investments in non-marketable equity securities where it has an ownership interest of between 20-50%. 2. Summary of Significant Accounting Policies Continued Revenue recognition Revenue is recognized when earned. Revenues from Internet services are recognized in the month in which the services are provided, either based on monthly usage or on fixed monthly fees. Revenues for 9 consulting services are recognized as the service is performed. The Company defers revenue recognition for payments on contracts for which services have not been performed. Cost of revenues Cost of revenues comprised principally of telecommunication network expenses, costs of content services and cost of leased lines. Barter transactions The Company periodically barters services for advertising credits. The Company is able to determine fair value based on comparable cash transactions for the services provided and for which the advertiser has the financial ability to pay cash. Revenue related to bartered services is recognized when the services are rendered. The barter advertising credits are initially recorded as an asset in "Prepaid and other current assets" and expensed in "Other selling, general and administrative expenses" when they are utilized. Barter transactions totaled approximately THUF 50,650 and THUF 102,902 during the years ended December 31, 2003 and 2002, respectively. Advertising costs Advertising costs are expensed as incurred and amounted THUF 156,832 and THUF 64,336 for the years ended December 31, 2003 and 2002, respectively. Foreign currency translation The Company considers the Hungarian Forint ("HUF") to be its functional currency. Gains and losses from foreign currency transactions and the translation of monetary assets or liabilities not denominated in Hungarian forints are included in the income statements in the period in which they occur 2. Summary of Significant Accounting Policies Continued Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities, net of appropriate valuation allowances, are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities, if any, are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The 10 effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Recent accounting pronouncements On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149") which amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" to address (1) decisions reached by the Derivatives Implementation Group, (2) developments in other Board projects that address financial instruments, and (3) implementation issues related to the definition of a derivative. The Company has adopted this pronouncement and it has no material impact on its financial statements. 3. Trade accounts receivable 2003 2002 -------------------------------------------------------------------------------- Receivable 227,728 558,808 Less allowance for doubtful debts (26,576) (10,337) -------------------------------------------------------------------------------- Total 201,152 548,471 ======= ======= The Company establishes allowance for bad debt to reduce receivables to their net realizable value. The allowance is determined on an account by account basis. 4. Prepaid and other current assets 2003 2002 -------------------------------------------------------------------------------- Unbilled revenues 92,787 53,059 Prepaid costs 15,773 7,600 Barter credits 92,050 64,936 Value added tax receivable 7,578 - Loans 15,000 10,023 Others 34,443 15,074 -------------------------------------------------------------------------------- Total 257,631 150,692 ======= ======= 11 5. Property and equipment Property and equipment as at December 31, 2003 and 2002 in THUF were as follows: 2003 2002 -------------------------------------------------------------------------------- Software 392,826 323,733 Computer equipment 983,077 958,606 Vehicles, furniture, fixtures and other 310,453 298,472 Total 1,686,356 1,580,811 Less accumulated depreciation (765,447) (424,763) Total property and equipment 920,909 1,156,048 ======= ========= The gross value of assets recorded under capital lease obligation was THUF 2,319, while accumulated depreciation was THUF 89 as of December 31, 2003. As of December 31, 2002 there were no assets under capital lease obligations. 6. Investment in affiliates The Company owned 30.9% of the outstanding shares in Index Rt. as of December 31, 2003 and 2002. In March 2004, the Company sold its investment for THUF 171,920 to a related party. (See note 12). During 2003 and 2002 the Company recorded losses of THUF 77,436 and THUF 6,357, respectively, reflecting its proportional share of the operating losses of Index Rt. 12 7. Related party transactions The Company has entered into transactions with related parties both during the course of its normal operating activities and for financing its operations. These transactions are summarized below: Financing transactions The balance of long term related party loan liabilities as of December 31, 2003 and 2002 were as follows: 2003 2002 -------------------------------------------------------------------------------- Vitonas Limited 528,818 609,652 Certus Kft. 76,427 102,552 Rumed Kft. 74,094 89,304 Wems - Wallis related entity - 27,529 -------------------------------------------------------------------------------- Total long-term related party loans 679,339 829,037 ======= ======= The expiration date of all of the related party loans was October 7, 2007. Interest rate is BUBOR (interbank credit interest rate in Budapest) + 1.5% (13.24% and 9.12% as of December 31, 2003 and 2002, respectively). Based on the share purchase agreement of the Company, the repayment schedule of the related party loans was amended such that the maturity date is now December 31, 2005. The balance of short term related party loan liabilities as of December 31, 2003 and 2002 were as follows: 2003 2002 -------------------------------------------------------------------------------- Wallis Rt. 166,515 367,793 -------------------------------------------------------------------------------- Total short-term related party loans 166,515 367,793 ======= ======= Interest rate is BUBOR + 1.5% (13.24% and 9.12% as of December 31, 2003 and 2002, respectively). The Company recorded related party interest expense in the accompanying income statement of THUF 94,377 and THUF 16,552 in 2003 and 2002, respectively. 7. Related party transactions, continued 13 During 2003 and 2002, certain loan liabilities were waived by related parties amounting to THUF 170,000 and THUF 542,833, respectively. The effect of the waivers has been shown as increase in additional paid-in-capital in the accompanying financial statements. The schedule of principal payments on related party loans is as follows as of December 31, 2003: Payments due in 2004 166,515 Payments due in2005 679,339 ------- Total related party loans 845,854 ======= Operating transactions The Company provides Internet access and related services to the related parties. Total revenues generated from these services was THUF 70,740 and THUF 113,947 during 2003 and 2002, respectively Related parties also provided the following services to the Company: - Office rental - Car rental - Consulting and advisory - Labour outsourcing - Advertising and public relations - Telephone Total amount of these services purchased by Elender was approximately THUF 234,570 and THUF 250,037 during 2003 and 2002, respectively. 14 8. Long-term loans The Company has entered a loan agreement with Raiffeisen Bank Rt ("Bank") in a value of HUF 275,000,000 with an interest rate of BUBOR +2.25% (13.99% and 9.87% as of December 31, 2003 and 2002, respectively). The loan is payable in quarterly installments through October 22, 2005. The loan is guaranteed by the shares of the Company pledged as collateral and also guaranteed by Wallis Rt. In addition to the loan agreement, the Company also concluded an overdraft facility with the Bank in a value of HUF 100,000,000 with interest rate of BUBOR + 0.7% (12.44% and 8.32% as of December 31, 2003 and 2002). The facility will expire on August 31, 2004. The outstanding balances were in THUF as follows at December 31: 2003 2002 -------------------------------------------------------------------------------- Long term loan 150,793 285,869 Short term portion of long term loan (94,196) (137,277) -------------------------------------------------------------------------------- Total long term loan payable 56,597 148,592 ====== ======= The schedule of principal payments on long term loans is as follows as of December 31, 2003: ----------------------------------------------------------------- Loan payable in 2004 94,196 Loan payable in 2005 56,597 ----------------------------------------------------------------- Total 150,793 ======= There were no amounts drawn on the bank overdraft at December 31, 2003 and 2002. 9. Other current liabilities 2003 2002 -------------------------------------------------------------------------------- Value added tax payable - 47,545 Local tax payable 22,286 21,291 Wages related taxes 29,199 36,935 Other 6,793 18,884 -------------------------------------------------------------------------------- Total other current liabilities 58,278 124,655 ====== ======= 15 10. Accrued expenses 2003 2002 -------------------------------------------------------------------------------- Telecommunication expenses 112,042 78,964 Interest 28,068 20,193 Subcontractors and consultants 35,281 20,970 Other 27,970 40,204 -------------------------------------------------------------------------------- Total 203,361 160,331 ======= ======= 11. Commitments and Contingencies Lease agreements Capital lease - In 2003, the Company entered into capital lease, which expires over the next four years. The following is a schedule of future capital lease payments (with initial or remaining lease terms in excess of one year) as of December 31, 2003 in THUF: Short term lease obligation 445 Long term lease obligation 1,756 -------------------------------------------------------------------------------- Total lease payments 2,201 ===== The current portion of the capital lease obligation is included in `Other current liabilities' in the accompanying balance sheets. Operating lease - On January 1, 2002, the Company has entered a non-cancelable rental contract for its office space for the period of seven years with a related party. The monthly rental fee is HUF 5,400,000 (EUR 21,560). Rent expense included in the accompanying income statements was THUF 64,800 and THUF 64,800 in 2003 and 2002, respectively. Following are the Company's commitments under its non-cancelable lease obligations: Capital lease Operating lease 2004 745 64,800 2005 745 64,800 2006 745 64,800 2007 683 64,800 2008 - 64,800 --------------------- ---------------------- Total 2,917 324,000 --------------------- ====================== Less amount representing interest (716) --------------------- Net minimum lease payments 2,201 ===================== There are no restrictions on dividends imposed by lease contracts. 16 12. Income taxes The statutory corporate tax rate was 18% as of December 31, 2003 and 2002. The statutory rate will be 16 % effective from January 1, 2004. Owing to the taxable losses, the Company did not have any corporate income taxes payable for the years of 2003 and 2002. The following summarizes the Company's net deferred tax assets as of December 31: 2003 2002 -------------------------------------------------------------------------------- Investment in affiliate 13,407 12,390 Net operating loss carry forwards 21,891 13,483 -------------------------------------------------------------------------------- Total deferred tax assets 35,298 25,873 Less allowance (35,298) (25,873) -------------------------------------------------------------------------------- Total 0 0 The losses incurred in the previous years can be carried forward for offset against future taxable profit. The carried forward taxable losses as of December 31, 2003 and 2002 were THUF 136,819 and THUF 84,272, respectively. Such losses expire beginning 2007 through 2008. The Company has recorded a full valuation allowance against its deferred tax assets, as management does not believe the assets will be realized. 13. Subsequent events In the first quarter of 2004, Elender Rt. has sold its investment in its affiliate (Index Rt) for HUF 171,920,000 to Wallis. The sale was affected through a reduction of the short-term related party loan liabilities due to Wallis. The Company has concluded a new bank loan agreement with Commerzbank Rt on June 1, 2004. This loan agreement was signed and replaced the existing loan facilities with Raiffeisen and to increase the current loan facilities to HUF 350 million and the overdraft facilities limit to 450 million HUF. Amounts outstanding on the Raiffeisen Loan were repaid. 17 TABLE OF CONTENTS ----------------- Financial Statements: Unaudited Condensed Balance Sheets Unaudited Condensed Statements of Operations Unaudited Condensed Statements of Cash Flows Notes to the Unaudited Condensed Financial Statements 18 Elender Business Communications Services Rt. Unaudited Condensed Balance Sheets March 31, 2004 and December 31, 2003 In HUF'000 March 31, December 31, 2004 2003 ----------------- ----------------- ASSETS Current assets: Cash and cash equivalents 881 76,702 Trade accounts receivable, net 364,622 201,152 Related party receivables - 54,663 Prepaid and other current assets 275,053 257,631 ----------------- ----------------- Total current assets 640,556 590,148 Property and equipment, net 892,181 920,909 Investment in affiliate - 102,248 ----------------- ----------------- Total assets 1,532,737 1,613,305 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable 380,559 324,444 Related party payables - 36,083 Short term related party loan 182,191 166,515 Short term portion of long term loan payable 127,335 94,196 Other current liabilities 54,407 58,278 Accrued expenses 267,607 203,361 Deferred revenues 6,932 11,196 ----------------- ----------------- Total current liabilities 1,019,031 894,073 Long term related party loan 471,147 679,339 Long term loan payable 970 56,597 Long term capital lease obligation 1,632 1,756 ----------------- ----------------- Total long term liabilities 473,749 737,692 ----------------- ----------------- Total liabilities 1,492,780 1,631,765 Commitments and contingencies Shareholders' deficit Common stock, HUF 10,000 par value (2,000 shares authorized, 20,000 20,000 issued and outstanding) Additional paid in capital 501,874 501,874 ----------------- ----------------- Accumulated deficit (481,917) (540,334) ----------------- ----------------- Total shareholders' deficit 39,957 (18,460) Total liabilities and shareholders' equity/(deficit) 1,532,737 1,613,305 ================= ================= See accompanying notes to unaudited condensed financial statements. 19 Elender Business Communications Services Rt. Unaudited Condensed Statements of Operations Quarters Ended March 31, 2004 and 2003 In HUF'000 2004 Q1 2003 Q1 Third party revenue 1,180,403 1,146,974 Related party revenue 20,458 14,342 Total revenue 1,200,861 1,161,316 Cost of revenues (exclusive of depreciation and 825,502 851,512 amortization shown sepatately below) ------------------- ------------------- Gross profit 375,359 309,804 Operating expenses Personnel expenses 56,249 73,174 Consulting, professional and directors fees 85,428 98,931 Other selling, general and administrative expenses 126,353 134,736 Depreciation and amortization 90,600 71,317 ------------------- ------------------- Total operating expenses 358,630 378,158 Income/(loss) from operations 16,729 (68,354) Interest income 727 133 Interest expense (32,341) (25,180) Foreign exchange gain, net 3,630 2,494 ------------------- ------------------- Total other expense (27,984) (22,553) Loss before income taxes and equity in loss of affiliate (11,255) (90,907) Income taxes - - ------------------- ------------------- Loss before equity in loss of affiliate (11,255) (90,907) Net gain from sale of equity investment 69,672 - ------------------- ------------------- Net income/(loss) 58,417 (90,907) =================== =================== See accompanying notes to unaudited condensed financial statements. 20 Elender Business Communications Services Rt. Unaudited Condensed Statements of Cash Flows Quarters Ended March 31, 2004 and 2003 In HUF'000 2004 Q1 2003 Q1 Cash flows from operating activities Net profit/(loss) 58,417 (90,907) Adjustments to reconcile net profit to net cash used in operating activities: Depreciation and amortization 90,600 71,317 Gain from sale of equity investment (69,672) - Changes in assets and liabilities Receivables (108,807) 410,677 Prepaid and other assets 24,267 (65,211) Payables and other current liabilities 38,718 (73,075) Deferred revenue (4,264) (247,989) ------------------ ----------------- Net cash provided by operating activities 29,259 4,812 Cash flows from investing activities: Purchase of property and equipment (61,872) (8,526) ------------------ ----------------- Net cash used in investing activities (61,872) (8,526) Cash flows from financing activities: Repayment of short-term and long-term loans (43,208) (39,988) ------------------ ----------------- Net cash used in financing activities (43,208) (39,988) Decrease in cash and cash equivalents (75,821) (43,702) ------------------ ----------------- Cash and cash equivalents, beginning of period 76,702 100,068 Cash and cash equivalents, end of period 881 56,366 ================== ================= See accompanying notes to unaudited condensed financial statements. 21 Basis of presentation Elender Business Communications Services Rt. (the "Company") is a Hungarian Corporation, which is owned by Vitonas Investments Limited, a company with registered seat in Cyprus ("Vitonas"), Certus Kft., a Hungarian corporation ("Certus") and Rumed 2000 Kft. The Company is an Internet service provider in Hungary. The accompanying unaudited condensed financial statements of the Company are stated in Hungarian Forints ("HUF") (the currency in Hungary) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting mainly of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. Results for the interim periods are not necessarily indicative of the results for a full fiscal year. These unaudited condensed financial statements should be read in conjunction with the Company's audited financial statements and notes thereto as of and for the year ended December 31, 2003. Material events In the first quarter of 2004, the Company sold its investment in its affiliate (Index Rt) for HUF 171,920,000 to Wallis. The sale was affected through a reduction of the short-term related party loan liabilities due to Wallis. The Company has concluded a new bank loan agreement with Commerzbank Rt on June 1, 2004. This loan agreement was signed and replaced the existing loan facilities with Raiffeisen and to increase the current loan facilities to HUF 350 million and the overdraft facilities limit to HUF 450 million. Amounts outstanding on the Raiffeisen Loan were fully repaid. 22 (b) Pro forma financial statements: EUROWEB INTERNATIONAL CORP. AND ELENDER RT UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Basis of Preparation The accompanying unaudited pro forma consolidated financial statements give effect to the acquisition by Euroweb International Corporation of 100% of Elender Rt. for approximately $6,611,000 in cash consideration (including direct transaction costs of $111,000) and 677,201 shares of Euroweb International Corporation's common stock with a fair value of $2,898,420 less registration cost of $21,000. The acquisition will be accounted for using the purchase method of accounting. Under this method, the purchase price has been allocated to the assets and liabilities based on preliminary estimates. The final purchase price allocation will be calculated based on the transaction value and the fair values of Elender Rt. identifiable assets and liabilities at the date of closure as of June 10, 2004 and it will be presented in the 06/30/2004 quarterly report. Therefore, the actual goodwill amount, as well as other balance sheet items, could differ from the preliminary unaudited pro forma consolidated financial statements presented herein, and in turn affect items in the preliminary pro forma condensed consolidated statement of operations, such as intangible asset amortization and income taxes. The accompanying unaudited pro forma consolidated balance sheet as of March 31, 2004 and accompanying unaudited pro forma consolidated statements of operations for the year ended December 31, 2003 and the quarter ended March 31, 2004 were prepared based on the Company's interpretation of guidance issued by the United States Securities and Exchange Commission (specifically Article 11 of Regulation S-X). The unaudited pro forma consolidated statements of operations give effect to the acquisition as if it occurred on January 1, 2003. The unaudited pro forma consolidated balance sheet gives effect to the acquisition as if it occurred on March 31, 2004. Euroweb International Corporation has presented these unaudited pro forma consolidated financial statements for illustrative purposes only. The unaudited pro forma consolidated financial statements are not necessarily indicative of the actual results of operations or financial position that would have occurred had the acquisitions occurred on the dates indicated, nor are they necessarily indicative of future operating results or financial position. No account has been taken within the unaudited pro forma consolidated financial statements to any synergy or any severance and restructuring costs that may, or may be expected to, occur following the acquisition. The unaudited pro forma consolidated financial statements are only a summary and should be read in conjunction with the historical consolidated financial statements and related notes of Euroweb International Corporation and Elender Rt. and other information included or incorporated by reference in this current report. The pro forma adjustments described in the accompanying notes are based upon available information and certain assumptions that management believes are reasonable. All pro forma amounts are presented in U.S. dollars, the reporting currency of Euroweb International Corporation. 23 There were no business transactions between Euroweb International Corporation and its subsidiaries and Elender Rt. during the periods presented. 24 Euroweb International Corp. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET March 31, 2004 Restated Elender Rt. Pro forma N Pro forma Euroweb adjustments o Euroweb Int International t Corp and Corporation e Elender Rt. ASSETS (C) (D) Current assets: Cash and cash equivalents $12,050,485 $ 4,326 (6,611,000) A 5,443,811 Investment in securities - - - - Trade accounts receivable, net 1,235,842 1,790,434 - 3,026,276 Related party receivables 748,285 - - 748,285 Current portion of note receivable 124,143 - - 124,143 Prepaid and other current assets 1,584,887 1,350,616 2,935,503 - Total current assets 15,743,642 3,145,376 (6,611,000) 12,278,018 Note receivable, less current portion - - - - Investment in affiliate - - - - Property and equipment 2,727,193 4,380,952 - 7,108,145 Assets under construction 78,355 - - 78,355 Goodwill 566,000 - 5,814,228 A 6,380,228 Intangibles- customer lists, brand name - - 2,412,759 2,412,759 ----------- ---------- ---------- ----------- Total assets $19,115,190 $7,526,328 $1,615,987 $28,257,505 =========== ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $1,638,049 $1,868,691 - $3,506,740 Related party payables 913,211 - - 913,211 Related party loan payable 240,608 894,628 (894,628) AB 240,608 Other loan payable - 625,263 1,606,138 AB 2,231,401 Other current liabilities 998,387 267,159 - 1,265,546 Accrued expenses 431,247 1,314,057 - 1,745,304 Deferred IRU revenue 46,000 - - 46,000 Deferred other revenues 951,472 34,038 - 985,510 ----------- ---------- ---------- ----------- Total current liabilities 5,218,974 5,003,836 711,510 10,934,320 Non-current portion of def. IRU revenue 831,834 - - 831,834 Non-current related party loan payable 962,435 2,313,513 (2,313,513) AB 962,435 Non-current other loan payable - 4,763 536,773 AB 541,536 Non-current portion of lease obligations 219,239 8,013 - 227,252 ----------- ---------- ---------- ----------- Total liabilities 7,232,482 7,330,125 (1,065,230) 13,497,377 Stockholders' equity Preferred stock, $.001 par value Common stock, $.001 par value 24,129 92,514 (91,837) A 24,806 Additional paid-in capital 48,227,764 2,286,091 590,652 A 51,104,507 Accumulated deficit (35,206,856) (1,758,641) 1,758,641 A (35,206,856) Accumulated other comprehensive loss (46,917) (423,761) 423,761 A (46,917) Treasury stock (1,115,412) - - (1,115,412) ----------- ---------- ---------- ----------- Total stockholders' equity 11,882,708 196,203 2,681,217 14,760,128 ----------- ---------- ---------- ----------- Total liabilities and stockholders' equity $19,115,190 $7,526,328 $1,615,987 $28,257,505 =========== ========== ========== =========== See accompanying notes to the unaudited pro forma consolidated financial statements. 25 Euroweb International Corp. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 Restated Elender Rt. Pro forma N Pro forma Euroweb adjustments o Euroweb Int International t Corp and Corporation e Elender Rt. (C) (D) Revenues Third party revenues $ 17,540,011 $ 20,677,738 316,283 B $ 38,534,032 Related party revenues 5,740,709 316,283 (316,283) B 5,740,709 ------------ ----------- --------- ------------ Total Revenues 23,280,720 20,994,021 - 44,274,741 Cost of revenues Third party cost of revenues 8,827,513 14,167,535 - 22,995,048 Related party cost of revenues 5,796,351 - - 5,796,351 ------------ ----------- --------- ------------ Total Cost of revenues 14,623,864 14,167,535 - 28,791,399 ------------ ----------- --------- ------------ Gross profit 8,656,856 6,826,486 - 15,483,342 Operating expenses Compensation and related costs 3,173,720 1,130,957 - 4,304,677 Severance to officers - - - - Consulting, professional and 2,135,056 1,328,870 - 3,463,926 directors fees Other selling, general and 2,723,012 2,854,319 - 5,577,331 administrative expenses Goodwill impairment 980,538 - - 980,538 Impairment of intangibles 100,364 - - 100,364 Depreciation and amortization 1,727,796 1,523,222 804,253 A 4,055,271 ------------ ----------- --------- ------------ Total operating expenses 10,840,486 6,837,368 - 18,482,107 ------------ ----------- --------- ------------ Loss from operations (2,183,630) (10,882) (804,253) (2,998,765) Net interest income/(expense) 344,571 (491,125) - (146,554) Foreign exchange gain, net - 12,366 12,366 Loss before income taxes (1,839,059) (489,641) (804,253) (3,132,953) Provision for income taxes 61,590 - - 61,590 ------------ ----------- --------- ------------ Equity in earnings (loss) of affiliate 109,622 (28,422) - 81,200 Net loss $(1,791,027) $ (518,063) (804,253) $(3,113,343) ============ =========== ========= ============ Net loss per share, basic and diluted (0.44) (0.58) Weighted aver. number of shares outst. 4,665,332 5,342,533 See accompanying notes to the unaudited pro forma consolidated financial statements. 26 Euroweb International Corp. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 Restated Elender Rt. Pro forma Note Pro forma Euroweb adjustments Euroweb Int International Corp and Corporation Elender Rt. (C) (D) Revenues Third party revenues $4,922,587 5,661,677 98,124 B $10,682,388 Related party revenues 1,490,767 98,124 (98,124) B 1,490,767 --------- --------- -------- - ----------- Total Revenues 6,413,354 5,759,801 - 12,173,155 Cost of revenues Third party cost of revenues 2,803,707 3,959,432 - 6,763,139 Related party cost of revenues 1,251,354 - - 1,251,354 --------- --------- -------- ----------- Total Cost of revenues 4,055,061 3,959,432 - 8,014,493 --------- --------- -------- ----------- Gross profit 2,358,293 1,800,369 - 4,158,662 Operating expenses Compensation and related costs 876,237 269,792 - 1,146,029 Consulting, professional and 411,179 409,746 - 820,925 directors fees Other selling, general and 716,194 606,038 - 1,322,232 administrative expenses Depreciation and amortization 290,081 434,553 201,063 A 925,697 --------- --------- -------- - ----------- Total operating expenses 2,293,691 1,720,129 (201,063) 4,214,883 Loss from operations 64,602 80,240 (201,063) (56,221) Net interest income/(expense) 7,841 (134,222) - (126,381) Loss before income taxes 72,443 (53,982) (201,063) (182,602) Provision for income taxes 31,583 - - 31,583 --------- --------- -------- ----------- Gain from equity investment - 334,174 - 334,174 Net profit $40,860 $280,192 (201,063) $119,989 ========= ========= ========= =========== Net profit per share, basic and diluted 0.01 0.02 Weighted aver. number of shares outst. 4,665,332 5,342,533 See accompanying notes to the unaudited pro forma consolidated financial statements. 27 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (A) To reflect the excess of acquisition cost over the estimated fair value of net assets acquired (goodwill). The purchase price, purchase price allocation, and financing of the transaction are summarized as follows: Purchase price is calculated as as: Cash $ 6,500,000 Fair value of shares issued less registration cost 2,877,420 Direct acquisition expenditures 111,000 ------------- Total purchase consideration 9,488,420 Allocated to: Transferable shareholders loan 1,065,230 Fair value of Elender's assets acquired and liabilities assumed 196,203 Customer contracts 2,412,759 ------------- Excess purchase price over allocation to identifiable assets and liabilities (Goodwill) $ 5,814,228 ============= These unaudited pro forma consolidated financial statements reflect the preliminary allocation of the purchase price based on a preliminary fair value assessment of the assets acquired and liabilities assumed, and as such, the Company has assigned approximately $2.4 million to customer contracts intangible assets. These identified intangible assets will be amortized over a period of three years, which has been reflected as pro forma adjustment in the profit and loss statements. The purchase price allocation will be finalized upon the completion of intangible assets valuation. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized. Accordingly, there is no goodwill amortization expense in the pro forma consolidated statements of operations. The estimated total purchase price of approximately $9,488,420 consists of approximately $6,500,000 cash, $2,877,420 of Euroweb International's common stock, representing an estimated 677,201 shares and estimated direct transaction costs of approximately $111,000. Under US GAAP, securities issued in a purchase business combination should be valued at market prices for a reasonable period before and after the measurement date in determining the fair value of the securities issued. For the purposes of these unaudited pro forma consolidated financial statements, the purchase consideration has been estimated using a signing date of the transaction, as measurement date, of February 23, 2004. Accordingly, the Euroweb International's shares issued in consideration are valued based on the average closing price of the Company's common stock for the five consecutive trading days between February 19, 2004 and February 25, 2004, which was $4.28 per share. 28 (B) The selling parties will also receive Euroweb International shares during the acquisition of Elender Rt. Each of them will have less than 10% of ownership in Euroweb International Corporation, so they are not categorized as related parties and those transactions are shown as third party transactions. Elender Rt has an insignificant business relationship with Pantel Rt, the related party in respect to Euroweb International Corporation. Total of $3,208,141 short and long term related party loans of Elender has been reclassified as $1,606,138 short term and $536,773 long term third party loan, while $1,065,230 is owed to Euroweb International Corporation (transferable shareholder loan). (C) Restated financial statements include the combined financial statements of Euroweb International Corporation and Euroweb Hungary Rt purchased in February 2004. According to SFAS No. 141, Business Combinations, transfers of net assets or exchanges of shares between entities under common control are required to be accounted for by the receiving entity at carryover or the predecessor basis of the transferring entity, so Euroweb Hungary is included in the books as if Euroweb Hungary had always been consolidated. (D) The historical financial position and results of operations of Elender Rt. have been derived from Elender's historical financial statements (denoninated in Hungarian Forint) and translated, for the purpose of preparing pro forma financial information, into U.S. dollars using the following exchange rates: Consolidated pro forma balance sheet as of March 31, 2004 - 203.65 HUF/US$ (current exchange rate) Consolidated pro forma statements of operations for the year ended December 31, 2003 - 223.66 HUF/US$ (average exchange rate) Consolidated pro forma statements of operations for the quarter ended March 31, 2004 - 208.49 HUF/US$ (average exchange rate) (E) No adjustments were made to reflect the income tax effect of increased amortization of intangibles since Euroweb International Corporation has significant net operating loss carryforwards and, therefore, does not expect to have taxable income in the foreseeable future. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EUROWEB INTERNATIONAL CORPORATION (Registrant) By: /s/ CSABA TORO --------------------- Name: Csaba Toro Title: Chief Executive Officer Date: July 23, 2004 Budapest, Hungary 30