UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

      |X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934

            FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                                       OR

      |_|   TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

       For the transition period from _______________to_________________

                        COMMISSION FILE NUMBER 001-12000

                           EUROWEB INTERNATIONAL CORP.
           (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.)

                       1138 BUDAPEST, VACI UT 141. HUNGARY
                    (Address of principal executive offices)

Issuer's telephone number, including area code: (+36) 1-88-97-101,
Facsimile:(+36)-1-88-97-100

Securities registered under Section 12(g) of the Exchange Act:

                                                           NAME OF EACH EXCHANGE
   TITLE OF EACH CLASS                                      ON WHICH REGISTERED
-------------------------                                  ---------------------
     Common Stock,                                            NASDAQ SMALL CAP
par value $.001 per share

Check whether the issuer is not required to file reports  pursuant to Section 13
or 15 (d) of the Exchange Act. |_|

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirement for the past 90 days. Yes |X| No |_|

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. |_|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|

Issuer had revenues of  $1,964,998  for the year ended  December 31, 2005. As of
March 24,  2006,  5,843,067  shares of Common  Stock were  outstanding  of which
3,245,556 were held by non-affiliates of the Company. The aggregate market value
of the Common  Stock held by  non-affiliates  of the Company as of March 1, 2005
was $11,524,969.

Transitional Small Business Disclosure Format (check one): Yes |_|  No |X|


<PAGE>


                                TABLE OF CONTENTS

                                                                            PAGE

PART I ........................................................................3

   ITEM 1.   DESCRIPTION OF BUSINESS...........................................3
             Euroweb Strategy...................................................
             Entry into ISP and IT Market in Central Europe and
              History of Acquisitions...........................................
             Products and Services..............................................
             Customers..........................................................
             Network Operations and Technical Support...........................
             Sales and Marketing................................................
             Government Regulations.............................................
             Employees..........................................................

   ITEM 2.   DESCRIPTION OF PROPERTIES.........................................9

   ITEM 3.   LEGAL PROCEEDINGS.................................................9

   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............10


PART II ......................................................................10

   ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS.............................................10
             Market Information...............................................10
             Holders of Common Stock..........................................10
             Dividends........................................................11

   ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.......................................11
             Operations.......................................................11
             Results of Operations............................................16
             Year Ended December 31, 2005 compared to Year Ended
              December 31, 2004...............................................16
             Liquidity and Capital Resources..................................18
             Inflation and Foreign Currency...................................19
             Effect of Recent Accounting Pronouncements.......................20
             Risk Factors.....................................................21

             Forward-Looking Statements.......................................24

   ITEM 7.   FINANCIAL STATEMENTS............................................F-1

   ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE........................................24

   ITEM 8A   CONTROLS AND PROCEDURES..........................................25

   ITEM 8B   OTHER INFORMATION................................................25


                                       -i-
<PAGE>


PART III .....................................................................26

   ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
              COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT...............26

   ITEM 10.  EXECUTIVE COMPENSATION...........................................29

   ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...34

   ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................35

PART IV ......................................................................36

   ITEM 13.  EXHIBITS.........................................................36

   ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................37


                                      -ii-
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

HISTORY OF BUSINESS

      Euroweb International Corp.  ("Euroweb") is a Delaware corporation and was
organized  on November  9, 1992.  It was a  development  stage  company  through
December  1993. In 1997,  Euroweb  entered the Internet field in Hungary and has
started to grow through various  acquisitions  not only in Hungary,  but also in
the Czech  Republic,  Slovakia and  Romania.  Euroweb and its  subsidiaries  are
collectively referred to herein as the "Company".

      In December 2004,  Euroweb disposed its 100% interest in its subsidiary in
Czech  Republic and in April 2005 also sold its 100% interest in its  subsidiary
in Slovakia.  At that time, the Company was focusing on maintaining  and growing
its remaining operations in Hungary and Romania.

      In October  2005,  the Company  stepped  into the  information  technology
("IT")  sector  by  acquiring  100%  ownership  of  Navigator   Informatika  Rt.
(,,Navigator"),  a  Hungary-based  provider  of  IT  outsourcing,   applications
development, and IT consulting services.

      On December  19, 2005,  the Company has entered  into a  definitive  Share
Purchase  agreement  for  the  sale  of its two  Internet-  and  Telecom-related
operating subsidiaries, Euroweb Internet Szolgaltato Rt. ("Euroweb Hungary") and
Euroweb Romania S.A. ("Euroweb Romania").  These two Subsidiaries are classified
as discontinued operations in the financial statements of the Company.

      KPN  Telecom  BV ("KPN")  owned  approximately  43.54% of the  outstanding
shares of common stock of Euroweb as of December 31, 2004.  On January 28, 2005,
KPN entered into a Stock Purchase Agreement whereby it sold to CORCYRA d.o.o., a
Croatian  company  ("CORCYRA"),  289,855  shares of Euroweb  common stock for US
$1,000,000  on  February  1,  2005 and has  also  agreed  to sell its  remaining
2,036,188  shares of Euroweb  common stock on or prior to April 30, 2006.  As of
December 31, 2005, KPN owned 35.20% of the outstanding shares of common stock of
Euroweb.


EUROWEB STRATEGY

      The Company's  business has shown  continued  revenue  growth (taking into
account revenue from continuing and discontined operations) since it entered the
Internet field in January 1997. The Company  commenced a consolidation  strategy
in various Central and Eastern European countries as follows:

o     In Hungary the Company  acquired  three  Internet  and  telecommunications
      companies  in 1997 that were  eventually  consolidated  and named  Euroweb
      Internet  Szolgaltato Rt. The Company acquired Freestart Kft ("Freestart")
      in 2003 and Elender Rt. "Elender") in 2004, which were subsequently merged
      with Euroweb Hungary. The Company also acquired Navigator  Informatika Rt.
      in Hungary in 2005;


                                       3
<PAGE>


o     In Romania,  the Company  acquired  two  Internet  and  telecommunications
      companies  in 2000 that were  eventually  consolidated  and named  Euroweb
      Romania;

o     In Slovakia the Company  acquired  four  Internet  and  telecommunications
      companies from 1999 to 2000, that were eventually  consolidated  and named
      Euroweb Slovakia; and

o     In  the  Czech   Republic   the  Company   acquired   two   Internet   and
      telecommunications  companies  during  1999 and 2000 that were  eventually
      consolidated and named Euroweb Czech Republic.

      This active and  successful  merger and  acquisition  approach,  which was
implemented  over the last few years,  is  discussed in detail under the heading
History of Acquisitions and Dispositions, below.

      In 2004, management recognized that the leased line market for an Internet
service  provider  ("ISP")  has  a  limited  ability  to  generate  profit.  The
expectation  that the Company's core Internet  business is likely to become more
and more difficult to grow without its own  infrastructure led Euroweb to decide
to move into a new and fresh market.

      In 2004, the Company commenced this strategy with the sale of its Internet
service assets located in the Czech  Republic and Slovakia.  The  disposition of
Euroweb  Hungary and  Romania,  which are engaged in the  business of  providing
Internet service in Hungary and Romania,  respectively,  will be the culmination
of the  Company's  decision  to move out of its  Internet  service  market.  The
Company  expects to close the sale of Euroweb  Hungary  and  Romania  during the
second quarter of 2006 however it cannot  provide any guarantees  that such sale
will close.

      The acquisition of Navigator was a key element in redirecting Euroweb into
new markets. The closing of the sale of Euroweb Hungary and Euroweb Romania will
allow the Company to redeploy capital to acquire  additional  assets in IT space
and other unidentified industries that the Company deems profitable,  as well as
focus its expertise in the area of IT outsourcing in Central and Eastern Europe.
If the opportunity  presents itself, the Company will consider  implementing its
consolidation strategy with its remaining subsidiary and any other business that
it enters.  However, the Company does not presently have any plans, proposals or
arrangements to redeploy its capital or engage in any specific acquisitions. The
Company has not yet identified any  additional  specific  industries in which to
invest.

      Rather than servicing individual users, the Company focuses its efforts on
business  users and seeks to satisfy their IT outsource  service needs with high
quality and reliable service.  In addition to Central Europe,  the Company seeks
opportunities  in the  United  States,  provided  that they  consist  of certain
parameters, which are deemed to be potentially lucrative for the Company.

HISTORY OF ACQUISITIONS AND DISPOSITIONS

      Euroweb   entered  the  ISP  market  in  Central  Europe  through  various
acquisitions  of companies in that area over the past eight years.  In 2005, the
scope of activity was changed by the  acquisition of Navigator,  which is active
in the IT services industry and the decision to sell the Company's operations in
the ISP market.


                                       4
<PAGE>


      Hungary

      On January 2, 1997, the Euroweb  acquired all of the outstanding  stock of
three  Hungarian ISPs for a total purchase  price of  approximately  $1,785,000,
consisting  of 28,800  shares of common stock of the Company and  $1,425,000  in
cash (collectively, the "1997 Acquisitions"). The 1997 Acquisitions included the
following:

o     Eunet  (Hungary  Ltd.)  for a  total  cash  cost  of  $1,000,000,  and  an
      assumption of $128,000 in liabilities;
o     E-Net Hungary  Telecommunications  and Multimedia for a total cash cost of
      $200,000 and $150,000 in stock (12,000 shares); and
o     MS Telecom  Rt. for a total cash cost of  $225,000  and  $210,000 in stock
      (16,800 shares).

      Thereafter in 1997, the three Hungarian companies were combined and merged
into a new Hungarian entity,  Euroweb Hungary. On November 22, 1998, the Company
sold 51% of the outstanding  shares of Euroweb Hungary to Pantel Rt.  ("Pantel")
for $2,200,000 in cash and an agreement to increase the share capital of Euroweb
Hungary by $300,000  without changing the ownership ratio. In February 2004, the
Company acquired the 51% of Euroweb Hungary that it had sold to Pantel.  Euroweb
Hungary is presented as a discontinued operation in the financial statements for
all periods  presented  due to the proposed  sale of Euroweb  Hungary to Invitel
Tavkozlesi  Szolgaltato Rt.  ("Invitel") . The consideration paid by the Company
for the  51%  interest  comprised  EUR  1,650,000  ($2,105,000)  in  cash  and a
guarantee  that  Euroweb   Hungary  will  purchase  at  least  HUF  600  million
(approximately  $3,000,000)  worth of  services  from  Pantel Rt. in each of the
three years ending December 31, 2006. In each of 2003 and 2004,  Euroweb Hungary
and  subsidiaries   purchased  in  excess  of  HUF  700  million  (approximately
$3,500,000) in services from Pantel.  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.

      On June 9, 2004,  the Company  acquired all of the  outstanding  shares of
Elender,  an ISP  located  in  Hungary  that  provides  internet  access  to the
corporate and institutional  (public) sector and, amongst others,  2,300 schools
in Hungary. Consideration paid of $9,350,005 consisted of $6,500,000 in cash and
677,201 of the Company's shares of common stock, valued at $2,508,353  excluding
registration  cost, and $391,897 in transaction costs  (consisting  primarily of
professional  fees  incurred  related to  attorneys,  accountants  and valuation
advisors).

      Under  the  terms  of this  agreement,  the  Company  has  placed  248,111
unregistered  shares of newly issued (in the name of the  Company)  common stock
with an escrow agent as security for approximately $1.5 million loans payable to
former shareholders of Elender.  The shares will be returned to the Company from
escrow once the outstanding loans have been fully repaid. However, if there is a
default on the  outstanding  loan,  then the shares  will be issued to the other
party and the Company is then obliged to register the shares. As of December 31,
2005, the Company had repaid all of the loans that were outstanding.  In January
2006, the Company acquired and  subsequently  cancelled the shares that were put
into escrow.

      On October 7, 2005, the Company acquired all of the outstanding  shares of
Navigator, a Hungary-based provider of IT outsourcing,  applications development
and IT  consulting  services.  Consideration  paid of  $10,760,772  consisted of
$8,500,000  in cash and  441,566  shares  of  Euroweb  common  stock  valued  at
$1,752,134  excluding  registration  cost,  and  $508,638 in  transaction  costs
(consisting  primarily  of  professional  fees  incurred  related to  attorneys,
accountants and valuation advisors).


                                       5
<PAGE>


      On December 19, 2005, Euroweb entered into a share purchase agreement with
Invitel for the sale of Euroweb Hungary and Euroweb Romania.  The purchase price
for the subsidiaries  specified in the share purchase  agreement is $30,000,000.
98% of the  purchase  price,  or  $29,400,000,  is payable  at  closing  and the
remaining  2%  is  payable  upon  delivery  of  a  certificate  prepared  by  an
independent  auditor  identifying the net indebtedness of the two  subsidiaries,
which are required to be debt free. As part of the closing,  $6,000,000 from the
cash  proceeds  will be paid by  Euroweb  International  to  Euroweb  Hungary in
exchange for the 85% ownership of Navigator  currently held by Euroweb  Hungary.
This amount will be used by Euroweb  Hungary for  repayment of  $6,000,000  bank
loan  obtained  for the  acquisition  of  Navigator.  The closing of the sale of
Euroweb  Hungary and Euroweb  Romania is subject to approval of the  competition
office in Hungary,  the  buy-out of 85%  ownership  of  Navigator  from  Euroweb
Hungary by Euroweb International Corporation and approval of the shareholders of
Euroweb.  Euroweb  Hungary and Euroweb  Romania are  classified as  discontinued
operations for all periods presented in the financial statements of the Company.

      Romania

      On May 19, 2000, the Company  purchased all of the Internet related assets
of Sumitkom  Rokura,  S.R.L.  an ISP in Romania,  for  $1,561,125  in cash.  The
acquisition  has  been  accounted  for as an  asset  purchase  with a  value  of
$1,150,000 being assigned to customer lists acquired.

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

      Czech Republic

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

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

      On  December  16,  2004,  the  Company  sold  all  of  its  shares  in its
wholly-owned subsidiary, Euroweb Czech for cash of $500,000.  Additionally, as a
part of the  transaction,  the Company forgave $400,000 of loans receivable from
Euroweb Czech.


                                       6
<PAGE>


      Slovakia

      On July 15, 1999, the Company  acquired all of the  outstanding  shares of
capital stock of EUnet Slovakia, an ISP in the Slovak Republic, for a total cost
of $813,299  including  47,408  shares of the  Company's  common stock valued at
$400,005 issued August 9, 1999; the balance was paid in cash.  This  acquisition
was effective as of August 1, 1999.

      The Company made another acquisition of a Slovak ISP on July 15, 1999 with
the  purchase  of 70% of the  outstanding  shares of Dodo  s.r.o.'s  subsidiary,
R-Net,  for a total cost of $630,234,  including  29,091 shares of the Company's
common stock valued at $200,000  issued August 13, 1999; the balance was paid in
cash. This acquisition was effective as of August 1, 1999.

      On September  23, 1999 and November 16, 1999,  the Company  acquired  from
Slavia  Capital  o.c.p.,  a.s.  70% and 30%,  respectively,  of the  issued  and
outstanding  stock of Global Network Services  a.s.c.,  a Slovakian  corporation
providing  Internet  service  primarily to businesses  located in Bratislava and
other  major  cities  in  Slovakia  for a total  purchase  price of  $1,633,051,
including  71,114 shares of the Company's common stock valued at $499,929 issued
on September 23, 1999; the balance was paid in cash.  The  acquisition of 70% of
Global Network Services a.s.c. was effective as of October 1, 1999.

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

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

      All of the  Company's  Slovakian  operations  were  then  merged  into one
company under the name of Euroweb Slovakia. On April 15, 2005, Euroweb sold 100%
of its interest in its  wholly-owned  subsidiary  Euroweb Slovakia to DanubiaTel
a.s. The purchase price was $2,700,000.

      Euroweb Czech  Republic,  Euroweb  Hungary,  Euroweb  Slovakia and Euroweb
Romania are  classified as  discontinued  operations in the Company's  financial
statements for all periods presented.

      Stock issued to KPN Telecom B.V.

      On February  11,  2000, a special  meeting of the  Company's  shareholders
approved the  issuance  and sale by the Company to KPN, of  2,057,348  shares at
$7.90 per share and rights to shares  equal to all other  outstanding  warrants,
options and other  securities at $6.90 per share. At closing,  KPN exercised its
option  to  purchase  303,362  shares  at $6.90  per  share in  addition  to the
2,057,348 shares at $7.90 per share.  These transactions gave KPN control of 51%
of the Company's  common stock and therefore,  voting  control,  of the Company.
This  transaction  provided the Company with more than $18,000,000 in capital to
fund future acquisitions.

PRODUCTS AND SERVICES

      Since Euroweb  Hungary and Euroweb  Romania are presented as  discontinued
operations,  these Internet- and telecom- related activities are not included in
the discussion below.


                                       7
<PAGE>


      Navigator operates through its wholly owned  subsidiaries,  Navigator Info
Kft. and Navigator  Engineering  Kft. and is engaged in  information  technology
outsourcing,  applications  development  and information  technology  consulting
services,  primarily in the Hungarian market.  Navigator's  client base includes
primarily large  organizations both in the corporate and institutional  (public)
sector.

      The revenues of Navigator  are generated  from  recurring  services,  from
project-based  one-time  services  and from the  sale of IT  devices.  Navigator
provides IT services in the following fields, according to client demands:

o     Full  service  IT  System  operation  (alias:  Complete  IT  outsourcing),
      comprising full service support and maintenance with a cost-effective  and
      competitive service desk system,  call center,  hotline support and remote
      troubleshooting

o     IT  system   implementation   and  IT   project   management,   including:
      consultancy,  system design,  development and implementation and training;
      and

o     Sale of IT devices

CUSTOMERS

      The  Company,  through its  Navigator  subsidiary,  serves more than 3,500
users,  close to 100  companies,  government  institutes,  mid-sized  and  large
corporations. The customers are local and national businesses and professionals,
including  telecommunication carriers and multinational  corporations.  However,
27% of the  consolidated  sales revenue of $1,964,998 in the period from October
7, 2005 to December  31, 2005 is derived from one  customer,  which was a former
owner of Navigator. 83% of the consolidated sales revenue for the period October
7, 2005 to  December  31,  2005 was  generated  from the four  most  significant
customers of the Company.

ORGANIZATION

Project management

      Navigator employs approximately five people in project management, who are
mainly   responsible  for   bid-management  and  operations  service  management
activities.  Their main task involves  creating  business offers and interaction
with IT System operation departments within the Company.

Operations and maintenance

      Navigator  employs  approximately 50 people in operations and maintenance,
who are mainly responsible for client and servers support activities. Their main
task involves full service client support,  server hosting and close interaction
with bid-management departments within the company.

Sales and Marketing

      Navigator  employs  approximately  three people in sales and one person in
marketing.  To date,  Navigator has sold its IT oursource  products and services
primarily through direct personal and telephone  contact.  The sales force works
closely with the bid-management group, which is responsible for installations at
multiple sites, support and technical consulting services.


                                       8
<PAGE>


EMPLOYEES

The Company employs a total of 85 employees,  who are full-time  employees as of
December 31, 2005.  The  Company's  employees are not  represented  by any labor
organization.

GOVERNMENT REGULATIONS

Euroweb is not currently subject to direct government regulation other than laws
and regulations applicable to businesses generally.  There are specific industry
laws  that may  apply to the local  subsidiaries  in the  field of IT  services.
However,  it is likely that new laws and regulations  involving the provision of
IT outsourcing  and  consultancy  services will be adopted at the local,  state,
national or international  levels covering issues such as user privacy,  freedom
of  expression,  pricing of products  and  services,  taxation  and  information
security.

ITEM 2. DESCRIPTION OF PROPERTIES

      The  following  table lists the office space that the Company  leases from
unaffiliated persons:

<TABLE>
<CAPTION>
                                                                                         Rent
                                                                                        Amount/
     Lessee             Address of Property             Primary Use        Sq. feet      Month    Lease Terms
---------------     --------------------------    ---------------------    --------    ----------    -------------
<S>                 <C>                           <C>                       <C>        <C>           <C>
Navigator           1095 Budapest, Mariassy       General operation         15,140     EUR 18,500       5 years
Informatika Rt.     utca 5-7. Hungary                                                                     from
                                                                                                        December
                                                                                                        15, 2005

                                                                                                           non-
                                                                                                       cancelable


Euroweb Hungary     Vaci ut 141.                  stockholder relations,    18,000     EUR 27,000       December
                    H-1138                        general executive,                                    31, 2008

                    Budapest, Hungary             general operation                                        non-
                                                                                                       cancelable


Euroweb Romania     Lipscani 102 Street, 3rd      general operations         4,951         $9,300       April 15,
                    Floor, NOUVEAU CENTER,                                                                2006
                    Sector 3 Bucharest,
                    Romania                                                                              4 months
                                                                                                          notice
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

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


                                       9
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were  submitted  to a vote of the  Company's  security  holders
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended December 31, 2005.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      The  Company's  common  stock is  traded  on the  Nasdaq  SmallCap  Market
("Nasdaq") under the symbol "EWEB".

      The  following  table  sets  forth  the  high and low bid  prices  for the
Company's common stock during the periods indicated as reported by Nasdaq.

                                                       HIGH ($)         LOW ($)
                                                       --------         -------
QUARTER ENDING:

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


2005
March 31, 2005                                           4.03             2.93
June 30, 2005                                            4.89             2.81
September 30, 2005                                       4.73             2.97
December 31, 2005                                        4.52             3.10

      On March 24, 2006 the  closing  bid price on the Nasdaq for the  Company's
common stock was $3.36.

HOLDERS OF COMMON STOCK

      As of March 24,  2006,  the Company had  5,843,067  shares of common stock
outstanding  and 104  shareholders  of record.  The  Company  was advised by its
transfer agent, the American Stock Transfer & Trust Company, that according to a
search made,  the Company has  approximately  6,153  beneficial  owners who hold
their shares in street names.


                                       10
<PAGE>


DIVIDENDS

      It has been the  policy of the  Company  to retain  earnings,  if any,  to
finance the development and growth of its business.



EQUITY COMPENSATION PLANS

                      Number of shares    Weighted-average    Number of shares
                     to be issued upon     exercise price    remaining available
                        exercise of        of outstanding   for future issuance
                     outstanding options    options and         under equity
   Plan Category        and warrants          warrants       compensation plans
------------------   -------------------  ----------------  --------------------
Approved by                     605,000             $4.20              195,000
  security holders

Not approved by
  security holders              183,330             $4.13                    -
------------------   -------------------  ----------------  --------------------
Total                           788,330             $4.18              195,000
==================   ===================  ================  ====================

      The  equity  compensation  plans  are  discussed  in Note  14 of the  2005
Consolidated Financial Statements.

SALE OF SECURITIES THAT WERE NOT REGISTERED UNDER THE SECURITIES ACT OF 1933

      The Company did not sell any securities that were not registered under the
Securities  Act of 1933  during the year ended  December  31, 2005 that have not
been  previously  included  in a  Quarterly  Report on Form  10-QSB or a Current
Report on Form 8-K.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

      The  Company  operates in Hungary and  Romania,  through its  subsidiaries
Euroweb  Hungary,  Navigator and Euroweb  Romania.  Euroweb  Hungary and Euroweb
Romania  are  currently  held  for  sale  and  are  classified  as  discontinued
operations for all periods presented in the Company's financial statements.

      On December 16, 2004,  the Company  disposed of Euroweb Czech Republic for
$500,000 and no longer has operations in the Czech Republic.  On April 15, 2005,
the  Company  disposed  of Euroweb  Slovakia  for cash of  $2,700,000  and, as a
result, has ceased operations in Slovakia.

      On December  15, 2005,  the Board of  Directors of the Company  decided to
sell 100% of its interest in Euroweb  Hungary and Euroweb  Romania.  On December
19, 2005, the Company  entered into a share purchase  agreement with Invitel,  a
Hungarian joint stock company, to sell 100% of the Company's interest in Euroweb
Hungary and Euroweb Romania,  subject to various conditions  including,  but not
limited, to shareholders' approval.


                                       11
<PAGE>


      The Company  believes that the sale of Euroweb Czech and Euroweb  Slovakia
and the proposed sale of Euroweb  Hungary and Euroweb  Romania meet the criteria
for presentation as discontinued operations under the provisions of Statement of
Financial  Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived  Assets.",  Therefore Euroweb Czech, Euroweb Slovakia,
Euroweb Hungary and Euroweb Romania are reclassified as discontinued  operations
in the financial statements of the Company for all periods presented.

      Through its  subsidiary  Navigator,  the Company  provides a full range of
information   technology  outsourcing  services.  The  IT  outsourcing  services
provided  by  the  Company  primarily  comprise  IT  maintenance,   procurement,
consultancy and related services.

      The Company's revenues come from the following three sources:

o     Full  service  IT  System  operation  (alias:  Complete  IT  outsourcing),
      comprising full service support and maintenance with a cost-effective  and
      competitive service desk system,  call center,  hotline support and remote
      troubleshooting

o     IT  system   implementation   and  IT   project   management,   including:
      consultancy, system design, development and implementation and training

o     Sale of IT devices

ACQUISITIONS AND DISPOSALS

(a) Acquisition of Navigator

      On October 7, 2005, the Company acquired all of the outstanding  shares of
Navigator,  an IT outsource  service provider located in Hungary.  Consideration
paid of $10,760,772 consisted of $8,500,000 in cash and 441,566 of the Company's
common shares valued at $1,752,134 excluding  registration cost, and $508,638 in
transaction costs (consisting primarily of professional fees incurred related to
attorneys,  accountants and valuation  advisors).  The results of Navigator have
been included in the Company's  consolidated  financial statements from the date
of acquisition.

      In accordance  with the purchase  method of accounting  prescribed by SFAS
No. 141 "Business Combinations",  the Company allocated the consideration to the
tangible net assets and liabilities  and intangible  assets  acquired,  based on
their estimated fair values. The consideration has been allocated as follows:

      Fair value of Navigator's recorded assets acquired and
       liabilities assumed                                         $   (325,055)
      Identified intangibles - customer contracts                     3,494,231
      Deferred tax liabilities                                         (559,076)
      Excess purchase price over allocation to identifiable
       assets and liabilities (Goodwill)                              8,150,672
                                                                  -------------
      Total consideration                                          $ 10,760,772
                                                                   ============


                                       12
<PAGE>


      In  performing  this  purchase  price  allocation  of acquired  intangible
assets,  the  Company  considered  its  intention  for future use of the assets,
analyses of historical financial performance and estimates of future performance
of Navigator's services,  among other factors.  Acquired identifiable intangible
assets  obtained in the Company's  acquisition  of Navigator  relate to customer
contracts which are being amortized over estimated useful lives of 1-4 years.

      The excess of the purchase  price over the fair value of the  identifiable
tangible  and  intangible  net assets  acquired  was  assigned to  goodwill.  In
accordance  with SFAS No. 142  "Goodwill  and Other  Intangible  Assets"  ("SFAS
142"), goodwill will not be amortized but will be tested for impairment at least
annually.

      Although the former owners of Navigator received shares of common stock of
the Company,  each of the former owners of Navigator  currently  holds less than
10% of the outstanding  shares of common stock in the Company.  Therefore,  they
are not considered  related  parties and those  transactions  are shown as third
party transactions in the accompanying  consolidated financial statements of the
Company.

(b) Disposal of Euroweb Slovakia

      On April 15, 2005, the Company disposed of Euroweb Slovakia a.s. ("Euroweb
Slovakia")  for cash of $2,700,000  and, as a result,  has ceased  operations in
Slovakia.

CRITICAL ACCOUNTING ESTIMATES

      Our  discussion  and analysis of our  financial  condition  and results of
operations are based upon our consolidated  financial  statements that have been
prepared in accordance  with  generally  accepted  accounting  principles in the
United States of America ("US GAAP").  This preparation  requires  management to
make  estimates  and  assumptions  that affect the  reported  amounts of assets,
liabilities,  revenues and expenses, and the disclosure of contingent assets and
liabilities.  US GAAP provides the framework from which to make these estimates,
assumptions and disclosures.  We choose accounting  policies within US GAAP that
management  believes  are  appropriate  to  accurately  and  fairly  report  our
operating  results and  financial  position in a consistent  manner.  Management
regularly  assesses these  policies in light of current and forecasted  economic
conditions.  Although we believe that our estimates,  assumptions  and judgments
are reasonable,  they are based upon  information  presently  available.  Actual
results  may  differ   significantly   from  these   estimates  under  different
assumptions,  judgments or conditions  for a number of reasons.  Our  accounting
policies are stated in Note 2 to the 2005 Consolidated Financial Statements.  We
identified the following  accounting  policies as critical to understanding  the
results of operations and  representative of the more significant  judgments and
estimates used in the  preparation  of the  consolidated  financial  statements:
impairment of goodwill,  allowance for doubtful  accounts,  acquisition  related
assets and liabilities, accounting of income taxes.

      Impairment of goodwill and other intangible assets:  SFAS No. 142 requires
that goodwill and intangible  assets with indefinite  useful lives are not to be
amortized,  but instead  tested for  impairment  at least  annually and at other
times when facts or circumstances  indicate that the recorded amount of goodwill
may be impaired. If this review indicates that goodwill is not recoverable,  the
Company's carrying value of the goodwill is reduced by the estimated  shortfall.
The Company has compared the carrying value of Navigator with the estimated fair
value of the business  operations  and determined  that goodwill  recorded as of
October 7, 2005 was not impaired.  We cannot assure that there will be no future
events  or  changes  in cash flow  estimates  or other  circumstance,  which may
significantly change the carrying value of goodwill.


                                       13
<PAGE>


      Allowance for Doubtful  Accounts:  We make  judgments as to our ability to
collect  outstanding  accounts receivable and provide an allowance for a portion
of our  accounts  receivable  when  collection  becomes  doubtful.  We also make
judgments  about the  creditworthiness  of  customers  based on  ongoing  credit
evaluations  and the aging profile of customer  accounts  receivable  and assess
current  economic  trends  that might  impact the level of credit  losses in the
future. Historically, our allowance for doubtful accounts has been sufficient to
cover our actual credit losses.  However, since we cannot predict changes in the
financial  stability of our  customers,  we cannot  guarantee that our allowance
will  continue  to be  sufficient.  If actual  credit  losses are  significantly
greater than the allowance  that we have  established,  this would  increase our
operating  expenses  and our  reported  net  loss.  To the  extent  the  Company
establishes a valuation  allowance or increases this allowance in a period,  the
impact will be included in the tax provision in the statement of operations.  So
far, we have not experienced  material differences in credit losses comparing to
allowances.  An increase of the  valuation  allowance  by 1% of the  outstanding
receivable  as of December 31, 2005 would  result in a $17,403  reduction of the
Company's net income for the year then ended.


      Acquisition Related Assets and Liabilities: Accounting for the acquisition
of a business as a purchase  transaction  requires an allocation of the purchase
price to the assets acquired and the  liabilities  assumed in the transaction at
their  respective  estimated  fair values.  The most  difficult  estimations  of
individual  fair  values  are  those  involving  intangible  assets.  We use all
available  information  to make these fair value  determinations  and, for major
business  acquisitions,  engage an independent valuation specialist to assist in
the fair value  determination of the acquired long-lived assets. Due to inherent
subjectivity  in determining  the estimated  fair value of long-lived  assets in
business  acquisitions that we have completed,  we believe that the recording of
acquired assets and liabilities is a critical accounting policy. Any decrease in
useful  life of the  assets or  necessary  impairment  may result  reduction  of
Company's result through higher amount of  amortization,  depreciation of assets
or  impairment  charge.  The maximum  exposure of such an effect is  $3,132,300,
which is the net value of those assets as of December 31, 2005

      Accounting  for  Income  Taxes:  We  recognize  deferred  tax  assets  and
liabilities for the expected future tax consequences of transactions and events.
Under this method,  deferred tax assets and liabilities are determined  based on
the  difference  between  the  financial  statement  and tax bases of assets and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences  are  expected to reverse.  If  necessary,  deferred  tax assets are
reduced by a  valuation  allowance  to an amount that is  determined  to be more
likely than not recoverable.  We must make significant estimates and assumptions
about future taxable income and future tax  consequences  when  determining  the
amount of the  valuation  allowance.  In  addition,  tax  reserves  are based on
significant  estimates and assumptions as to the relative  filing  positions and
potential  audit and litigation  exposures  related  thereto.  To the extent the
Company  establishes  a valuation  allowance  or increases  this  allowance in a
period,  the impact will be included in the tax  provision  in the  statement of
operations.


                                       14
<PAGE>


COMMITMENTS AND CONTINGENCIES

      The Company's  subsidiaries  have entered into various  capital leases for
vehicles  and  internet  equipment,   as  well  as  non-cancelable   operational
agreements for office premises.

      On April 6, 2005,  Navigator  entered into a long-term loan agreement with
Commerzbank  Bank Rt (the "Bank") for HUF  201,250,000  (approximately  $942,270
using  December 31, 2005  exchange  rate),  with an interest rate of three month
BUBOR +2.5%.  Approximately  $740,354 was  outstanding at December 31, 2005. The
loan is repayable in 14 quarterly  instalments of HUF 14,375,000  (approximately
$67,300)  plus  quarterly  interest  starting  on May 31,  2005.  The  shares of
Navigator  were pledged as  collateral  for this loan, as well as a general lien
established on all of the assets of the Company.

      In addition to the long-term loan  agreement,  Navigator also entered into
an overdraft  facility  for  unlimited  period of time with 30 days  termination
period with the Bank for HUF  130,000,000  (approximately  $608,671) on July 20,
2005. Approximately $325,409 was outstanding at December 31, 2005

      Additionally,  on  September 1, 2005,  Navigator  entered into a two-month
loan  facility   agreement  with  the  Bank  for  approximately   $140,462  (HUF
30,000,000)  to fund working  capital.  The Company did not utilize  these funds
under this agreement as of December 31, 2005. The contract was extended to March
31, 2006.

      The Company  entered into a six-year  agreement  with its Chief  Executive
Officer and Director, Csaba Toro on October 18, 1999, which commenced January 1,
2000,  and provided for an annual  compensation  of $96,000.  The  agreement was
amended in 2004 and 2005. The amended agreement provides for an annual salary of
$200,000 and a bonus of up to $150,000 in 2005, and an annual salary of $200,000
and a bonus of up to $150,000 in 2006,  2007 and 2008,  as well as an annual car
allowance of $30,000 for the same period.

      The Company has entered into a two-year  employment  agreement  with Moshe
Schnapp as President  and Director of the Company  starting from April 15, 2005,
which  grants  an  annual  compensation  of  $250,000  to be paid in the form of
Euroweb  shares of common  stock.  The  number of shares to be  received  by Mr.
Schnapp is  calculated  based on the average  closing price 10 days prior to the
commencement  of each  employment  year.  For the year ended April 14, 2006, Mr.
Schnapp will receive 82,781 Euroweb shares of common stock.

      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 year from 2004 to 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 and 2005 exceeded this amount.  From the
date of acquisition of Euroweb  Hungary by Invitel,  any claim arising from this
commitment will be payable by Invitel.


                                       15
<PAGE>


The following table summarizes the commitments described above:

<TABLE>
<CAPTION>
                                                                            After
Contractual Cash Obligations           2006      2007     2008     2009     2009
----------------------------------- ---------- -------- -------- -------- --------
<S>                                 <C>        <C>      <C>      <C>      <C>
Capital leases                      $   24,675     -        -        -        -
----------------------------------- ---------- -------- -------- -------- --------
Operational leases                  $  278,408 $278,408 $278,408 $278,408 $266,807
----------------------------------- ---------- -------- -------- -------- --------
Employment agreements (1)           $  200,000 $200,000 $200,000     -        -
----------------------------------- ---------- -------- -------- -------- --------
Purchase commitment                 $3,000,000     -        -        -        -
----------------------------------- ---------- -------- -------- -------- --------
Bank overdraft                      $  325,409     -        -        -        -
----------------------------------- ---------- -------- -------- -------- --------
Bank loan payable                   $  269,220 $269,220 $201,914     -        -
----------------------------------- ---------- -------- -------- -------- --------
Total Contractual Cash Obligations  $4,097,712 $747,628 $680,322 $278,408 $266,807
----------------------------------- ---------- -------- -------- -------- --------
</TABLE>

(1) Csaba Toro's (CEO) yearly base salary without bonus


      On or  before  the date of  closing  of the sale of  Euroweb  Hungary  and
Euroweb Romania to Invitel, Euroweb International will purchase 85% ownership of
Navigator  representing a purchase  obligation in a value of $6,000,000 in cash.
At the date of closing at the latest,  Euroweb  Hungary has to settle all of its
bank  loans  including  the  $6,000,000   Commerzbank   loan  obtained  for  the
acquisition of Navigator.

      Due to the Company's strategy of aggressive  acquisition,  the Company may
seek to incur  additional  material debts,  which are not reflected in the table
above.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

      Due to the acquisition of Navigator Informatika Rt. on October 7, 2005 and
the discontinued  operation  presentation of Euroweb  Hungary,  Euroweb Romania,
Euroweb  Slovakia and Euroweb Czech, the profit and loss statements for the year
ended December 31, 2005 and 2004 are not comparable.  The financial  figures for
2004 only show the corporate  expenses of the Company's legal entity  registered
in the State of Delaware,  while Navigator is only  consolidated from October 7,
2005.


Year ended December 31,                                       2005        2004
                                                          -----------  ---------
     Total Revenues                                       $ 1,964,998  $       0

      The revenue increase  reflects the consolidation of Navigator from October
7, 2005.

Cost of revenues (excluding depreciation and amortization)

      The  following   table   summarizes   our  cost  of  revenues   (excluding
depreciation and amortization) for the year ended December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
     Total cost of revenues                               $   511,658  $       0


                                       16
<PAGE>


      Cost of revenues  (excluding  depreciation and  amortization)  principally
comprises  cost of  fixed  assets  sold  during  the  course  of IT  outsourcing
projects,  cost of materials  required to perform IT outsourcing  activities and
cost of project-dedicated sub-contractors consolidated from October 7, 2005.

Compensation and related costs

      The following table  summarizes our compensation and related costs for the
year ended December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
     Compensation and related costs                       $ 1,054,342  $ 361,809

      Overall  compensation  and related costs increased by 291%  (approximately
$693,000) due mainly to the following  factors:  increase due to  acquisition of
Navigator in October 2005 (estimated at approximately $495,000) and compensation
for the new president.

Consulting, director and professional fees

      The following table  summarizes our consulting and  professional  fees for
the year ended December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
      Consulting, director and professional fees          $ 1,396,096  $ 463,549

      Overall  consulting,  director  and  professional  fees  increased by 301%
(approximately  $933,000) due mainly to the following  factors:  increase due to
acquisition of Navigator in October 2005 (estimated at  approximately  $384,000)
and the  remaining  increase  of $549,000  is due to  increased  cost of several
consultants,  investment  bankers,  advisors,  accounting  and  lawyers  fee  in
relation with the  acquisition  and disposal  activity of the company during the
year as well as compensation charge of warrants issued during 2005.

Other selling, general and administrative expenses

      The  following   table   summarizes   our  other   selling,   general  and
administrative expenses for the year ended December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
      Other selling, general and administrative expenses  $   703,770  $ 454,514

      Overall other selling,  general and  administrative  expenses increased by
155%  (approximately  $249,000)  mainly due to the  acquisition  of Navigator in
October 2005.

Depreciation and amortization

      The following table  summarizes our  depreciation and amortization for the
year ended December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
      Depreciation                                        $   147,547  $   2,048
      Amortization of intangibles                         $   361,931          -
        Total depreciation and  amortization              $   509,478  $   2,048


                                       17
<PAGE>


      Depreciation has increased by $147,547 in the year ended December 31, 2005
compared to the same period in 2004. The increase can be attributed  exclusively
to the acquisition of Navigator.

      Amortization  of  intangibles  of  $361,931  in 2005  relates  to  certain
customer contracts of Navigator, which were recognized as intangible assets upon
acquisition.

Net interest income

      The following table  summarizes our net interest income for the year ended
December 31, 2005 and 2004:

Year ended December 31,                                       2005        2004
                                                          -----------  ---------
      Interest income                                     $     2,512  $  49,154
      Interest expense                                    $   (38,240)         -
        Net interest (expense) income                     $   (35,728) $  49,154

      The  decrease  in net  interest  income  is due to the fact  that (i) less
interest-generating  funds were available in this period than in the same period
of the previous year because funds were disbursed in connection with acquisition
of Navigator in 2005 (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 Navigator and the loan liability
of Navigator  has increased  interest  expense by more than $38,000 due to loans
outstanding, and consequently have reduced net interest income.

LIQUIDITY AND CAPITAL RESOURCES

      As of  December  31,  2005,  our cash,  cash  equivalents  and  marketable
securities were  approximately  $1.6 million,  a decrease of approximately  $0.8
million from the end of fiscal year 2004.  Despite of  increased  cash flow from
operations and sale of Euroweb  Slovakia in 2005, the  acquisition of Navigator,
increased  capital  expenditures  of  subsidiaries  and the  repayment  of notes
payable and bank loans contributed mainly to the decrease of cash in 2005.

      Cash flow from operations in fiscal 2005 was $4.2 million,  an increase of
53% from fiscal 2004. The change is due to the increased  profitability and cash
flow generation ability of Euroweb Hungary and Euroweb Romania.

      Cash used in  investing  activities  in 2005 was $8.9  million  due to the
following three factors:  (i) positive effect of sale of Euroweb Slovakia - $2.7
million  (ii)   acquisition  of  Navigator  -  $9,  million  and  (iii)  capital
expenditures - $2.6 million. In 2004, net cash provided by investing  activities
was $1.4 million  despite the  acquisition of Elender and 51% of Euroweb Hungary
for altogether $9 million and capital expenditure of $1.7 million primary due to
the over $11  million in cash  invested  into US  Government  Securities,  which
matured in  February  2004 and  originated  from  capital  injections  by KPN in
previous years.


                                       18
<PAGE>


      Cash  provided  by  financing  activities  in 2005  was  approximately  $4
million.  From  this  amount  is  $4.2  million  from  discontinued   operations
consisting  of $6 million loan received from  Commerzbank  to acquire  Navigator
offset  by $1.8  million  for  repayment  of bank and  Pantel  loans,  notes and
principal payments under capital leases. The remaining $0.2 million cash used is
in connection  with Navigator  loan  repayments and payments under capital lease
obligations of continued  operation.  In 2004, all of the Company's cash used in
financing activities related to discontinued operations, comprising $2.2 million
for  repayment of bank and Pantel  loans,  notes and  principal  payments  under
capital leases in connection with Euroweb Hungary and Euroweb Romania.

      The Company  currently  anticipates that its available cash resources will
be  sufficient  to meet its presently  anticipated  working  capital and capital
expenditure  requirements  for at  least  the  next  12  months  if the  Company
completes  the  sale  of  Euroweb  Hungary  and  Euroweb  Romania.  Unsuccessful
disposition  of  these or one of the  subsidiries  and an  associated  potential
penalty  of EUR  400,000  may lead to  liquidity  difficulties  without  further
capital raising or additional indebtedness.

      In the event the Company makes 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 consider the sale of
non-strategic assets or subsidiaries.

INFLATION AND FOREIGN CURRENCY

      The Company maintains its books in local currencies:  Hungarian Forint for
Hungary and the Romanian Lei for Euroweb Romania.

      The Company's  operations are primary outside of the United States through
its wholly owned  subsidiaries.  As a result,  fluctuations in currency exchange
rates may significantly affect the Company's sales,  profitability and financial
position when the foreign  currencies,  primarily the Hungarian  Forint,  of its
international   operations  are  translated  into  U.S.  dollars  for  financial
reporting. In additional,  we are also subject to currency fluctuation risk with
respect  to certain  foreign  currency  denominated  receivables  and  payables.
Although the Company cannot  predict the extent to which  currency  fluctuations
may or will affect the  Company's  business and financial  position,  there is a
risk that such  fluctuations will have an adverse impact on the Company's sales,
profits and financial  position.  Because differing portions of our revenues and
costs are  denominated in foreign  currency,  movements could impact our margins
by, for example, decreasing our foreign revenues when the dollar strengthens and
not  correspondingly  decreasing  our  expenses.  The Company does not currently
hedge  its  currency  exposure.   In  the  future,  we  may  engage  in  hedging
transactions to mitigate foreign exchange risk.

      The translation of the Company's  subsidiaries  forint denominated balance
sheets into U.S.  dollars,  as of December  31, 2005,  has been  affected by the
weakening  of the  Hungarian  forint  against the U.S.  dollar from 180.29 as of
December  31,  2004,  to 213.58 as of December  31,  2005,  an  approximate  16%
depreciation in value. The average Hungarian  forint/U.S.  dollar exchange rates
used for the translation of the subsidiaries  forint  denominated  statements of
operations  into U.S.  dollars,  for the years ended  December 31, 2005 and 2004
were 199.42, 202.74, respectively.


                                       19
<PAGE>


EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

      In  December  2004,   the  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.  SFAS  123(R) is
effective  for the  Company  as of January 1,  2006.  The  Company is  currently
assessing the impact SFAS 123(R) will 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  and is not
expected to have a material impact on our financial statements.

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  which  replaces  Accounting   Principles  Board  Opinions  No.  20
"Accounting  Changes" and SFAS No. 3, "Reporting  Accounting  Changes in Interim
Financial  Statements."  This  statement  applies  to all  voluntary  changes in
accounting  principle and changes  resulting  from adoption of a new  accounting
pronouncement that does not specify transition  requirements.  SFAS 154 requires
retrospective  application to prior periods' financial statements for changes in
accounting  principle  unless  it  is  impracticable  to  determine  either  the
period-specific  effects or the cumulative  effect of the change.  SFAS 154 also
requires that retrospective  application of a change in accounting  principle be
limited to the direct  effects of the  change.  Indirect  effects of a change in
accounting  principle  should be  recognized  in the  period  of the  accounting
change.  SFAS 154 is effective for accounting  changes and corrections of errors
made in fiscal years beginning after December 15, 2005 with early implementation
permitted for accounting  changes and corrections of errors made in fiscal years
beginning  after the date this  statement was issued.  SFAS 154 is effective for
the Company as of January 1, 2006 and is not expected to have a material  impact
on financial statements.

      In February  2006, the FASB issued SFAS No. 155,  "Accounting  for Certain
Hybrid  Financial  Instruments-an  amendment of FASB Statements No. 133 and 140"
("SFAS  155").  SFAS  155  amends  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities" ("SFAS 133") and SFAS No. 140,  "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities".  SFAS 155 resolves  issues  addressed  in SFAS 133  Implementation
Issue  No.  D1,  "Application  of  Statement  133  to  Beneficial  Interests  in
Securitized  Financial  Assets."  SFAS 155 is effective  for the Company for all
financial  instruments  acquired  or  issued  after  January  1, 2007 and is not
expected to have a material impact on the Company's financial statements.


                                       20
<PAGE>


RISK FACTORS

      The  Company is subject to certain  risk  factors  due to the  industry in
which it competes and the nature of its  operations.  Theses  risks  include the
following:

WE HAVE  INCURRED  NET LOSSES FOR THE PRIOR  PERIODS AND WE WILL AGAIN INCUR NET
LOSSES IF WE ARE UNABLE TO GENERATE SUFFICIENT REVENUE AND CONTROL COSTS.

      We incurred net losses from  continuing  operations of $2,018,166  for the
year ended  December  31, 2005 and  $1,402,766  for the year ended  December 31,
2004.  We may not achieve  profitability  on a quarterly  or annual basis in the
future. If revenues grow more slowly than we anticipate or if operating expenses
exceed our expectations or cannot be adjusted  accordingly,  we will continue to
incur  losses.   Our  future   performance  is  dependent  upon  the  successful
development   and  marketing  of  our  services  and  products  and   additional
acquisition about which there is no assurance.  Any future success that we might
enjoy will depend  upon many  factors,  including  factors out of our control or
which cannot be predicted at this time.  These factors may include changes in or
increased levels of competition,  including the entry of additional  competitors
and  increased  success by  existing  competitors,  changes in general  economic
conditions, increases in operating costs, including costs of supplies, personnel
and  equipment,  reduced  margins  caused  by  competitive  pressures  and other
factors.  These  conditions may have a materially  adverse effect upon us or may
force us to reduce or curtail operations.

WE COULD  INCUR  MATERIAL  ADDITIONAL  EXPENSES,  WHICH  COULD  REDUCE OUR GROSS
MARGINS OR INCREASE OPERATING LOSSES, IF THE IT SERVICE INDUSTRY BECOMES SUBJECT
TO ADDITIONAL REGULATIONS.

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

      As we may seek to acquire more  companies,  we may choose to finance these
acquisitions through proceeds generated from debt financing, which may lead to a
substantial increase in interest expenses.


                                       21
<PAGE>


OUR FUTURE  SUCCESS IS  DEPENDENT,  IN PART,  ON THE  PERFORMANCE  AND CONTINUED
SERVICE OF OUR CHIEF  EXECUTIVE  OFFICER AND OUR  ABILITY TO ATTRACT  ADDITIONAL
QUALIFIED  PERSONNEL.  IF WE ARE UNABLE TO DO SO OUR RESULTS FROM OPERATIONS MAY
BE NEGATIVELY IMPACTED.

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

OUR WHOLLY OWNED SUBSIDIARY,  NAVIGATOR,  IS HIGHLY DEPENDENT ON FOUR CUSTOMERS.
IF  THESE  COMPANIES  WERE TO  TERMINATE  OUR  RELATIONSHIP,  OUR  RESULTS  FROM
OPERATIONS WOULD BE MATERIALLY IMPACTED.

      27% of the consolidated  sales revenue in the year ended December 31, 2005
is derived from one  customer,  which was a former owner of Navigator Rt. 83% of
the  consolidated  sales  revenue  for the  year  ended  December  31,  2005 was
generated from the four most significant customers of the Company.

INCREASED COMPETITION IN THE IT OUTSOURCE SERVICE INDUSTRY MAY MAKE IT DIFFICULT
FOR OUR COMPANY TO ATTRACT AND RETAIN  CUSTOMERS AND TO MAINTAIN CURRENT PRICING
LEVELS.

      The  market  for  IT   outsource   products   and  services  is  intensely
competitive.  The Company expects competition to persist, intensify and increase
in the future. Such competition could materially  adversely affect the Company's
business, operating results or financial condition.

      The main  competitors of Navigator are coming from  different  segments of
market,  depending  on  the  size  of the  targeted  customers.  Therefore,  the
competitors of Navigator are the following:

o     Large accounts, corporate enterprises segment:

      o     T-Systems Hungary, subsidiary of the incumbent telecom operator

      o     EDS Magyarorszag

      o     HP Hungary

o     Medium size enterprises segment:

      o     IBM Hungary

      o     KFKI Group

      o     Synergon

      o     British Telecom Hungary

      The Company may face intense  competition  from other  companies  directly
involved  in the same  business  and also from  many  other  companies  offering
products which can be used in lieu of those offered by the Company.  Competition
can take many forms,  including  convenience  in  obtaining  products,  service,
marketing  and  distribution  channels.  Although  the  Company  believes it can
compete on the basis of the quality and  reliability of its services,  there can
be no assurance  that the Company will be able to compete  successfully  against
current or future competitors or that competitive pressures faced by the Company
will not materially  adversely affect the Company's business,  operating results
or financial condition.


                                       22
<PAGE>


FOREIGN CURRENCY AND EXCHANGE RISKS AND RATE REVALUATION.

      The Company will be subject to significant  foreign  exchange risk.  There
are  currently no  meaningful  ways to hedge  currency  risk in either  Hungary,
Romania or Slovakia.  Therefore,  the Company's ability to limit its exposure to
currency  fluctuations is  significantly  restricted.  The Company's  ability to
obtain  dividends  or other  distributions  is subject to,  among other  things,
restrictions  on  dividends  under  applicable  local laws and foreign  currency
exchange regulations of the jurisdictions in which its subsidiaries operate. The
laws under which the Company's  operating  subsidiaries  are  organized  provide
generally that dividends may be declared by the partners or shareholders  out of
yearly profits  subject to the  maintenance  of registered  capital and required
reserves and after the recovery of accumulated losses.

      OTHER RISK FACTORS AFFECTING SHAREHOLDERS/INVESTORS

      Possible Future Capital Needs.

      The Company  currently  anticipates that its available cash resources will
be  sufficient  to meet its presently  anticipated  working  capital and capital
expenditure  requirements  for at  least  the  next  12  months  if the  Company
completes  the  sale  of  Euroweb  Hungary  and  Euroweb  Romania.  In  case  of
unsuccessful   disposition   of  these   subsidiries   may  lead  to   financial
difficulties,  which will partly due to the potention penalty of EUR 400,000. If
the disposal is completed,  the Company has no definitive plans for acquisitions
at this time, the Company may have future  acquisitions  that could  potentially
exceed  available  funds.  Therefore,  the Company may need to raise  additional
funds in order to support more rapid expansion, acquire complementary businesses
or technologies or take advantage of unanticipated  opportunities through public
or private financing,  strategic relationships or other arrangements.  There can
be no assurance that such additional  funding,  if needed,  will be available on
terms acceptable to the Company,  or at all. If adequate funds are not available
on  acceptable  terms,  the  Company  may be unable to develop  or  enhance  its
services and products or take advantage of future  opportunities either of which
could have a  material  adverse  effect on the  Company's  business,  results of
operations and financial condition.

      No Dividends.

      It has been the  policy of the  Company to not pay cash  dividends  on its
common stock.  At present,  the Company will follow a policy of retaining all of
its earnings, if any, to finance the development and expansion of its business

      Potential Issuance of Additional Common and Preferred Stock.

      The Company is currently  authorized to issue up to 35,000,000 shares. The
Board of  Directors  of the  Company  will  have the  ability,  without  seeking
stockholder  approval,  to issue additional shares of common stock in the future
for such  consideration as the Board of Directors may consider  sufficient.  The
issuance of additional  common stock in the future will reduce the proportionate
ownership  and voting power of the common stock offered  hereby.  The Company is
also authorized to issue up to 5,000,000  shares of preferred  stock, the rights
and  preferences of which may be designated in series by the Board of Directors.
To the  extent of such  authorization,  such  designations  may be made  without
stockholder approval.  The designation and issuance of series of preferred stock
in the  future  would  create  additional  securities  which  may  have  voting,
dividend,  liquidation preferences or other rights that are superior to those of
the common  stock,  which could  effectively  deter any takeover  attempt of the
Company.


                                       23
<PAGE>


      FORWARD-LOOKING STATEMENTS

      When used in this Form  10-KSB,  in other  filings by the Company with the
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,  including but not
limited to the risks set forth above. See "Risk Factors." In addition, sales and
other revenues may not commence  and/or continue as anticipated due to delays or
otherwise.  As a result,  the Company's  actual results for future periods could
differ materially from those anticipated or projected.

      Unless  otherwise  required  by  applicable  law,  the  Company  does  not
undertake,   and   specifically   disclaims  any   obligation,   to  update  any
forward-looking statements to reflect occurrences,  developments,  unanticipated
events or circumstances after the date of such statement.

ITEM 7. FINANCIAL STATEMENTS.

      Reference is made to the Consolidated Financial Statements of the Company,
beginning with the index thereto on page F-1

ITEM 8. CHANGES  IN   AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
        FINANCIAL DISCLOSURE

      On April  15,  2005,  the  Company  was  notified  by KPMG  Hungaria  Kft.
("KPMG"), its independent public accountants, that it was declining to stand for
re-election  as the  Company's  auditor for the year ended  December  31,  2005.
Further,  on April 15, 2005, the Company engaged  Deloitte Kft.  ("Deloitte") as
its principal independent accountant. This decision to engage Deloitte was taken
upon the  unanimous  approval of the Board of  Directors  of the Company and was
approved by the shareholders meeting held on June 2, 2005.

      During the fiscal year ended December 31, 2004 and through April 15, 2005,
(i) there were no  disagreements  between  the Company and KPMG on any matter of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of KPMG would have
caused  KPMG to make  reference  to the matter in its  reports on the  Company's
financial  statements,  and  (ii)  KPMG's  report  on  the  Company's  financial
statements  did not contain  any  adverse  opinion,  disclaimer  of opinion,  or
modification or qualification of opinion.  During the fiscal year ended December
31, 2004 and through April 15, 2005, there were no reportable events as the term
described in Item 304(a)(1)(iv) of Regulation S-B.


                                       24
<PAGE>


ITEM 8A. CONTROLS AND PROCEDURES

      As of December 31, 2005, an evaluation was performed under the supervision
and with the  participation  of the  Company's  management,  including the Chief
Executive Officer and the Chief Accounting  Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures.  Based
on that  evaluation,  the Company's  management,  including the Chief  Executive
Officer  and  the  Chief  Accounting  Officer,   concluded  that  the  Company's
disclosure controls and procedures were effective as of December 31, 2005. There
have been no significant  changes in the Company's internal controls or in other
factors that could  significantly  affect internal controls in the quarter ended
December  31,  2005  that  materially  affected  or  are  reasonably  likely  to
materially affect the Company's internal controls.

ITEM 8B. OTHER INFORMATION

      None.


                                       25
<PAGE>


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT

      The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 24, 2006

    NAME               AGE         POSITION WITH COMPANY
-------------          ---         --------------------------------------------
Csaba Toro              40         Chief Executive Officer, Director, Treasurer
Moshe Schnapp           43         President and Director
Stewart Reich           61         Director, Board Chairman, Audit and
                                    Compensation Committees Chairman
Gabor Ormosy            36         Director
Ilan Kenig              45         Director, Audit and Compensation
                                    Committee's member
Yossi Attia             44         Director, Audit and Compensation
                                    Committee's member

      CSABA TORO,  age 40,  Chief  Executive  Officer of the Company  since June
2002, has been with the Company since September 1998 in various other positions.
During 2001 and 2002,  Mr. Toro held the  positions of COO and CEO in Pantel Rt.
He resigned as CEO of Pantel Rt. as of March 2003.  From 1997 to 1999,  Mr. Toro
was managing  director of the Companyi-s  Hungarian  subsidiary.  Prior thereto,
since 1994,  he was  managing  director of ENET Kft.,  which was acquired by the
Company in 1997.

      MOSHE SCHNAPP,  age 43,  President and director of the Company since April
15,  2005 has  worked in the  construction  and  development  industry  for over
fifteen years. Mr. Schnapp  background  covers all aspect of financial  planning
with project  development,  including,  but not limited to, statistical research
and analysis as applied before and during the project.  Mr. Schnapp has acted in
publicly  traded  companies  both as director  and as officer.  Mr.  Schnapp has
experience in project management, cost accounting and supervising marketing from
a financial point of view. Mr. Schnapp received a BA in economics and accounting
from Haifa  University in 1987,  an MBA from Tel Aviv  University in 1994 and he
also holds  doctorate  degree in philosophy and a graduate  degree in commercial
and  industrial  economy  from  Pacific  Western  University.  Mr.  Schnapp is a
licensed  Certified Public Accountant in Israel.  Mr. Schnapp served as director
and CFO of Engel General  Contractors LTD (symbol ENGEF) and later was appointed
as CEO until January 1995. He served as CEO and Director of Genesis Construction
LTD (symbol GDCUF) from February 1995 until June 1999.  Since October 2000 until
today he has been serving as director and  president of American  Realty  Group,
Inc. a private company. Mr. Schnapp is also director and officer of: AS Holdings
LLC,  Speedy the Plumber Inc,  Bonanza Realty Inc,  Bonanza Realty LLC,  Glendon
Advisors Inc, Van Nuys Plaza LLC, and few other private companies.


                                       26
<PAGE>



      STEWART REICH, age 61, was Chief Executive Officer and President of Golden
Telecom Inc.,  Russia's largest  alternative  voice and data service provider as
well as its largest ISP, since 1997. In September 1992, Mr Reich was employed as
Chief Financial  Officer at UTEL (Ukraine  Telecommunications),  of which he was
appointed  President  in November  1992.  Prior to that Mr.  Reich held  various
positions  at a number  of  subsidiaries  of AT&T  Corp.  Mr.  Reich  has been a
director of the Company since 2002.

      GABOR ORMOSY, age 36, is CEO of Wallis Auto Holding, the largest Hungarian
car  dealer  network.  Previously  he served as the Chief  Financial  Officer of
Elender  from 2002 to 2004  where he was  responsible  for  strategic  planning,
controlling,  treasury,  accounting,  administration,  business  development and
investor  relationships.  From  2000 to 2002,  Mr.  Ormosy  served  as the Chief
Financial  Officer for Webigen  Rt.,  which was a web  developer  and  marketing
company  before merging into Elender.  Prior to joining  Webigen Rt., Mr. Ormosy
served in the corporate  finance  department of CA IB Securities Ltd.,  Budapest
where he was responsible as project manager for deal execution and valuations in
mergers & acquisitions and capital market deals. Since 2002, Mr. Ormosy has also
served as the  President of the Board of  Directors  of  Wallizing  Rt. and as a
member of the Board of Directors of Index Rt.

      YOSSI  ATTIA,  age 44, has been self  employed as a real estate  developer
since 2000. Mr. Attia was appointed to the Company's  Board on February 1, 2005.
Prior to entering into the real estate development industry, Mr. Attia served as
the Senior Vice  President of  Investments  of  Interfirst  Capital from 1996 to
2000.  From  1994  though  1996,  Mr.  Attia  was a  Senior  Vice  President  of
Investments  with Sutro & Co. and from 1992 through 1994 Mr. Attia served as the
Vice President of investments of Prudential Securities.  Mr. Attia obtained a BA
in economics and marketing from Haifa University in 1987 and MBA from Pepperdine
University in 1995. Mr. Attia held Series 7 and 63 securities licenses from 1991
until  2002.  Since  October  2000 until today Mr.  Attia has been the  majority
member of AS  Holdings  LLC, a holding  LLC for  private  real  estate  group of
companies,  serving  as  director/manger/president  of  all  subsidiaries  of AS
Holdings.  Effective  March 21, 2005, Mr. Attia was appointed as a member of the
Audit Committee and the Compensation committee.

      ILAN  KENIG,  age 45,  has  over 20 years of  management,  legal,  venture
capital  and  investment  banking  experience  with  specific  emphasis  in  the
technology  and  telecommunications  arena.  Mr.  Kenig  was  appointed  to  the
Company's Board on February 1, 2005. Mr. Kenig joined Unity Wireless Corporation
("Unity"),  a designer,  developer and manufacturer of wireless systems, as Vice
President of Business  Development in December 2001 before assuming the position
of President and CEO in April 2002.  From January 1999 until  December 2001, Mr.
Kenig pursued  international  finance activities and mergers and acquisitions in
New  York.  Mr.  Kenig  was a  founder  of a law firm in  Tel-Aviv  representing
technology and telecommunications  interests.  Mr. Kenig holds a law degree from
Bar-Ilan  University.  Effective  March 21, 2005,  Mr. Kenig was  appointed as a
member of the Audit Committee and the Compensation committee.

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


                                       27
<PAGE>


ROLE OF THE BOARD

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

2005 BOARD MEETINGS

      In 2005, the board met four times and made two additional resolutions.  No
director  attended  less than 75% of all of the combined  total  meetings of the
board and the committees on which they served in 2005.

BOARD COMMITTEES

AUDIT COMMITTEE

      The  audit  committee  of the  board of  directors  reviews  the  internal
accounting  procedures of the Company and consults with and reviews the services
provided  by our  independent  accountants.  During  2005,  the audit  committee
consisted  of  Messrs.  Stewart  Reich  and  Howard  Cooper,  both of  whom  are
considered to be independent. The audit committee held two meetings in 2005. Mr.
Reich serves as the financial expert on the Audit Committee.  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.

COMPENSATION COMMITTEE

      The  compensation  committee  of the board of  directors  i)  reviews  and
recommends to the board the compensation and benefits of our executive officers;
ii)  administers  our stock option plans and employee  stock  purchase plan; and
iii)  establishes and reviews  general  policies  relating to  compensation  and
employee  benefits.  In 2004,  the  compensation  committee  consisted of Messrs
Cooper, Reich and Lipman. No interlocking  relationships exist between the board
of  directors  or   compensation   committee  and  the  board  of  directors  or
compensation  committee  of any other  company.  During the past fiscal year the
compensation  committee  had two  meetings.  On January  28,  2005,  Mr.  Lipman
resigned  as a  director  of  the  Company  and a  member  of  the  Compensation
Committee.  On March 21, 2005, Mr. Cooper  resigned as a director of the Company
and a member of the  Compensation  Committee.  On March 22,  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 Compensation Committee.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

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

      Specific  due  dates  for  such  reports  have  been  established  by  the
Commission  and the Company is required to disclose in this Proxy  Statement any
failure to file  reports by such dates during  fiscal 2005.  Based solely on its
review of the copies of such reports received by it, or written  representations
from certain  reporting  persons that no Forms 5 were required for such persons,
the Company  believes that during the fiscal year ended December 31, 2005, there
was no failure to comply with Section  16(a) filing  requirements  applicable to
its officers, directors and ten percent stockholders.


                                       28
<PAGE>


POLICY WITH RESPECT TO SECTION 162(M)

      Section  162(m) of the  Internal  Revenue  Code of 1986,  as amended  (the
"Code"), provides that, unless an appropriate exemption applies, a tax deduction
for the Company for  compensation  of certain  executive  officers  named in the
Summary  Compensation  Table will not be allowed to the extent such compensation
in any taxable year exceeds $1 million.  As no executive  officer of the Company
received  compensation during 2005 approaching $1 million,  and the Company does
not believe that any  executive  officer's  compensation  is likely to exceed $1
million in 2005, the Company has not developed an executive  compensation policy
with  respect to  qualifying  compensation  paid to its  executive  officers for
deductibility under Section 162(m) of the Code.

CODE OF ETHICS

      The  Company  has  adopted  its Code of Ethics and  Business  Conduct  for
Officers, Directors and Employees that applies to all of the officers, directors
and employees of the Company.

ITEM 10. EXECUTIVE COMPENSATION

      The following table sets forth information  concerning the annual and long
term  compensation of the Company's  Chief Executive  Officer and the President.
The Company  does not have any officer  whose  annual  salary and bonus  exceeds
$100,000 as of December 31, 2005:

<TABLE>
<CAPTION>
                               ANNUAL COMPENSATION                    LONG-TERM COMPENSATION
                        -------------------------------------   --------------------------------------
                                                   Bonus and                 Number of
                                                     Other      Restricted   Securities
                                                     Annual       Stock      Underlying     All Other
Name and                 Year Ended               Compensation   Award(s)   Options/SARs  Compensation
Principal Position      December 31,  Salary ($)      ($)          ($)          (#)            ($)
---------------------   ------------  ----------  ------------  ----------  ------------  ------------
<S>                        <C>         <C>          <C>         <C>         <C>           <C>
Csaba Toro, Director,      2005       $  224,000   $   150,000          --       125,000            --
  CEO, and Treasurer       2004       $  150,000   $   100,000          --       125,000            --
                           2003       $   96,000            --          --            --            --
</TABLE>


<TABLE>
<CAPTION>
                               ANNUAL COMPENSATION                    LONG-TERM COMPENSATION
                        -------------------------------------   --------------------------------------
                                                   Bonus and                 Number of
                                                     Other      Restricted   Securities
                                                     Annual       Stock      Underlying     All Other
Name and                 Year Ended               Compensation   Award(s)   Options/SARs  Compensation
Principal Position      December 31,  Salary ($)      ($)          ($)          (#)            ($)
---------------------   ------------  ----------  ------------  ----------  ------------  ------------
<S>                        <C>         <C>          <C>         <C>         <C>           <C>
Moshe Schnapp, Director,   2005        *$177,083            --          --            --            --
  President                2004               --            --          --            --            --
                           2003               --            --          --            --            --
</TABLE>

*     the  annual  salary of  $177,083  was paid in form of  issuance  of 58,968
      shares of common stock in January 2006.


                                       29
<PAGE>


OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

      There were other grants of Stock  Options/SAR  made to the named Executive
and President during the fiscal year ended December 31, 2005.

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

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

                            Shares
                          acquired on     Value      Exercisable/   Exercisable/
         Name             exercise (#) realized ($) Unexercisable  Unexercisable
------------------------ ------------- ------------ -------------- -------------
------------------------ ------------- ------------ -------------- -------------
Csaba Toro, CEO,              None         None          62,500        $0.00
  Director and Treasurer
------------------------ ------------- ------------ -------------- -------------

*     Fair market value of underlying securities  (calculated by subtracting the
      exercise  price of the  options  from the closing  price of the  Company's
      Common  Stock  quoted on the Nasdaq as of December  30,  2005),  which was
      $3.55 per share. None of Mr. Toro's options are presently in the money.


EMPLOYMENT AND MANAGEMENT AGREEMENTS

      The Company  entered into a six-year  agreement  with its Chief  Executive
Officer and Director, Csaba Toro on October 18, 1999, which commenced January 1,
2000,  and provided for an annual  compensation  of $96,000.  The  agreement was
amended in 2004 and 2005. The amended agreement provides for an annual salary of
$200,000 and a bonus of up to $150,000 in 2005, and an annual salary of $200,000
and a bonus of up to $150,000 in 2006,  2007 and 2008,  as well as an annual car
allowance of $30,000 for the same period.

      The Company has entered into a two-year  employment  agreement  with Moshe
Schnapp as President  and Director of the Company  starting from April 15, 2005,
which  grants  an  annual  compensation  of  $250,000  to be paid in the form of
Euroweb  shares of common  stock.  The  number of shares to be  received  by Mr.
Schnapp is  calculated  based on the average  closing price 10 days prior to the
commencement  of each  employment  year.  For the year ended April 14, 2006, Mr.
Schnapp will receive 82,781 Euroweb shares of common stock.

      The two employment  agreements  mentioned  above further  provide that, if
employment is  terminated  other than for willful  breach by the  employee,  for
cause or in event of a change in control of the  Company,  then the employee has
the right to terminate the agreement. In the event of any such termination,  the
employee  will be  entitled  to receive  the  payment  due on the balance of his
employment agreement.


                                       30
<PAGE>


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

DIRECTOR COMPENSATION

      Directors  who  are  also  officers  of the  Company  are  not  separately
compensated  for their  services as a director.  Directors  who are not officers
receive cash compensation for their services:  $2,000 at the time of agreeing to
become a Director; $2,000 for each Board Meeting attended either in person or by
telephone; and $1,000 for each Audit and Compensation Committee Meeting attended
either in person or by  telephone.  Non-employee  directors are  reimbursed  for
their expenses  incurred in connection  with attending  meetings of the Board or
any  committee on which they serve and are eligible to receive  awards under the
Company's 2004 Incentive Plan (described below).

STOCK OPTION PLAN

2004 INCENTIVE PLAN

GENERAL

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

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

      On April 28,  2004,  the  Company  granted  125,000  options  to the Chief
Executive  Officer and an  additional  240,000  options to seven  employees  and
consultants of our company.  The exercise price of the options  ($4.78) is equal
to the market  price on the date the grants were made.  The options  vest over a
period of between 3-4 years.

PURPOSE

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

ADMINISTRATION

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


                                       31
<PAGE>


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

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

ELIGIBILITY

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

TERMS OF OPTIONS

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

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

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

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


                                       32
<PAGE>


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

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

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

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


                                       33
<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth  information with respect to the beneficial
ownership  of our common  stock as of March 24, 2006 by (i) each person known by
our company to own  beneficially  more than 5% of the outstanding  Common Stock;
(ii) each  director of our  company;  (iii) each officer of our company and (iv)
all executive officers and directors as a group.  Except as otherwise  indicated
below,  each of the  entities or persons  named in the table has sole voting and
investment powers with respect to all shares of Common Stock  beneficially owned
by it or him as set forth opposite its or his name.

                                          Shares
 Name and  Address                 Beneficially Owned(1)   Percent Owned (1)
---------------------------------  ---------------------   -----------------
KPN Telecom B.V. (4)                     2,036,188               34.85%
Maanplein 5
The Hague, The Netherlands

Fleminghouse Investments Limited           522,054                8.93%
Chrysanthou Mylona 3, P.C.
3030 Limassol
Cyprus

CORCYRA d.o.o.(3)                        2,326,043               39.81%
Verudela 17
Pula Croatia 52100

Graeton Holdings Limited                   441,566                7.60%
256 Makarios Avenue,Eftapaton
Court, CY3105 Limassol, Cyprus;

Csaba Toro  (2)(5)(6)                       62,500                1.07%
1138 Budapest
Vaci ut 141.
Hungary

Stewart Reich (6)(7)                        75,000                 1,28%
18 Dorset Lane,
Bedminister, NJ 07921

Gabor Ormosy
Fleminghouse Investments Limited            25,000                     *
Chrysanthou Mylona 3, P.C. (6) (9)
3030 Limassol
Cyprus

Yossi Attia (6)(8)                          25,000                     *
1061 1/2 Spalding Ave.
West Hollywood, CA 90046

Ilan Kenig (6)(8)                           25,000                     *
7438 Fraser Park Drive
Burnaby, BC Canada V5J 5B9

Moshe Schnapp (5)(6)                        58,968                 1.01%
846 N Huntley
West Hollywood, CA 90069

All Officers and Directors as a            240,218                 4.65%
  Group (6 Persons)

*     Less than one percent

(1)   Unless  otherwise  indicated,  each person has sole  investment and voting
      power with respect to the shares indicated.  For purposes of this table, a
      person or group of persons is deemed to have "beneficial ownership" of any
      shares  which such  person  has the right to acquire  within 60 days after
      March 24, 2006.  For purposes of computing the  percentage of  outstanding
      shares  held by each  person or group of persons  named above on March 24,
      2006,  any security which such person or group of persons has the right to
      acquire within 60 days after such date is deemed to be outstanding for the
      purpose of computing the percentage  ownership for such person or persons,
      but is not  deemed to be  outstanding  for the  purpose of  computing  the
      percentage ownership of any other person.

(2)   Mr. Toro owns, directly or indirectly, 1.07% of the issued and outstanding
      shares of the Company represented by options to purchase 62,500 shares.


                                       34
<PAGE>


(3)   Pursuant to a Stock  Purchase  Agreement  dated as of January 28, 2005, by
      and between KPN Telecom B.V. ("KPN Telecom"), a company incorporated under
      the laws of the  Netherlands,  and  CORCYRA  d.o.o.,  a  Croatian  company
      ("CORCYRA"),  (the  "Purchase  Agreement"),  KPN  Telecom  sold to CORCYRA
      289,855  shares  (the  "Initial  Shares")  of  our  common  stock  for  US
      $1,000,000  (the  "Initial  Closing").  The  Initial  Closing  occurred on
      February 1, 2005.  Pursuant to the  Purchase  Agreement,  CORCYRA has also
      agreed to purchase and, KPN has agreed to sell,  KPN  Telecom's  remaining
      2,036,188  shares of our common  stock (the  "Final  Shares") on April 30,
      2006 (the "Final Closing");  provided,  however,  that upon 14 days' prior
      written notice to KPN Telecom, CORCYRA may accelerate the Final Closing to
      an earlier month-end date as specified in such notice; provided,  further,
      that the Final Closing is subject to the  satisfaction or waiver of all of
      the   conditions   to  closing  set  forth  in  the  Purchase   Agreement.
      Accordingly,  CORCYRA presently owns 289,855 shares of common stock and is
      deemed to own, pursuant to Rule 13d-3(d), promulgated under the Securities
      Exchange Act of 1934, as amended,  the remaining  2,036,188 shares held by
      KPN Telecom.

(4)   KPN Telecom B.V. is a subsidiary of Royal KPN N.V.

(5)   An officer of the Company.

(6)   A director of the Company.

(7)   Includes  an  option to  purchase  75,000  shares  of  common  stock at an
      exercise price of $4.21 per share.  25,000 options vest on April 13, 2004,
      25,000 options vest on April 13, 2005,  while 25,000 options vest on April
      13, 2006

(8)   Effective  March  22,  2005 the  Board of  Directors  granted  the two new
      directors  100,000  options  each at an exercise  price of $3.40 per share
      under the 2004 Incentive Plan.  Each directors  options vest in four equal
      installments  of 25,000 shares on September 22, 2005,  September 22, 2006,
      September 22, 2007 and September 22, 2008.

(9)   Effective June 2, 2005, the Board of Directors  granted 100,000 options at
      an exercise  price of $4.05 per share under the 2004  Incentive  Plan. The
      options vest in four equal  installments  of 25,000  shares on December 2,
      2005, December 2, 2006, December 2, 2007 and December 2, 2008.

      The  foregoing  table is based  upon  5,843,067  shares  of  common  stock
outstanding as of March 24, 2006.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In  order to  provide  management  of the  Company  with  the  appropriate
motivation to achieve the highest possible purchase price in connection with the
sale of its  subsidiaries  in Hungary and Romania,  the  Company's  Compensation
Committee  was  granted the  discretionary  ability to pay a bonus to members of
management that were  associated with the Company  receiving a purchase price in
excess  of US  $28,000,000  for the  subsidiaries.  The  bonus,  which is at the
discretion  of the  Compensation  Committee,  will be up to 20% of the  purchase
price received in excess of US $28,000,000. Upon the Company closing on the sale
of the subsidiaries for US $30,000,000 to Invitel,  a bonus of up to US $400,000
(or 20% of US $2,000,000)  may be paid by the  Compensation  Committee to select
members of management.


                                       35
<PAGE>


ITEM 13. EXHIBITS

A. Exhibits (numbers below reference Regulation S-B, Item 601)
     (2) Subscription Agreement and Option Agreement with KPN(1)(2)
     (3) (a) Certificate of Incorporation filed November 9, 1992(1)
         (b) Amendment to Certificate of Incorporation filed July 9, 1997(2)
         (c) By-laws(2)
     (4) (a) Form of Common Stock Certificate(1)
         (b) Form of Underwriters' Warrants to be sold to Underwriters(1)

         (c) Placement Agreement between Registrant and J.W. Barclay & Co.,
             Inc. and form of Placement Agent Warrants issued in connection
             with private placement financing(1)

     (10)(a) Shares Purchase Agreement between PanTel Tavkozlesi es
             Kommunikacios rt., a Hungarian company, and Euroweb International
             Corp., a Delaware corporation (3)

     (10)(b) Guaranty by Euroweb International Corp., a Delaware corporation,
             in favor of PanTel Tavkozlesi es Kommunikacios  rt., a  Hungarian
             company (3)

     (10)(c) Shares Purchase Agreement between Vitonas Investments Limited, a
             Hungarian corporation, Certus Kft., a Hungarian corporation, Rumed
             2000 Kft., a Hungarian corporation and Euroweb International Corp.,
             a Delaware corporation, dated as of February 23, 2004. (4)

     (10)(d) Share Purchase  Agreement by and between  Euroweb  International
             Corp. and Invitel Tavkozlesi Szolgaltato Rt. (5)

     (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 18 U.S.C.  Section 1350, As Adopted
             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 18 U.S.C. Section 1350, As Adopted
             Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     (99)(a) Code of Ethics and Business  Conduct of Officers,  Directors and
             Euroweb International Corp.
----------------------------------
(1)   Exhibits  are  incorporated  by  reference  to  Registrant's  Registration
      Statement on Form SB-2 dated May 12, 1993  (Registration No.  33-62672-NY,
      as amended)
(2)   Filed with Form 10-QSB for quarter ended June 30, 1998.
(3)   Filed as an  exhibit to Form 8-K on  February  27,  2004.
(4)   Filed as an exhibit to Form 8-K on March 9, 2004.
(5)   Filed as an exhibit to Form 8-K on December 21, 2005.


                                       36
<PAGE>


ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

      Audit Fees.  The aggregate fees billed by our auditors,  for  professional
services rendered for the audit of the Company's annual financial statements for
the years ended December 31, 2005 and 2004, and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB during the
fiscal years were $192,000 and $217,000, respectively.

      Audit related fees: Additionally,  in 2005, fees for the audit of the 2004
US GAAP  financials  statements  of  Navigator  (for 8-K  filing  purposes)  was
$127,000.  In 2004, fees for the audit of the 2003 US GAAP financial  statements
of  Euroweb  Hungary  (for 8-K filing  purposes)  was  $18,750  and fees for the
restatement of the Company's  2003  financial  statements to reflect the "as-if"
pooling of Euroweb Hungary Rt. for purposes of the SB-2 filing was $37,000.

      All Other  Fees.  The  aggregate  fees  billed by  auditors  for  services
rendered to the  Company,  other than the  services  covered in "Audit Fees" and
"Audit  related fees" and for the fiscal years ended  December 31, 2005 and 2004
were  $67,200  and  $124,000.  - The  2005  and  2004  fees  relate  to the SB-2
registration  statement costs ($189,600),  and miscellaneous tax advice ($1,600)
provided during the course of 2005 and 2004.

      The Board of Directors has  considered  whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.

                                   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 29th day of March 2005.


                                           EUROWEB INTERNATIONAL CORP.


                                       By: /s/Csaba Toro
                                           -------------------------------------
                                           Csaba Toro
                                           Chief Executive Officer and Director
                                           (Principal Executive Officer)


                                       37
<PAGE>


      Pursuant  to the  requirements  of the  Securities  Exchange  of 1934,  as
amended,  this  Report has been  signed  below by the  following  persons in the
capacities and on the dates indicated:


      SIGNATURE                          TITLE                       DATE
--------------------    ------------------------------------    --------------
By: /s/Csaba Toro       Chief Executive Officer and Director    March 29, 2006
    -------------         (Principal Executive Officer)
    Csaba Toro

By: /s/Stewart Reich    Chairman of the Board and Director      March 29, 2006
    ----------------
    Stewart Reich

By: /s/Moshe Schnapp    President, Director                     March 29, 2006
    ----------------
    Moshe Schnapp

By: /s/ Gabor Ormosy    Director                                March 29, 2006
    ----------------
    Gabor Ormosy

By: /s/ Yossi Attia     Director                                March 29, 2006
    ---------------
    Yossi Attia

By: /s/ Ilan Kenig      Director                                March 29, 2006
    --------------
    Ilan Kenig

By: /s/ Peter Szigeti   Chief Accounting Officer                March 29, 2006
    -----------------     (Principal Financial Officer)
    Peter Szigeti


                                       38
<PAGE>


                           EUROWEB INTERNATIONAL CORP.


             Consolidated Balance Sheet as of December 31, 2005, and
       Consolidated Statements of Operations & Comprehensive Income (Loss)
                  Stockholders' Equity, and Cash Flows for the
                     Years ended December 31, 2005 and 2004


                                       39
<PAGE>


                           EUROWEB INTERNATIONAL CORP.

                        Consolidated Financial Statements

   As of December 31, 2005 and for the Years Ended December 31, 2005 and 2004


                                TABLE OF CONTENTS


                                                                            PAGE

Report of the Independent Registered Public Accounting Firm                  F-2

Report of the Independent Registered Public Accounting Firm                  F-3


Consolidated Financial Statements:


    Consolidated Balance Sheet                                               F-4
    Consolidated Statements of Operations and Comprehensive Income (Loss)    F-5
    Consolidated Statements of Stockholders' Equity                          F-6
    Consolidated Statements of Cash Flows                                    F-7
    Notes to Consolidated Financial Statements                               F-8


                                      F-1
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Euroweb International Corp.

      We have  audited  the  accompanying  combined  balance  sheet  of  Euroweb
International  Corp. and  subsidiaries  (the "Company") as of December 31, 2005,
and the related  consolidated  statements of income,  stockholders'  equity, and
cash  flows  for  the  year  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 audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audits included consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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, such consolidated  financial statements present fairly, in
all material respects, the financial position of Euroweb International Corp. and
subsidiaries  as of December 31, 2005,  and the results of their  operations and
their  cash  flows  for the year  then  ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.


Deloitte Kft.
Budapest, Hungary
March 27, 2006


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Euroweb International Corp.

      We have audited the accompanying consolidated statements of operations and
comprehensive   loss,   stockholders'   equity,   and  cash   flows  of  Euroweb
International Corp. and subsidiaries for the year ended December 31, 2004. These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all  material  respects,  the  consolidated  results of the
operations and the cash flows of Euroweb  International  Corp. and  subsidiaries
for the year ended December 31, 2004 in conformity  with  accounting  principles
generally accepted in the United States of America.


KPMG Hungaria Kft.
Budapest, Hungary
March 24, 2006


                                      F-3
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 2005
                              AMOUNTS IN US DOLLARS

                                                                        2005
                                                                   -------------
ASSETS
  Current assets:
    Cash and cash equivalents (note 3)                             $  1,568,690
    Trade accounts receivable, less allowance for doubtful
      accounts of $206,518                                            1,533,855
    Prepaid and other current assets                                    321,315
                                                                   ------------
         Total current assets of continuing operations                3,423,860
                                                                   ------------
    Total assets of discontinued operations (note 9)                 20,371,849
         Total current assets                                        23,795,709
                                                                   ============

  Property and equipment, net (note 4)                                1,071,989
  Goodwill (note 5)                                                   8,150,672
  Intangible assets - customer contracts, net (note 5)                3,132,300
                                                                   ------------
         Total assets                                              $ 36,150,670
                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Trade accounts payable                                         $  2,065,333
    Current portion of bank loans (note 7)                              269,220
    Bank overdrafts (note 7)                                            325,409
    Other current liabilities                                           827,703
    Accrued expenses                                                    545,964
                                                                   ------------
         Total current liabilities of continuing operations           4,033,629
    Total liabilities of discontinued operations (note 9)            13,783,582
         Total current liabilities                                   17,817,211

    Deferred tax liability (note 10)                                    501,168
    Non-current portion of bank loans (note 7)                          471,134
                                                                   ------------
        Total liabilities                                            18,789,513

   Commitments and contingencies (note 12)

   Stockholders' equity
   Common stock, $.001 par value - Authorized
     35,000,000 shares; 6,032,221 shares issued
     of which 5,784,099 shares are outstanding and                       25,248
     248,122 shares are held in escrow
   Additional paid-in capital                                        51,538,659
   Accumulated deficit
                                                                    (34,302,431)
   Accumulated other comprehensive income                                99,681
                                                                   ------------
       Total stockholders' equity                                    17,361,157
                                                                   ------------

       Total liabilities and stockholders' equity                  $ 36,150,670
                                                                   ============

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME / (LOSS)
                     YEARS ENDED DECEMBER 31, 2005 AND 2004
                              AMOUNTS IN US DOLLARS

<TABLE>
<CAPTION>
                                                                   2005           2004
                                                               -----------    -----------
<S>                                                            <C>            <C>
REVENUES                                                       $ 1,964,998    $        --

Cost of revenues  (exclusive of depreciation and
amortization shown separately below)                               511,658             --

OPERATING EXPENSES

   Compensation and related costs                                1,054,342        361,809
   Consulting, professional and directors fees                   1,396,096        463,549
   Other selling, general and administrative expenses              703,770        454,514
   Depreciation and amortization                                   509,478          2,048
                                                               -----------    -----------
               Total operating expenses                          3,663,686      1,281,920
                                                               -----------    -----------

Operating loss                                                  (2,210,346)    (1,281,920)

   Interest income                                                   2,512         49,154
   Interest expense                                                (38,240)            --
   Other income (expenses)                                         170,000       (170,000)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES             (2,076,074)    (1,402,766)

Income tax benefit -deferred                                        57,908             --
                                                               -----------    -----------
INCOME TAX BENEFIT                                                  57,908             --

LOSS FROM CONTINUING OPERATIONS                                 (2,018,166)    (1,402,766)

Income from discontinued operations, net of tax                  3,698,461        668,312

NET INCOME (LOSS)                                                1,680,295       (734,454)

Other comprehensive income (loss)
                                                                    (8,585)       133,768
                                                               -----------    -----------

COMPREHENSIVE INCOME (LOSS)                                    $ 1,671,710    $  (600,686)
                                                               ===========    ===========

LOSS PER SHARE FROM CONTINUING OPERATIONS, BASIC AND DILUTED         (0.37)         (0.28)
INCOME PER SHARE FROM DISCONTINUED OPERATIONS, BASIC AND
  DILUTED                                                             0.68           0.13
NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED                        0.31          (0.15)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND
  DILUTED                                                        5,445,363      5,043,822
</TABLE>


           See accompanying notes to consolidated financial statements


                                      F-5
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2005 AND 2004
                              AMOUNTS IN US DOLLARS

<TABLE>
<CAPTION>

                                            Common Stock
                                    ----------------------------     Additional
                                       Number                         Paid-in       Accumulated
                                      of shares        Amount         Capital          Deficit
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
BALANCES, JANUARY 1, 2004              4,665,332    $     24,129    $ 48,227,764    $(33,105,716)
                                    ============    ============    ============    ============
Foreign currency translation gain             --              --              --              --
Reversal of unrealized gain on                --              --              --              --
  securities available for sale
Deemed distribution (note 1)                  --                                      (2,142,556)
Compensation charge on                        --              --          94,212
  share options issued to
  consultants
Issuance of shares (Elender Rt           677,201             678       2,458,108              --
  acquisition)
Net loss for the period                       --              --              --        (734,454)
                                    ------------    ------------    ------------    ------------
BALANCES, DECEMBER 31, 2004            5,342,533    $     24,807    $ 50,780,084    $(35,982,726)
                                    ============    ============    ============    ============
Foreign currency translation loss             --              --              --              --
Compensation charge on                        --              --         192,294
  share options and warrants
  issued to consultants
Issuance of shares                       441,566             441       1,681,693              --
  (Navigator Rt acquisition)
Cancellation of treasury stock                --              --    ($ 1,115,412)             --
Net income for the period                                                              1,680,295
                                    ------------    ------------    ------------    ------------
BALANCES, DECEMBER 31, 2005            5,784,099    $     25,248    $ 51,538,659    $(34,302,431)
                                    ------------    ------------    ------------    ------------
</TABLE>

                                    Accumulated
                                        Other
                                    Comprehensive                     TOTAL
                                       Gains         Treasury      Stockholders'
                                      (Losses)         Stock          Equity
                                    ------------    ------------   ------------

BALANCES, JANUARY 1, 2004           $    (25,502)   $ (1,115,412)  $ 14,005,263
                                    ============    ============   ============
Foreign currency translation gain        162,573              --        162,573
Reversal of unrealized gain on           (28,805)             --        (28,805)
  securities available for sale
Deemed distribution (note 1)                                         (2,142,556)
Compensation charge on                                                   94,212
  share options issued to
  consultants
Issuance of shares (Elender Rt                --              --      2,458,786
  acquisition)
Net loss for the period                       --              --       (734,454)
                                    ------------    ------------   ------------
BALANCES, DECEMBER 31, 2004         $    108,266    $ (1,115,412)   $ 13,815,019
                                    ============    ============   ============
Foreign currency translation loss         (8,585)             --         (8,585)
Compensation charge on                                                  192,294
  share options and warrants
  issued to consultants
Issuance of shares                            --              --      1,682,134
  (Navigator Rt acquisition)
Cancellation of treasury stock                --    $  1,115,412             --
Net income for the period                                             1,680,295
                                    ------------    ------------   ------------
BALANCES, DECEMBER 31, 2005         $     99,681              --   $ 17,361,157
                                    ------------    ------------   ------------


           See accompanying notes to consolidated financial statements


                                      F-6
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      YEAR ENDED DECEMBER 31, 2005 AND 2004
                              AMOUNTS IN US DOLLARS

<TABLE>
<CAPTION>
                                                                                      2005            2004
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
   Net income (loss)                                                              $  1,680,295    $   (734,454)
   Adjustments to reconcile net income (loss) to net cash provided by
     operating activities:
   Depreciation and amortization                                                       509,478           2,048
   Provision for bad and doubtful debts                                                 11,026              --
   Deferred tax charge                                                                 (57,908)
   Compensation expense due to options and warrants issued                             192,294          94,212
   Realized gain on sale of investment securities                                           --         (26,383)

Changes in operating assets and liabilities net of effects of acquisitions:
   Accounts receivable                                                                 215,455        (447,428)
   Prepaid and other assets                                                            539,094         (79,752)
   Accounts payable, other current liabilities and accrued expenses                    986,277         364,242
   Cash provided by discontinued operations                                            114,062       3,568,571
                                                                                  ------------    ------------
           Net cash provided by operating activities                                 4,190,073       2,741,056
                                                                                  ------------    ------------

Cash flows from investing activities:
   Proceeds from maturity of securities                                                     --      11,464,000
   Proceeds on sale of subsidiaries                                                  2,700,000         500,001
   Acquisition of 51% of Euroweb Rt                                                         --      (2,142,000)
   Acquisition of 100% of Elender Rt. (net of cash)                                         --      (6,891,897)
   Acquisition of 100% of Navigator Informatika Rt. (net of cash)                   (9,008,638)             --
   Collection on notes receivable                                                           --         173,911
   Acquisition of property and equipment                                              (103,835)         (2,048)
   Capital expenditures in discontinued operations                                  (2,477,999)     (1,701,990)
                                                                                  ------------    ------------
           Net cash provided by (used in) investing activities                      (8,890,472)      1,399,977
                                                                                  ------------    ------------

Cash flows from financing activities:
   Principal payment under capital lease obligations                                   (12,645)             --
   Repayments on overdraft and bank loan                                              (233,379)             --
   Financing activities from discontinued operation                                  4,210,251      (2,280,826)
                                                                                  ------------    ------------
          Net cash provided by (used in)  financing activities                       3,964,227      (2,280,826)
                                                                                  ------------    ------------

Effect of foreign exchange rate changes on cash                                        (74,690)        (37,952)
                                                                                  ------------    ------------

Net (decrease) increase in cash and cash equivalents                                  (810,862)      1,822,255
Cash and cash equivalents, beginning of year                                         2,379,552         557,297
                                                                                  ------------    ------------
Cash and cash equivalents, end of year                                            $  1,568,690    $  2,379,552
                                                                                  ============    ============

Supplemental disclosure:
Cash paid for interest                                                            $     39,456              --
Cash paid for Income taxes                                                        $    101,573              --

Summary of non-cash transactions
Shares issued as consideration in acquisition of Elender Rt                                 --    $  2,508,353
Shares issued as consideration in acquisition of Navigator Rt                     $  1,682,134              --
New capital leases                                                                          --              --
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION OF BUSINESS

      Euroweb International Corp.  ("Euroweb") is a Delaware corporation,  which
was  incorporated  on  November  9,  1992.  Euroweb  and  its  subsidiaries  are
collectively referred to herein as the "Company".  The Company was a development
stage company through December 31, 1993.

      The  Company   operates  in  Hungary  through  its  subsidiary   Navigator
Informatika Rt. ("Navigator"), which is acquired on October 7, 2005.

      The  Company  provides  a full  range  of  information  technology  ("IT")
outsourcing  services  through  it  subsidiary,  Navigator.  The IT  outsourcing
services provided by the Company primarily comprise IT maintenance, procurement,
consultancy and related services.

      On December 16, 2004, the Company disposed of Euroweb Czech Republic, spol
("Euroweb  Czech  Republic") and no longer has operations in the Czech Republic.
On April 15,  2005,  the Company  disposed of Euroweb  Slovakia  a.s.  ("Euroweb
Slovakia")  for cash of $2,700,000  and, as a result,  has ceased  operations in
Slovakia.

      On December  15, 2005,  the Board of  Directors of the Company  decided to
sell its entire  interest in the wholly owned Euroweb  Internet  Szolgaltato Rt.
("Euroweb  Hungary") and Euroweb Romania S.A. ("Euroweb  Romania").  On December
19, 2005,  the Company  entered  into a share  purchase  agreement  with Invitel
Tavkozlesi  Szolgaltato Rt., a Hungarian joint stock company, to sell the entire
interest  in its  two  Internet-  and  telecom-related  operating  subsidiaries,
Euroweb Hungary and Euroweb Romania,  subject to various  conditions  including,
but not limited to, shareholders' approval.  Euroweb Hungary and Euroweb Romania
are classified in the Company's financial statements as discontinued  operations
for all periods presented.

      Approximately 83% of the consolidated  revenue for the year ended December
31, 2005 was generated from the four most  significant  customers of the Company
as follows:

                                                               Revenue generated
--------------------------------------------------------------------------------
Company `A':                                                            $539,131
Company `B':                                                             443,727
Company `C':                                                             386,253
Company `D':                                                             268,296
Other companies:                                                         327,591
--------------------------------------------------------------------------------
Total revenue:                                                        $1,964,998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

(a) Principles of consolidation and basis of presentation

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


                                      F-8
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      On February 12, 2004, the Company entered into a share purchase  agreement
with a related  party,  Pantel Rt.  ("Pantel")  to acquire the  remaining 51% of
Euroweb  Hungary shares that the Company did not already own. At the date of the
acquisition,  KPN Telecom B.V.  ("KPN") owned 50.17% of the voting common shares
of the Company and 75% of the voting common shares of Pantel.  Accordingly,  the
transaction  was recorded in a manner similar to a  pooling-of-interest  and the
historical  consolidated  financial  statements  were  restated  to include  the
financial position,  results of operations and cash flows of Euroweb Hungary for
all periods presented. Since the purchase consideration was in excess of Euroweb
Hungary's  book  value  (by  $2,142,556),  the  excess  is  accounted  for  as a
distribution to KPN, which resulted in a deduction from retained earnings at the
closing of the transaction.  There were no transactions  with Euroweb Hungary in
any period prior to this transaction that required elimination.

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

(b) Use of estimates

      The preparation of consolidated  financial  statements requires management
to make a number of estimates and assumptions  that affect the reported  amounts
of  assets  and  liabilities  and  the  disclosure  of  contingent   assets  and
liabilities  at the  date  of the  consolidated  financial  statements  and  the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results could differ from those estimates.

(c) Fair value of financial instruments

      The carrying values of cash  equivalents,  investment in debt  securities,
notes and loans receivable, accounts payable, loans payable and accrued expenses
approximate fair values.

(d) Revenue recognition

      Revenue  Recognition--The  Company  applies  the  provisions  of SEC Staff
Accounting   Bulletin  ("SAB")  No.  104,   Revenue   Recognition  in  Financial
Statements,  which  provides  guidance  on  the  recognition,  presentation  and
disclosure  of revenue in financial  statements  filed with the SEC. SAB No. 104
outlines the basic  criteria that must be met to recognize  revenue and provides
guidance for disclosure  related to revenue  recognition  policies.  The Company
recognizes  revenue  when  persuasive  evidence of an  arrangement  exists,  the
product  or  service  has  been  delivered,  fees  are  fixed  or  determinable,
collection  is  probable  and  all  other  significant   obligations  have  been
fulfilled.  Revenues from  maintenance  services are  recognized in the month in
which the services are provided, either based on performance or on fixed monthly
fees. The Company defers revenue recognition for payments on contracts for which
services have not been performed.

      The Company also generates  non-recurring revenue from consulting fees for
implementation, installation, configuration, testing and training related to the
use of third party licensed  products.  The Company recognizes revenue for these
services as they are performed,  if contracted on a time and materials basis, or
using the percentage of completion  method,  if contracted on a fixed fee basis,
once the cost of the consulting project can be reliably estimated. Percentage of
completion  is  measured  based  on cost  incurred  to date  compared  to  total
estimated  cost at  completion.  When the cost to  complete a project  cannot be
reasonably  estimated,  the  Company  recognizes  revenue  using  the  completed
contract  method  until such time that the cost to  complete  the project can be
reasonably estimated.


                                      F-9
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

      Cost of revenues  (excluding  depreciation and  amortization)  principally
comprises  cost of  fixed  assets  sold  during  the  course  of IT  outsourcing
projects,  cost of materials  required to perform IT outsourcing  activities and
cost of project-dedicated sub-contractors.

(f) Foreign currency translation

      The Company  considers  the United States Dollar ("US Dollar or "$") to be
the  functional  currency  of the  Euroweb  and  unless  otherwise  stated,  the
respective   local  currency  to  be  the   functional   currency  each  of  its
subsidiaries.  The  reporting  currency  of the  Company  is the US  Dollar  and
accordingly,  all amounts included in the consolidated financial statements have
been translated into US Dollar.

      The balance sheets of subsidiaries are translated into US Dollar using the
year end exchange  rates.  Revenues and expenses are translated at average rates
in effect for the periods presented.  The cumulative  translation  adjustment is
included in the accumulated other comprehensive gain (loss) within shareholders'
equity.

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

(g) Cash and cash equivalents

      Cash and  cash  equivalents  include  cash at bank  and  investments  with
maturities of three months or less at the date of acquisition by the Company.

(h) Investment in securities

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


                                      F-10
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(i) Property and equipment

      Property and equipment are stated at cost, less accumulated  depreciation.
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                                               3-5 years
      Other furniture equipment and fixtures                           5-7 years

      Equipment  purchased  under  capital  lease is stated at the lower of fair
value and the present  value of minimum  lease  payments at the inception of the
lease, less accumulated  depreciation.  The Company provides for depreciation of
leased  equipment using the  straight-line  method over the shorter of estimated
useful life and the lease term.

      Total depreciation from continuing operations for the years ended December
31, 2005 and 2004 was $ 147,547 and $2,048 respectively.

      Recurring maintenance on property and equipment is expensed as incurred.

      Any gain or loss on  retirements  and disposals is included in the results
of operations in the period of the retirement or disposal.

(j) Goodwill and intangible assets

      Goodwill  results from business  acquisitions and represents the excess of
purchase price over the fair value of net assets acquired. Goodwill is tested at
least annually for impairment.  The first step of this test requires the Company
to compare the  carrying  value of any  reporting  unit that has goodwill to the
estimated fair value of the reporting  unit. When the current fair value is less
than the carrying value,  the Company performs the second step of the impairment
test.  This  second  step  requires  the  Company to  measure  the excess of the
recorded  goodwill  over the  current  value of the  goodwill by  performing  an
exercise similar to a purchase price allocation,  and to record any excess as an
impairment.

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

      Total  amortization of intangible  assets for the years ended December 31,
2005 and 2004 was $ 361,931 and $0 respectively.

(k) Earnings (loss) per share

      Basic  earnings  (loss) per share is computed by  dividing  income  (loss)
attributable  to common  stockholders  by the weighted  average number of common
shares  outstanding for the period.  Diluted  earnings (loss) per share reflects
the effect of dilutive  potential  common shares issuable upon exercise of stock
options and warrants.  There were no dilutive  options and warrants for the year
ended 2005 and 2004.  Stock  options and warrants  convertible  into 779,067 and
550,378 shares of common stock, respectively, were excluded from the computation
of diluted  earnings per share since such options and warrants  have an exercise
price in excess of the average market value of the Company's common stock during
the periods.


                                      F-11
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(l) Comprehensive income

      Comprehensive income includes all changes in equity except those resulting
from investments by, and distributions to, owners.

(m) Business segment reporting

      The  Company  manages  its  operations,  and  accordingly  determines  its
operating  segments,  on a  geographic  basis.  The  Company  currently  has one
operating segment: Hungary.

(n) Income taxes

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

(o) Stock-based compensation

      The  Company  applies  the  intrinsic  value-based  method  of  accounting
prescribed by Accounting  Principles  Board ("APB") Opinion No. 25,  "Accounting
for Stock Issued to Employees," and related interpretations  including Financial
Accounting  Standards  Board ("FASB")  Interpretation  No. 44,  "Accounting  for
Certain  Transactions  involving Stock  Compensation,  an  interpretation of APB
Opinion No. 25" to account for its stock  options  granted to  employees.  Under
this method,  compensation  expense for fixed plan stock  options is recorded on
the date of grant  only if the  current  market  price of the  underlying  stock
exceeds  the  exercise  price.   SFAS  No.  123,   "Accounting  for  Stock-Based
Compensation,"  ("SFAS  123")  and  FASB  Statement  No.  148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure,  an amendment of FASB
Statement No. 123" established  accounting and disclosure  requirements  using a
fair  value-based  method of accounting for  stock-based  employee  compensation
plans. As allowed by existing standards,  the Company has elected to continue to
apply the intrinsic  value-based  method of accounting  described above, and has
adopted  the  disclosure  requirements  of SFAS 123,  as  amended.  The  Company
accounted  compensation  expenses for the  Company's  stock options and warrants
granted other than employees or independent directors based on fair value method
prescibed in SFAS 123.

      SFAS 123 requires the Company to provide pro forma  information  regarding
net income and  earnings  per share as if  compensation  cost for the  Company's
stock options had been determined in accordance with the fair value-based method
prescribed  in SFAS 123.  The  Company  estimates  the fair  value of each stock
option at the grant date by using the Black-Scholes option-pricing model.


                                      F-12
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The pro forma amount calculated as total  compensation  expense under SFAS
123 is $632,766  for the 200,000  options  granted to  directors  on October 13,
2003,  $1.3  million  for the  365,000  options  granted  on April 26,  2004 and
$775,260 for the 300,000 options issued in 2005. Under the accounting provisions
of SFAS No. 123,  this  compensation  expense would be recorded over the vesting
period of the options (3-4 years).

      For purposes of the pro forma  calculation  under SFAS 123, the fair value
of each  option  grant  has  been  estimated  on the  date of  grant  using  the
Black-Scholes  option-pricing model with the following  assumptions for 2004 and
2005:

Dividend yield                                                                0%
Risk free rate                                                                4%
Expected option life (years)                                                   6
Volatity                                                                     88%

      Under the  accounting  provisions of SFAS 123, the Company's 2005 and 2004
net income  (loss) and net income  (loss) per share would have been  affected as
indicated below:

                                                         2005           2004
                                                     -----------    -----------
Net income (loss):
    Net loss from continuing
      operation as reported                          $(2,018,166)   $(1,402,766)
    Net income from discontinuing operation
      as reported                                    $ 3,698,461    $   668,312
                                                     -----------    -----------
    Net income (loss) as reported                    $ 1,680,295    $  (734,454)
    Compensation expense                                (842,572)      (943,164)
                                                     -----------    -----------
    Pro forma net income (loss)                      $   837,723    $(1,677,618)
                                                     ===========    ===========

Basic and diluted income (loss) per share:
    As reported                                      $      0.31    $     (0.15)
    Pro forma                                        $      0.15    $     (0.33)

(p) Inventory

      Inventory, comprised of IT hardware for resale, is carried at the lower of
cost or market.  Deposits  paid by the Company  for  inventory  are  recorded as
prepayments until the Company takes title to the inventory.

(q) Recently Issued Accounting Standards

      In  December  2004,   the  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.  SFAS  123(R) is
effective  for the  Company  as of January 1,  2006.  The  Company is  currently
assessing the impact SFAS 123(R) will have on its financial statements.


                                      F-13
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED 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  and is not
expected to have a material impact on our financial statements.

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  which  replaces  Accounting   Principles  Board  Opinions  No.  20
"Accounting  Changes" and SFAS No. 3, "Reporting  Accounting  Changes in Interim
Financial  Statements."  This  statement  applies  to all  voluntary  changes in
accounting  principle and changes  resulting  from adoption of a new  accounting
pronouncement that does not specify transition  requirements.  SFAS 154 requires
retrospective  application to prior periods' financial statements for changes in
accounting  principle  unless  it  is  impracticable  to  determine  either  the
period-specific  effects or the cumulative  effect of the change.  SFAS 154 also
requires that retrospective  application of a change in accounting  principle be
limited to the direct  effects of the  change.  Indirect  effects of a change in
accounting  principle  should be  recognized  in the  period  of the  accounting
change.  SFAS 154 is effective for accounting  changes and corrections of errors
made in fiscal years beginning after December 15, 2005 with early implementation
permitted for accounting  changes and corrections of errors made in fiscal years
beginning  after the date this  statement was issued.  SFAS 154 is effective for
the Company as of January 1, 2006 and is not expected to have a material  impact
on financial statements.

      In February  2006, the FASB issued SFAS No. 155,  "Accounting  for Certain
Hybrid  Financial  Instruments-an  amendment of FASB Statements No. 133 and 140"
("SFAS  155").  SFAS  155  amends  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities" ("SFAS 133") and SFAS No. 140,  "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities".  SFAS 155 resolves  issues  addressed  in SFAS 133  Implementation
Issue  No.  D1,  "Application  of  Statement  133  to  Beneficial  Interests  in
Securitized  Financial  Assets."  SFAS 155 is effective  for the Company for all
financial  instruments  acquired  or  issued  after  January  1, 2007 and is not
expected to have a material impact on the Company's financial statements.


3. CASH AND CASH EQUIVALENTS

      At December 31, 2005,  cash of $1.57 million are held in current  accounts
in the United States.


                                      F-14
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. PROPERTY AND EQUIPMENT -

      Property and equipment as at December 31, 2005 comprise the following:



                                                                        2005
                                                                    -----------
Software                                                            $   570,318
Service equipment                                                     1,454,019
Other                                                                   216,197
                                                                    -----------
  Total                                                               2,240,534
  Less accumulated depreciation                                      (1,168,545)
                                                                    -----------
                                                                    $ 1,071,989
                                                                    ===========

5. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

      Goodwill and acquired  intangible  assets as at December 31, 2005 comprise
the following:

                                                                        2005
                                                                    -----------
Customer contracts                                                  $ 3,494,231
  Less accumulated amortization                                        (361,931)
                                                                    -----------
                                                                    $ 3,132,300
                                                                    ===========
Goodwill                                                            $ 8,150,672

Customer contracts

      Capitalized  customer  contracts relate to fixed contracts of Navigator to
provide IT oursource  services in Hungary.  These  contracts are being amortized
over their  remaining  life of one to four  years  from the date of  acquisition
(October 2005).

Goodwill

Goodwill relates to the following reporting unit under SFAS 142: Navigator.

      The Company  performs its annual  impairment test relating to the goodwill
as of December 31 of each year. In the test as of December 31, 2005, the Company
compared the fair value of its single reporting unit to their carrying  amounts,
noted that the fair value was higher than the carrying amount,  and therefore no
impairment charge was required.


                                      F-15
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. LEASES

Capital leases

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

                                                                         2005
                                                                      ---------
Leased service equipment, gross value                                 $ 130,393
                                                                      ---------

   Total gross book value leased assets                                 130,393
Less accumulated depreciation                                          (105,718)
                                                                      ---------
   Total net book value leased assets                                 $  24,675
                                                                      =========

      The following is a schedule of future minimum capital lease payments (with
initial or remaining lease terms in excess of one year) as of December 31, 2005:

                                                                         2006
                                                                       --------
                                                                       $ 27,042
                                                                       --------
Total minimum lease payments                                             27,042
Less interest costs                                                      (2,367)
                                                                       --------
Present value of future minimum lease payments                         $ 24,675

      Since all  obligations  under capital  leases as of December 31, 2005 fall
due  within  12  months,  lease  obligations  are  included  in  `Other  current
liabilities' on the balance sheet.

Operating leases

      The Company  incurred  operational  lease  expense of $47,700 for the year
ended  12/31/05,  which  related to office  rent.  The  Company  has a five-year
non-cancelable  lease agreement for office  premises,  which was entered into on
December 15, 2005. Remaining minimum rental payments total $1,380,439;  $278,408
in each of 2006 and 2007,  2008 and 2009 and $ 266,807 in 2010.  The Company did
not incur any operating lease expenses in the year ended December 31, 2004.

7. BANK LOANS AND OVERDRAFT

      On April 6, 2005, the Company entered into a long-term loan agreement with
Commerzbank Bank Rt (the "Bank") for HUF 201,250,000  (approximately $942,270 at
the  December  31, 2005  exchange  rate),  with an interest  rate of three month
Budapest  Interbank  Offered Rate ("BUBOR")  +2.5%.  Approximately  $740,354 was
outstanding  at  December  31,  2005.  The  loan is  repayable  in 14  quarterly
instalments of HUF 14,375,000  (approximately  $67,305) plus quarterly  interest
starting on May 31, 2005.  The shares of the Navigator and Euroweb  Hungary were
pledged as collateral  for this loan, as well as a general lien  established  on
all of the assets of these subsidiaries of Euroweb.


                                      F-16
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In addition to the long-term loan agreement, the Company also entered into
an overdraft  facility  for  unlimited  period of time with 30 days  termination
period with the Bank for HUF  130,000,000  (approximately  $608,671) on July 20,
2005.  Approximately $325,409 was outstanding at December 31, 2005. The interest
rate is BUBOR + 1,5%.

      Additionally,  on September 1, 2005, the Company  entered into a two-month
loan  facility   agreement  with  the  Bank  for  approximately   $140,462  (HUF
30,000,000)  to fund  working  capital.  The  Company  did not have  outstanding
balances under this agreement as of December 31, 2005. The contract was extended
to March 31, 2006. The interest rate is BUBOR + 1,5%.

8.  ACQUISITION

      On October 7, 2005, the Company acquired all of the outstanding  shares of
Navigator  Informatika  Rt.,  an IT  outsourcing  service  provider  located  in
Hungary.  Consideration paid of $10,760,772  consisted of $8,500,000 in cash and
441,566  shares  of  Euroweb   common  stock  valued  at  $1,752,134   excluding
registration  cost, and $508,638 in transaction costs  (consisting  primarily of
professional  fees  incurred  related to  attorneys,  accountants  and valuation
advisors).  The  results  of  Navigator  have  been  included  in the  Company's
consolidated financial statements from the date of acquisition.

      In accordance  with the purchase  method of accounting  prescribed by SFAS
141,  the Company  allocated  the  consideration  to the tangible net assets and
liabilities  and  intangible  assets  acquired,  based on their  estimated  fair
values. The excess of the purchase price over the fair value of the identifiable
tangible  and  intangible  net assets  acquired  was  assigned to  goodwill.  In
accordance  with SFAS No. 142  "Goodwill  and Other  Intangible  Assets"  ("SFAS
142"), goodwill will not be amortized but will be tested for impairment at least
annually.

      The following  represents the final  allocation of the purchase price paid
for the Navigator  business based on the fair values of the acquired  assets and
assumed liabilities as of October 7, 2005:

  Trade account receivable, net                                    $  1,057,317
  Prepaid and other current assets                                      664,109
  Property and equipment, net                                         1,115,701
  Trade account payable                                              (1,142,626)
  Other current liabilities and accrued expenses                       (720,414)
  Short term and long term bank loans                                (1,299,142)
                                                                   ------------
  Fair value of Navigator's recorded assets acquired and
  liabilities assumed                                                  (325,055)
  Identified intangible assets - customer contracts                   3,494,231
  Deferred tax liabilities                                             (559,076)
  Excess purchase price over allocation to identifiable
  assets and liabilities (Goodwill)                                   8,150,672
                                                                   ------------
Total consideration                                                $ 10,760,772
                                                                   ============


                                      F-17
<PAGE>


      In determining the value to be ascribed to acquired intangible assets, the
Company  considered  its  intention  for future use of the  assets,  analyses of
historical  financial   performance  and  estimates  of  future  performance  of
Navigator's  services,  among other factors.  Acquired  identifiable  intangible
assets  obtained in the Company's  acquisition  of Navigator  relate to customer
contracts,  which are being  amortized over the estimated  useful life of one to
four years.

      Although the former owners of Navigator received shares of common stock of
the Company,  each of the former owners of Navigator  currently  holds less than
10% of the outstanding  shares of common stock in the Company.  Therefore,  they
are not considered related parties and business  transactions are shown as third
party transactions in the accompanying  consolidated financial statements of the
Company.

      The  following  unaudited  pro-forma  information  presents  a summary  of
consolidated  results of operations of the Company for the years ended  December
31, 2005 and 2004 as if the  acquisition of Navigator had occurred at January 1,
2005 and 2004, respectively.

                                          DECEMBER 31, 2005    DECEMBER 31, 2004
                                          -----------------    -----------------
Revenues                                      7,638,924             4,094,158
Net loss                                       973,004             (1,992,225)
Net loss per share                             $(0.18)               $(0.39)

      The above  unaudited  pro  forma  summarized  results  of  operations  are
intended for informational purposes only and, in the opinion of management,  are
neither  indicative  of the  financial  position or results of operations of the
Company had the acquisition  actually taken place as of January 1, 2005 or 2004,
nor  indicative  of the  Company's  future  results  of  operations.  The  above
unaudited pro forma  summarized  results of operations do not include  potential
cost  savings from  operating  efficiencies  that may result from the  Company's
acquisition of Navigator.


9. DISPOSITIONS

Completed sale of Euroweb Czech Republic and Euroweb Slovakia

      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  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.

Proposed sale of Euroweb Hungary and Euroweb Romania

      On December  15, 2005,  the Board of  Directors of the Company  decided to
sell its interest its  wholly-owned  subsidiaries in Euroweb Hungary and Euroweb
Romania.  On December  19,  2005,  the  Company  entered  into a share  purchase
agreement  with  Invitel  Tavkozlesi  Szolgaltato  Rt., a Hungarian  joint stock
company,  to sell  Euroweb  Hungary  and  Euroweb  Romania,  subject  to various
conditions including, but not limited to, shareholders' approval.

      The Company  believes that the sale of Euroweb Czech  Republic and Euroweb
Slovakia and the proposed sale of Euroweb  Hungary and Euroweb  Romania meet the
criteria for  presentation  as a discontinued  operation under the provisions of
"SFAS 144",  therefore  amounts  relating  to Euroweb  Czech  Republic,  Euroweb
Slovakia,  Euroweb  Hungary  and  Euroweb  Romania  have  been  reclassified  as
discontinued operations for all periods presented.


                                      F-18
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      The following table shows the details of result of discontinued  operation
per reporting units as follows:

                                                           2005         2004
                                                        ----------   ----------
Gain from discontinued Czech operations (including
  2004 gain on disposal of $409,314), net of tax        $       --   $  364,722
Gain from discontinued Slovakian operations
  (including the 2005 gain on disposal of
  $1,701,200), net of tax                                1,733,470      313,764
Income (loss) from discontinued Hungarian operations       637,256      (34,273)
Income from discontinued Romanian operations             1,327,735       24,099
                                                        ----------   ----------
Income from dicountinued operations                     $3,698,461   $  668,312

      The  following  information  is a summary of selected  items from  Euroweb
Hungary's consolidated balance sheet as at December 31, 2005:

Description                                                            2005
                                                                   ------------
Cash and cash equivalents                                          $  1,578,129
Trade account receivable, net                                         2,529,553
Prepaid, unbilled receivable and other current assets                 1,010,706
Assets of discontinued operation                                     11,413,521
Property and equipment, net                                           3,424,237
Trade account payable                                                (2,213,058)
Other current liabilities, deferred revenue and accrued expenses     (2,147,249)
Liabilities of discontinued operation                                (3,130,274)
Intercompany loans                                                   (3,541,750)
Short term and long term bank and Pantel related loans               (6,882,160)
                                                                   ------------
Net assets                                                         $  2,041,655

      The  following  information  is a summary of selected  items from  Euroweb
Romania's balance sheet as at December 31, 2005:

Description                                                             2005
                                                                    -----------
Cash and cash equivalents                                           $   168,096
Trade account receivable, net                                           963,855
Prepaid, unbilled receivable and other current assets                   480,558
Property and equipment, net                                           3,445,460
Trade account payable                                                  (957,593)
Other current liabilities, deferred revenue and accrued expenses     (1,493,474)
Intercompany loans                                                     (400,000)
Long term portion of                                                   (102,130)
                                                                    -----------
Net assets                                                          $ 2,104,772


                                      F-19
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. INCOME TAXES

      The  loss  from   continuing   operations   before  income  taxes  by  tax
jurisdiction for the years ended December 31, 2005 and 2004 was as follows:

                                                     2005               2004
                                                  -----------       -----------
Loss from continuing operations
 before income taxes:
  Domestic                                        $(1,703,466)      $(1,402,766)
  Foreign                                            (372,608)               --
                                                  -----------       -----------
Total                                             $(2,076,074)      $(1,402,766)
                                                  ===========       ===========

      There was no current income tax expense from continuing operations in 2005
and 2004. A deferred tax benefit of $57,908 was recognized in 2005. There was no
deferred tax expense or benefit recognized in 2004.

      The  provision   (benefit)  for  income  taxes   allocated  to  continuing
operations is comprised of the following:

                                                         Year Ended December 31,
                                                           2005             2004
                                                         --------           ----
Current federal                                          $     --           $ --
Current foreign                                                --             --
Deferred federal                                               --             --
Deferred foreign                                          (57,908)            --
                                                         --------           ----
Provision for income tax expense (benefit)               $(57,908)          $ --

      The  provision  for  income  taxes  differs  from the amount  computed  by
applying the statutory  federal  income tax rate to income tax before  provision
for income taxes.

      The difference  between the total  expected tax expense  (benefit) and tax
expense allocated to continuing operations for the years ended December 31, 2005
and 2004 is accounted for as follows:

<TABLE>
<CAPTION>
                                                     2005                      2004
                                            ---------------------     --------------------
                                               Amount         %          Amount        %
                                            -----------    ------     -----------    -----
<S>                                         <C>            <C>        <C>            <C>
Computed expected tax
  Expense/(Benefit)                         $  (705,865)   (34.00)    $  (476,940)   (34.00)

  Foreign Tax Rate Differential                  67,069      3.23              --       --

  Foreign Income not subject to tax              (4,798)    (0.23)              0        0

  Equity adjustment on sale of subsidiary    (1,688,478)   (81.33)       (747,202)   (53.26)

Change in Valuation Allowance                 2,274,164    109.54       1,224,142    87.26
                                            -----------    ------     -----------    -----
Total expense/(benefit)                     $   (57,908)    (2.79%)   $        --       --%
                                            ===========    ======     ===========    =====
</TABLE>


                                      F-20
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Tax Assets and Liabilities

      Upon the acquisition of Navigator,  the Company  recognized a net Deferred
Tax Liability of $559,076 related to the excess of fair value of net assets over
carrying  values.  As most of the excess relates to the  recognition of customer
contracts  (Note 5),  which is being  amortized  over a period of 1-4 years from
acquisition,  the  Deferred  Tax  Liability  is being  reduced  proportionately.
$57,908 was recognized as a benefit in 2005.

      The  statutory  corporate  tax rate in Hungary was 16% as of December  31,
2004. Navigator has no tax net operating loss carryforwards from prior years.

                                                        2005            2004
                                                    -----------     -----------
Deferred Tax Assets:
  Net Operating Loss Carryovers                     $ 4,331,534     $ 3,665,214
  Capital Loss Carryovers                             1,823,704         713,634
                                                    -----------     -----------
Gross Deferred Tax Assets                             6,155,238       4,378,848
Valuation Allowance                                  (6,155,238)     (4,378,848)
                                                    -----------     -----------
Net Deferred Tax Assets                             $        --     $        --
                                                    ===========     ===========

      For U.S. Federal income tax purposes, the Company has unused net operating
loss carryforwards at December 31, 2005 of approximately $12.8 million available
to offset future taxable income.  From the $12.8 million of losses, $1.2 million
expire in various years from  2008-2010,  $1.6 million  expires in 2011, and the
remaining  $10  million  expire in various  years  from 2016  through  2025.  In
addition, the Company has a capital loss carryover for US income tax purposes of
approximately  $5.4  million.  $2.1  million  of the loss is from  2004 and will
expire after 2009. The remainder of the capital loss, $3.3 million,  will expire
after 2010.  The Tax Acts of some  jurisdictions  contain  provisions  which may
limit the net operating loss and capital loss carryforwards available to be used
in any given year if certain  events  occur,  including  significant  changes in
ownership interests. The Company has not assessed the impact of these provisions
on the availability of Company loss carryovers since the deferred tax assets are
fully offset by the valuation allowance.

      In  assessing  the  realizability  of  deferred  tax  assets,   management
considers whether it is more likely than some portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which those temporary  differences and tax loss carryforwards become deductible.
Management  considers  the  scheduled  reversal  of  deferred  tax  liabilities,
projected  future  taxable  income and tax  planning  strategies  in making this
assessment.  Based upon the level of historical  taxable income and  projections
for future  taxable income over the periods in which the deferred tax assets are
deductible, management believes that it is more likely than the Company will not
realize the benefit of these deductible  differences,  net of existing valuation
allowances at December 31, 2005.


                                      F-21
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Undistributed earnings of the Company's foreign subsidiaries are currently
not  material.  Those  earnings are  considered to be  indefinitely  reinvested;
accordingly,  no provision for US federal and state income tax has been provided
thereon.  Upon  repatriation  of those  earnings,  in the form of  dividends  or
otherwise,  the Company would be subject to both US income taxes  (subject to an
adjustment for foreign tax credits) and withholding taxes payable to the various
foreign  countries.  Determination  of the amount of unrecognized  deferred U.S.
income tax liability is not practicable due to the complexities  associated with
its hypothetical calculation.

11.  STOCKHOLDERS' EQUITY

      On March 22, 2005, the Company  granted an aggregate of 200,000 options to
two of its  directors.  The stock options  granted to the directors on March 22,
2005 vest at the rate of 25,000 on each  September  22 of 2005,  2006,  2007 and
2008. The exercise price of the options was $3.40,  which is equal to the market
price on the date the grants were made.

      On June 2, 2005, the Company  granted 100,000 options to a director of the
Company,  which  vest at the rate of 25,000 on each  December  2 of 2005,  2006,
2007, and 2008. The exercise price of the options was $4.05,  which was equal to
the market price on the date the grants were made.

      The President of the Company is eligible to receive an annual compensation
of $250,000  starting  from April 15,  2005 for a period of two years,  which is
payable in Euroweb  shares of common  stock.  The number of shares to be paid is
calculated  based on the average closing price 10 days prior to April 15 of each
year starting from April 15, 2005. The number of shares for the year ended April
14, 2006 is 82,781.  In January 2006, the Company issued 58,968 shares of common
stock out of the total 82,781 covering the service period from April 15, 2005 to
December 31, 2005.

      On June 7, 2005,  the Company  granted  100,000  warrants to a  consulting
company as compensation  for investor  relations  services at exercise prices as
follows: 40,000 warrants at $3.50 per share, 20,000 warrants at $4.25 per share,
20,000  warrants at $4.75 per share and 20,000  warrants  at $5 per shares.  The
warrants  have a term of five years and tranches vest at a rate of a total 8,333
warrants per month over a one year period from the lowest to the highest warrant
price.  In February  2006,  the Company has  terminated  the  contract  with the
consultant. The total number of warrants granted under this agreement is reduced
time-proportonially  to 83,330  based on the time in service by the  consultant.
The reduction  related to the warrants at $5 per shares.  The warrants are being
expensed over the performance period of one year.  Compensation  expense for the
year ended December 31, 2005 was $141,410.

      There are no other warrants outstanding or expired in 2005.

      In connection with the  acquisition of Navigator  Informatika Rt (Note 1),
the Company issued 441,566 shares of common stock.


                                      F-22
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. COMMITMENTS AND CONTINGENCIES

(a) Employment Agreements

      The Company  entered into a six-year  agreement  with its Chief  Executive
Officer,  Csaba Toro on October 18, 1999,  which commenced  January 1, 2000, and
provided for an annual  compensation  of $96,000.  The  agreement was amended in
2004 and 2005. The amended  agreement  provides for an annual salary of $200,000
and a bonus of up to $150,000 in 2006,  2007 and 2008,  as well as an annual car
allowance of $30,000 for the same period.

      The Company has entered into a two-year  employment  agreement  with Moshe
Schnapp as President  and Director of the Company  starting from April 15, 2005,
which  grants  an  annual  compensation  of  $250,000  to be paid in the form of
Euroweb  shares of common  stock.  The  number of shares to be  received  by Mr.
Schnapp is  calculated  based on the average  closing price 10 days prior to the
commencement  of each  employment  year.  For the year ended April 14, 2006, Mr.
Schnapp will receive 82,781 Euroweb shares of common stock.

(b) Lease agreements

      The Company's  subsidiaries  have entered into various  capital leases for
vehicles and internet equipment, as well as non-cancelable agreements for office
premises. Refer to Note 6 (Leases).

(c) Legal Proceedings

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

(d) Elender Rt. acquisition

      On June 9, 2004 the  Company  acquired  all of the  outstanding  shares of
Elender Rt.  ("Elender")  for  $6,500,000  in cash and 677,201 of the  Company's
shares of common  stock.  Under the terms of  agreement,  the Company has placed
248,111 unregistered shares of common stock, newly issued and in the name of the
Company,  with an escrow agent as security for approximately  $1.5 million loans
payable to former  shareholders  of Elender.  The shares will be returned to the
Company from escrow once the outstanding loans have been fully repaid.  However,
if there is a default on the outstanding loan, then the shares will be issued to
the other party and the Company is then  obliged to register  the shares.  As of
December  31,  2005,  the  Company  had  repaid  all  of  the  loans  that  were
outstanding.  In January 2006, the Company acquired and  subsequently  cancelled
the shares that were put into escrow.

      Pursuant to the registration  rights agreement signed on June 1, 2004 with
the sellers of Elender,  if the shares of the  Company's  common stock issued to
the sellers were not registered  within 120 days of Closing (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  made a  provision  of
$170,000 to accrue for potential  penalties under this clause as of December 31,
2004.  In 2005,  the Company  received a waiver from the sellers.  Therefore the
penalty was reversed.

      In case of disposal of Euroweb  Hungary and Euroweb  Romania,  the Company
will have to reregister the shares issued in connection  with the acquisition of
Elender.  In case of late  filing  of this  registration  statement  may  result
penalty payment obligation.


                                      F-23
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(e) Navigator acquisition

      The Company  entered into a registration  rights  agreement dated July 21,
2005,  whereby it has agreed to file a registration  statement  registering  the
441,566 shares of Euroweb common stock issued in connection with the acquisition
within 75 days of the  closing  of the  transaction  and have such  registration
statement  declared  effective  within 150 days from the filing thereof.  In the
event that Euroweb fails to meet its  obligations  to register the shares it may
be required  to pay a penalty  equal to 1% of the value of the Shares per month.
The  Company has  obtained a written  waiver  from the seller  stating  that the
seller will not raise any claims in connection  with the filing of  registration
statement until May 30, 2006.

(f) Euroweb Hungary Rt. 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 year from 2004 to 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 and 2005 exceeded this amount. If Euroweb
Hungary is successfully sold to Invitel,  any claim arising from this commitment
will from that date be payable by Invitel.

(g) Indemnities provided upon sale of subsidiaries

      On April 15, 2005,  the Company sold  Euroweb  Slovakia.  According to the
securities  purchase contract (the  "Contract"),  the Company will indemnify the
buyer for all damages  incurred by the buyer as the result of seller's breach of
certain representations,  warranties or obligations as set in the Contract up to
an  aggregate  amount of  $540,000.  The buyer shall not be entitled to make any
claim  under  the  Contract  after  the  fourth  anniversary  of the date of the
Contract.  No claims have been made to date. The Company has accrued  $35,000 as
the estimated fair value of this indemnity.

(h) Potentional penalty of EUR 400,000

      If by the date which is 120 days after the  signing of the share  purchase
agreement  on December  19, 2005 about the  disposition  of Euroweb  Hungary and
Euroweb  Romania  to  Invitel,  the  Company  either  fails to  comply  with the
provisions of the share purchase agreement,  or the Stockholders  Meeting of the
Company fails to approve the transaction as set forth in the agreement, then the
Company  shall on demand  reimburse  to  Invitel  all costs,  expenses  and fees
(including without limit financial and technical advisors and attorneys fees) in
relation to the  investigation,  and  negotiation  of the  Transaction,  and all
associated and connected matters up to the maximum amount of EUR 400,000

(i) Purchase obligation of 85% ownership of Navigator

      On or  before  the date of  closing  of the sale of  Euroweb  Hungary  and
Euroweb Romania to Invitel, Euroweb International will purchase 85% ownership of
Navigator  representing a purchase  obligation in a value of $6,000,000 in cash.
At the date of closing at the latest,  Euroweb  Hungary has to settle all of its
bank  loans  including  the  $6,000,000   Commerzbank   loan  obtained  for  the
acquisition of Navigator.


                                      F-24
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. STOCK OPTION PLAN AND EMPLOYEE OPTIONS

a) Stock option plans

      The  Company's  Stock  Option  Plan  expired in 2003,  although  unexpired
options issued under this plan were  exercisable  until expiry.  At December 31,
2004,  options for 63,000 common stock were  outstanding  and exercisable by the
Chief Executive  Officer under the Stock Option Plan,  which expired on April 2,
2005. No options remained outstanding as of December 31, 2005.

      In 2004, the Board of Directors  established  the "2004 Incentive Plan" or
"the Plan",  with an aggregate of 800,000 shares of common stock  authorized for
issuance  under the Plan.  The Plan  provides that  incentive  and  nonqualified
options may be granted to key employees,  officers, directors and consultants of
the Company for the purpose of providing an incentive to those persons. The Plan
may be  administered  by either the Board of  Directors  or a  committee  of two
directors  appointed by the Board of Directors (the  "Committee").  The Board of
Directors or Committee determines, among other things, the persons to whom stock
options are granted,  the number of shares  subject to each option,  the date or
dates upon which each option may be exercised and the exercise price per share.

      Options  granted under the Plan are generally  exercisable for a period of
up  to  ten  years  from  the  date  of  grant.  Incentive  options  granted  to
stockholder's  that hold in excess of 10% of the total combined  voting power or
value of all classes of stock of the Company must have an exercise  price of not
less than 110% of the fair market value of the  underlying  stock on the date of
the grant.  The Company  will not grant a  nonqualified  option with an exercise
price less than 85% of the fair market value of the  underlying  common stock on
the date of the grant.

      On April 26, 2004 under the Plan, the Company  granted  125,000 options to
the Chief Executive Officer and an additional  195,000 options to five employees
and 45,000 options to two consultants of the Company.  All of these options have
an exercise price equal to the market price on day of grant ($4.78), vest over a
period of  between  three and four  years and  relate to future  services  to be
performed.  As the Company  follows APB 25 with respect to accounting for grants
made to employees,  no compensation  expense was recorded for these options. The
total  compensation  expense for their options granted to the two consultants is
$162,000, which is being expensed over the vesting period of three years.

      In March 2005,  one of the Directors has resigned and his 100,000  options
expired unexercised.

      The  President  and a Director  of the  Company is  eligible to receive an
annual  compensation of $250,000  starting from April 15, 2005, which is payable
in shares of Euroweb common stock. The number of shares to be paid is calculated
based on the average  closing price 10 days prior to each  employment  year. The
number of shares  for the year  ended  April 14,  2006 is  82,781.  Compensation
expense for the year ended December 31, 2005 was $177,083 (2004: $-). On January
5, 2006,  58,968 shares has been issued from the total of 82,781 shares covering
the period from April 15, 2005 to December 31, 2005.


                                      F-25
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(b) Other Options

      The Company has issued options  pursuant to employment  agreements.  As of
December 31, 2004 fully  vested  options are  outstanding  and  exercisable  for
63,000 shares  pursuant to the  employment  agreement  with the Chief  Executive
Officer. The options were granted on April 2, 1999 (with exercise price equal to
stock  price at date of grant) and  expired  unexercised  on April 2, 2005.  The
options were exercisable at $10.00 per share.

      On October 13 2003,  the Company  granted two  Directors  100,000  options
each,  at an exercise  price  (equal to the fair value on that day) of $4.21 per
share,  with 25,000 options vesting on each April 13, 2004, 2005, 2006 and 2007.
There were 100,000 options outstanding as of December 31, 2005.

      The  following  table  summarizes  the total  number  of shares  for which
options have been issued (Stock Option Plan,  2004  Incentive  Plan,  Employment
Agreements and grants to Directors) and are outstanding:


                                             2005                 2004
                                      -------------------  -------------------
                                                 Weighted             Weighted
                                                 average              average
                                                 exercise             exercise
                                      Options     Price    Options     Price
                                      --------   --------  -------    --------
Outstanding, January 1,                654,000   $   5.33  309,000    $   5.95
Granted                                300,000       3.62  365,000        4.78
Cancelled                                   --         --       --          --
Expired                               (249,000)      6.47  (20,000)       5.00
                                      --------   --------  -------    --------
Outstanding, December 31,              705,000       4.20  654,000        5.33
                                      ========   ========  =======    ========

      195,000  options  under  the  2004  Incentive  Plan  are  outstanding  and
exercisable as of December 31, 2005.

      No options were exercised in 2005 and 2004.


      The  following  table  summarizes  information  about  shares  subject  to
outstanding  options as of  December  31,  2005 which were  issued to current or
former employees,  consultants or directors  pursuant to the 2004 Incentive Plan
and grants to Directors:

                 OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
               -----------------------     -------------------------------------
                                           WEIGHTED-
                             WEIGHTED-      AVERAGE                    WEIGHTED-
                 RANGE OF     AVERAGE      REMAINING                    AVERAGE
  NUMBER         EXERCISE     EXERCISE       LIFE         NUMBER       EXERCISE
OUTSTANDING       PRICES       PRICE       IN YEARS     EXERCISABLE      PRICE
-----------    -----------   ---------     ---------    -----------    ---------

   100,000           $4.21       $4.21          3.76         50,000        $4.21
   305,000           $4.78       $4.78          4.31        182,500        $4.78
   200,000           $3.40       $3.40          5.22         50,000        $3.40
   100,000           $4.05       $4.05          5.42         25,000        $4.05
-----------                                             -----------
   705,000     $3.40-$4.78       $4.20          4.46        307,500        $4.40
===========                                             ===========



                                      F-26
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. SEGMENT INFORMATION

      The  Company's  operations  fall into one industry  segment:  providing IT
outsource  services to business  customers.  The Company manages its operations,
and  accordingly  determines  its  operating  segments,  on a geographic  basis.
Consequently,  the Company has one operating segments:  Hungary. The performance
of geographic  operating  segments is monitored based on net income or loss from
continuing  operations  (after  income  taxes,  interest,  and foreign  exchange
gains/losses).  The  accounting  policies of the  segments are the same as those
described  in the  summary  of  accounting  policies  in  Note 2.  There  are no
intersegment sales revenues.

      The following tables summarize financial information by geographic segment
for the year ended December 31, 2005 and 2004:

Geographic information for 2005

                                        Hungary       Corporate        Total
                                      -----------    -----------    -----------
Total revenues                        $ 1,964,998             --    $ 1,964,998

Depreciation                              147,547             --        147,547
Intangible amortization
(customer contract)                       361,931             --        361,931

Interest income                             2,512             --          2,512
Interest expense                          (38,240)            --        (38,240)
Net interest (expense)
income                                    (35,728)            --        (35,728)

Income tax - current                           --             --             --
Income tax - deferred                      57,908             --        57 ,908
Net loss from continuing operations   $  (314,700)   $(1,703,466)   $(2,018,166)

Fixed assets, net                       1,071,989             --      1,071,989
Fixed asset additions                     103,835             --        103,835
Goodwill                                8,150,672                     8,150,672


Geographic information for 2004

                                                      Corporate        Total
                                                      ----------     ----------
Total revenues                                                --             --

Depreciation                                               2,048          2,048
Intangible impairment                                         --             --
Goodwill impairment                                           --             --

Interest income                                           49,154         49,154
Interest expense                                              --             --
Net interest (expense)
income                                                    49,154         49,154

Income tax                                                    --             --
Net loss from continuing operation                    (1,402,766)    (1,402,766)

Fixed assets, net                                             --             --
Fixed asset additions                                      2,048          2,048
Goodwill                                                      --             --


                                      F-27
<PAGE>


                           EUROWEB INTERNATIONAL CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

15.  RELATED PARTY TRANSACTIONS

      KPN  owned  approximately  43.54%  (December  31,  2005:  35.20%)  of  the
outstanding  shares of Euroweb  common  stock as of  December  31,  2004,  and a
majority  interest in Pantel.  On February 28, 2005, KPN sold its 75.1% interest
in Pantel to Hungarian Telephone and Cable Corp. Therefore,  Pantel is no longer
considered a related party of the Company effective March 1, 2005. There were no
material related party transactions in continouing operation in 2005 and 2004.


16. SUBSEQUENT EVENTS

(a) Issuance of shares

      In January 2006,  the Company  issued 58,968 shares of common stock out of
the total 82,781  covering the service period between April 15, 2005 to December
31, 2005.

(b)  Termination of Consultant contract

      In February  2006,  the Company  terminated its contract with a consultant
providing  investor relation  services.  The warrants granted under the contract
are reduced  time-proportionally  to 83,330, based on the time in service by the
consultant.

(c) Cancellation of shares put into escrow

      In January 2006,  the Company  acquired and cancelled the shares that were
put into escrow.


                                      F-28