Securities and Exchange Commission

                             Washington, D.C. 20549

                                   Form 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the fiscal year ended December 31, 2004

                                       OR

[ ]  TRANSITIONAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934

       For the transition period from _______________to_________________

                         Commission File Number 001-1200

                           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:

        Title of Each Class            Name of Each Exchange on which Registered
-------------------------------------- -----------------------------------------
Common Stock, par value $.001 per share               NASDAQ SMALL CAP

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 is not  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. [ ]

Issuer had revenues of  $36,615,725  for the year ended December 31, 2004. As of
March 25,  2005,  5,342,533  shares of Common  Stock were  outstanding  of which
3,016,490 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  $9,743,263  (based upon the closing bid price on such date on the Nasdaq of
$3.23).


Transitional Small Business Disclosure Format (check one):

Yes ___  No  X



<PAGE>

<TABLE>
<CAPTION>


                                TABLE OF CONTENTS

                                                                                                                Page
<S>                                              <C>                                                             <C>
PART I            ................................................................................................3

   Item 1.        Description of Business.........................................................................3
                  EuroWeb Strategy................................................................................3
                  Entry into ISP Market in Central Europe and History of Acquisitions.............................3
                  Products and Services...........................................................................6
                  Customers.......................................................................................7
                  Network Operations and Technical Support........................................................7
                  Sales and Marketing.............................................................................8
                  Government Regulations..........................................................................8
                  Employees.......................................................................................8

   Item 2.        Description of Properties.......................................................................8

   Item 3.        Legal Proceedings...............................................................................9

   Item 4.        Submission of matters to a vote of security holders.............................................9


PART II           ................................................................................................9

   Item 5.        Market For Registrant's Common Equity And Related Stockholder Matters...........................9
                  Market Information..............................................................................9
                  Holders of Common Stock........................................................................10
                  Dividends......................................................................................10

   Item 6.        Management's Discussion and Analysis of Financial Condition and Results of Operations..........11
                  Operations.....................................................................................11
                  Results of Operations..........................................................................18
                  Year Ended December 31, 2004 compared to Year Ended December 31, 2003..........................18
                  Liquidity and Capital Resources................................................................23
                  Inflation and Foreign Currency.................................................................24
                  Effect of Recent Accounting Pronouncements.....................................................24
                  Risk Factors...................................................................................25

                  Forward-Looking Statements.....................................................................29

   Item 7.        Financial Statements...........................................................................F-1

   Item 8.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...........30

   Item 8A   CONTROLS AND PROCEDURES.............................................................................30

   Item 8B   OTHER INFORMATION...................................................................................30


                                       i


<PAGE>


PART III     ....................................................................................................31

   Item 9.        DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                  WITH SECTION 16(A) OF THE EXCHANGE ACT.........................................................31


   Item 10.       EXECUTIVE COMPENSATION.........................................................................34

   Item 11.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................38

   Item 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................40

PART IV      ....................................................................................................41

   Item 13.       EXHIBITS.......................................................................................41


   Item 14.       PRINCIPAL ACCOUNTANT FEES AND SERVICES  .......................................................42
</TABLE>



                                       2
<PAGE>

                                     PART I

Item 1.  Description of Business

History of Business

     EuroWeb  International  Corp.  (the  "Company" or  "EuroWeb") is a Delaware
corporation  which was organized on November 9, 1992. It was a development stage
company through December 31, 1993.

     The  Company  operates  in  Hungary,  Slovakia  and  Romania,  through  its
subsidiaries  Euroweb Hungary Rt..  ("Euroweb  Hungary"),  Euroweb Slovakia a.s.
("Euroweb Slovakia") and Euroweb Romania S.A. ("Euroweb  Romania").  On December
16, 2004, the Company  disposed of Euroweb Czech and no longer has operations in
the Czech  Republic.  In early 2005,  the  Company  has decided to sell  Euroweb
Slovakia and therefore in 2005 Euroweb Slovakia will be considered  discontinued
operations for U.S. financial reporting purposes.

     The Company  provides  Internet access and additional  value added services
including  international/national  leased  line and voice  services  primary  to
business customers.

     KPN Telecom BV owned approximately  43.54% of EuroWeb's  outstanding shares
of common stock as of December 31, 2004.   In 2004,  KPN Telecom B.V.  announced
its intention to divest its interest in Pantel Rt., with certain sale agreements
being signed with a view to final consummation in 2005. In addition,  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 our common stock for
US  $1,000,000  on February  1, 2005 and has also  agreed to sell its  remaining
2,036,188 shares of our common stock on or prior to April 30, 2006.


EuroWeb Strategy

     The  Company  strives  to  be a  leading  supplier  in  Central  Europe  to
businesses of complete  communications  solutions  using Internet  technologies.
Rather than  servicing  individual  users,  the  Company  focuses its efforts on
business  users and seeks to  satisfy  all their  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.

     The  Company's  business  has shown  continued  growth since it entered the
Internet field in January 1997, and the Company has made various acquisitions in
Hungary, the Czech Republic,  Slovakia and Romania. The Company's acquisition of
Elender Rt. in Hungary has resulted in a more than 50% increase in  consolidated
revenues  over the previous  year.  The Company is focusing on its core business
and therefore sold its Czech operations in December 2004 and the sale of Euroweb
Slovakia  in 2005 is  probable.  However,  the Company is  constantly  reviewing
various  business  opportunities,  which may include  either an acquisition or a
merger  with  another  company.  No  assurances  can be  given  that  we will be
successful  in  identifying  or  negotiating  or closing any of these  potential
business opportunities.

Entry into ISP Market in Central Europe and History of Acquisitions/Dispositions

     The Company entered the Internet Service Provider ("ISP") market in Central
Europe through various acquisitions of companies in that area over the past five

                                       3
<PAGE>

years.  All share figures in the discussion  below have been restated to reflect
the one for five reverse stock split effective August 21, 2001.

Hungary

     On January 2, 1997, the Company  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.  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 (after the capital
increase,  the ownership ratio remained 49 - 51 percent).  In February 2004, the
Company acquired the 51% of Euroweb Hungary Rt. that it did not already own from
Pantel Rt. and is fully consolidated in the financial statements for all periods
presented (see Note 2 (q) in the accompanying  2004 financial  statements).  The
consideration  paid by the Company for the 51% interest  comprised EUR 1,650,000
(USD $2,105,000) in cash, and a guarantee that Euroweb Hungary Rt. will purchase
at least HUF 600  million  (approximately  $3 million)  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 Rt. In the event that
Euroweb Hungary and its subsidiaries do not satisfy this commitment,  Pantel Rt.
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  Business  Communications  Services  Ltd  ("Elender  Rt."),  an Internet
service  provider  located  in  Hungary  that  provides  internet  access to the
corporate and institutional  (public) sector and, amongst others,  2,300 schools
in Hungary.  Consideration paid of USD $9,350,005 consisted of USD $6,500,000 in
cash and  677,201  of the  Company's  common  shares  valued  at USD  $2,508,353
excluding  registration  cost, and USD $341,652 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.   The  Company
anticipates  repaying these loans entirely by the end of 2005, however, if there
is a default on the  outstanding  loan,  then the  shares  will be issued to the
other party and the Company is then obliged to register these shares.


                                       4
<PAGE>

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
consisting  of 90,000 shares of the  Company's  common stock and 50,000  options
valued at $2.00 per share,  and 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 Internet
service  provider in the Czech  Republic for $280,735 in cash,  which 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. However, as a part
of the transaction, the Company effectively forgave $400,000 of loans receivable
from Euroweb Czech.

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  consisting of 47,408 shares of the Company's common stock valued at
$400,005  issued August 9, 1999 and the balance paid in cash.  This  acquisition
was effective as of August 1, 1999. The Company then 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 consisting of
29,091 shares of the Company's common stock valued at $200,000 issued August 13,
1999 and the balance 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,
consisting  of 71,114  shares of the  Company's  common stock valued at $499,929
issued on September 23, 1999, and the balance paid in cash. This acquisition 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  Internet  service  provider  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 Slovakian  operations  were then merged into one company under the name
of Euroweb Slovakia. In early 2005, the Company decided to sell Euroweb Slovakia
and therefore Euroweb Slovakia will be considered discontinued operations for US
financial reporting purposes in 2005.

                                       5
<PAGE>



Romania

     On May 19, 2000, the Company  purchased all of the Internet  related assets
of Sumitkom  Rokura,  S.R.L.  an  Internet  service  provider  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 Internet  service  provider 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 was changed to Euroweb Romania,  S.A. This acquisition was effective as
of July 1, 2000.

Stock issued to KPN Telecom B.V.

     On February 11, 2000, a special  meeting of the  shareholders  approved the
issuance  and sale by the Company to KPN Telecom  B.V.  ("KPN"),  a  Netherlands
Limited Liability  Company,  of 2,057,348 shares at $7.9 per share and rights to
shares equal to all other outstanding warrants,  options and other securities at
$6.9 per share.  At closing KPN exercised its option to purchase  303,362 shares
at $6.9 per share in addition to the 2,057,348  shares at $7.9 per share.  These
approvals  gave KPN control of 51% of the Company's  common stock,  representing
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

The activity of the Company can be divided into the following categories:

     o    Traditional  ISP  services:  (a) Internet  access,  (b) Content,  Web,
          Advisory and other services, including IT services

     o    International/national  leased line, IP data services (IP  connections
          between different countries);

     o    Voice or Voice over IP services; and

     o    Facilities  (sale,  rent and  maintenance  of dark fiber  between  the
          Hungarian border and the Romanian City of Timisoara)

     o    Any feature of service  that might be considers a  combination  of the
          above.

Traditional ISP services

Internet access

     Access to the Internet can be either through a leased line / DSL, microwave
technology, which enables a constant connection to the Internet at all times, or
through dial-up service,  which requires  subscribers to dial a telephone number
to connect to the  Internet.  EuroWeb  offers a variety  of access  options  and
packages.

                                       6
<PAGE>

Content and Web services

In addition to internet access services,  EuroWeb provides  services such as the
design,  development,  hosting and  maintenance  of home pages and web  servers,
domain registration, consulting, and other services.

International/domestic leased line, IP data services

     In  order to meet  requests  of  International  customers,  EuroWeb  offers
international/national  data connection for companies across borders,  or within
the countries to connect premises in different countries.  This service includes
single (one to one point) and also Virtual  Private Network (many to many point)
IP connections.  In most cases,  PanTel Rt. acts as a partner in the development
of international network possibilities.

Voice or voice over IP services

     The  Company  offers  several  voice  products to private  individuals  and
businesses. They can be categorized as follows:

     (a)  Wholesale   voice   termination:    Capitalizing   on   its   existing
          international  presence and cross border  connections,  EuroWeb offers
          voice services to major carriers based on Internet  Protocol (IP), SS7
          or other  technology.  Carriers sends Voice minutes to/from the region
          in which EuroWeb operates.  Euroweb's most significant VOIP partner is
          Pantel Rt.
     (b)  Retail voice  origination:  businesses may use phone services  through
          leased  line on  competitive  international  and long  distance  rates
          through Euroweb network.
     (c)  Neophone prepaid  phonecard:  Individuals can benefit on lower cost of
          international  and long  distance  calls by  purchasing  this product,
          which  can be used on any  phone  in the  incumbent  telecom  operator
          network
     (d)  New Neophone  products such as: (i) VoIP service  accessed through the
          Internet  aimed  mainly at the  residential  segment (ii) CPS (Carrier
          Pre-Selection) service (iii) Other similar features using VOIP

Customers

     Our  customers  are mainly local  businesses  and  professionals  including
telecommunication  carriers and  multinational  corporations.  Our customer base
uses  more than  1,500  leased  lines and over  30,000  dial up  connections  in
Hungary, Slovakia, and in Romania as of December 31, 2004.

Network  Operations and Technical Support

     As of December 31, 2004,  EuroWeb had a network operations group consisting
of approximately 110 people, including technical and customer support employees.
EuroWeb's network  operations  personnel located at EuroWeb's network operations
center in  Hungary,  Slovakia  and  Romania  are  responsible  for  continuously
monitoring traffic across EuroWeb's network infrastructure and also to carry out
implementation  of new customer  connections both for Internet and other IP data
connections. Both technical support and customer support personnel are currently
available from 8 a.m. to 8 p.m.,  Monday through Friday.  At other times,  these
personnel respond to technical support requests via telephone 24 hours a day. By

                                       7
<PAGE>

the end of December  2004,  EuroWeb  owned or  contracted  97 Point of Presences
(POPs) covering the territory of the Hungary, Slovakia and Romania.

Sales and Marketing

     EuroWeb employs  approximately 73 persons in sales and marketing.  To date,
EuroWeb has sold its  Internet  access and  applications  products  and services
primarily through direct personal and telephone  contact.  The sales force works
closely with the customer and technical support group,  which is responsible for
installation  at  multiple  sites  and  for  support  and  technical  consulting
services.

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 Internet
and  Telecommunications.  However, with the increasing popularity and use of the
Internet, it is likely that new laws and regulations involving the Internet will
be adopted at the local,  state,  national  or  international  levels,  covering
issues such as domain registration, user privacy, freedom of expression, pricing
of products and services,  taxation,  information security or the convergence of
traditional communications services with Internet communications.

Employees

     The Company employs a total of 234 persons in Hungary, Slovakia and Romania
all of  whom  are  full-time  employees.  None  of the  Company's  employees  is
represented by a labor organization.

Item 2.  Description of Properties

     The  following  table  lists the office  spaces  that the  Company  and its
subsidiaries lease from unaffiliated persons:

<TABLE>
c                                                                                                Rent
                                                                                               Amount/
       Lessor               Address of Property               Primary Use         Sq. feet     Month    Lease Terms
---------------------    --------------------------    ------------------------ ---------   ---------- -----------------

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

                          Budapest, Hungary             general operation                                  non-cancelable


Euroweb Slovakia *        Priemyselna 1/A               general operations           14,274     $12,500    August 31,
                          SK - 821 09                                                                            2007
                          Bratislava, Slovakia

                                                                                                           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>


                                       8
<PAGE>

     * Management expects that this lease agreement will be included in any sale
of Euroweb Slovakia

     The Company's Chief Executive, Csaba Toro, uses offices provided by Euroweb
Rt. No rent was charged in 2004.

Item 3.  Legal Proceedings

     Euroweb  Slovakia  has been the  National  registrar  of Top Level  Domains
(suffix attached to Internet domain names e.g. .sk, .net, etc.) since the middle
of 2003. The Company has been subject to legal  proceedings  and  submissions to
different  authorities  in  connection  with its  exclusive  right to manage the
system.  The Company has succeeded in its defense on all occasions to date,  but
there is no  assurance  that it will be able to keep these  rights  and/or  that
penalties will not be charged in the future.


     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.

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, 2004.

                                    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".  On August  30,  2001,  the  shareholders
approved a one-for-five reverse stock split of the Company's Common Stock.

     The  following  table sets forth the high and low bid prices for the Common
Stock during the periods  indicated as reported by Nasdaq.  The prices  reported
reflect inter-dealer  quotations,  and may not represent actual transactions and
do not include retail mark-ups, mark-downs or commissions.

                                       9
<PAGE>



                                               High$                      Low$
Quarter Ending:

2003
March 31, 2003                                  3.73                      1.53
June 30, 2003                                   3.25                      1.92
September 30, 2003                              8.30                      2.45
December 31, 2003                               4.82                      3.10


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



On March 29, 2005 the  closing bid price on the Nasdaq for the Common  Stock was
$3.28.

Holders of Common Stock

     As of March 25,  2005,  the Company had  5,342,533  shares of Common  Stock
outstanding  and 177  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.

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
<TABLE>
<CAPTION>

------------------------------- ----------------------------  ----------------------------  ----------------------------
Plan Category                   Number   of  shares  to  be   Weighted-average   exercise   Number of shares  remaining
                                issued  upon   exercise  of   price    of     outstanding   available     for    future
                                outstanding   options   and   options and warrants          issuance    under    equity
                                warrants                                                    compensation plans
------------------------------- ----------------------------  ----------------------------  ----------------------------
<S>                                       <C>                           <C>                         <C>
Approved by security holders              391,000                       $5.16                       435,000
------------------------------- ----------------------------  ----------------------------  ----------------------------
Not   approved   by   security            263,000                       $ 5.6                             -
holders
------------------------------- ----------------------------  ----------------------------  ----------------------------
Total                                     654,000                       $5.33                       435,000
------------------------------- ----------------------------  ----------------------------  ----------------------------
</TABLE>


     The  equity  compensation  plans  are  discussed  in  Note  14 of the  2004
Consolidated Financial Statements.

                                       10
<PAGE>

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, 2004 that have not
been previously  included in a Quarterly Report on Form 10-QSB of Current Report
on Form 8-K.




Item 6 Management's  Discussion and Analysis of Financial  Condition and Results
     of Operations

Overview

We own and operate Internet Service  Providers in Hungary,  Romania and Slovakia
through our subsidiaries, Euroweb Hungary, Euroweb Slovakia and Euroweb Romania.
On December 16, 2004, we sold Euroweb Czech and no longer have operations in the
Czech Republic. In early 2005, we decided to sell Euroweb Slovakia and therefore
in 2005 Euroweb  Slovakia will be considered  discontinued  operations  for U.S.
reporting purposes.

We operate in one industry  segment,  providing  Internet  access and additional
value added services to business customers.

Our revenues come from the following four sources:

o    Internet Service Provider (Internet access, content and web services, other
     services);
o    International/domestic leased line and Internet Protocol data services;
o    Voice or Voice over Internet Protocol services; and
o    Facilities  (sale,  rental  and  maintenance  of  dark  fiber  between  the
     Hungarian border and the Romanian City of Timisoara).

For the services in the second and third points in Romania, our main customer in
2004 and 2003 was Pantel Rt, a related party (the Company is no longer a related
party with Pantel from March 1, 2005 - See Note 17 (a) of Notes to  Consolidated
Financial Statements).


As an Internet Service  Provider,  we generally did not build out optical fibers
in the past,  instead  entering into a number of agreements with  infrastructure
owners and telecom  companies to buy  internet  and telecom  services and resell
them  to  our  customers.   We  also  provide  value  added  services  and  more
comprehensive  solutions to our customers  (additional  services through domain,
web, hosting,  application development,  technical support, VPN, advising, voice
services  etc.).  Such a  structure  enables  our  company to avoid  significant
capital   expenditures  on  network  development.   However,   without  our  own
infrastructure, our ability to compete with other Internet Service Providers and
telecom  companies is limited due to existing access costs. In order to mitigate
the impact of newly  introduced  cheaper  technology  and  competition,  we took
several steps, including the following:

                                       11
<PAGE>

o Built strategic partnership with telecom companies;
o Increased the value added services and offered more comprehensive solutions;
o Introduced voice and international/domestic leased lines services;
o Started to build its own optical fiber network in Romania; and
o Made acquisitions to ensure economies of scale and utilize synergies.

This strategy has resulted in increased revenues and a reduction of losses since
2002 and has also increased our cash generating ability.

Related party transactions - Pantel Telecommunications Rt. (or "Pantel Rt.")

General: Our largest customer and supplier since early 2001 has been Pantel Rt.,
a Hungary-based alternative  telecommunications provider. Pantel operates within
the region and has become a  significant  trading  partner for  Euroweb  Romania
through the provision of a direct fibre cable connection which enables companies
to transmit data to a variety of  destinations  by utilizing  the  international
connections of Pantel Rt. As a result, Euroweb Romania became the preferred, but
not  exclusive  partner of Pantel Rt. for  services in  Romania.  In addition to
this, Euroweb Hungary utilizes  significant telecom services from Pantel Rt. Due
to  the  fact  that a  significant  portion  of  our  revenue  is  generated  by
international/domestic  leased line and Voice over Internet Protocol services, a
small number of our representatives  have moved to the premises of Pantel Rt. in
order to improve co-operation on international and national projects.

After the  acquisition and  consolidation  of Euroweb Hungary and Elender Rt. in
2004,  the  balance  and volume of  transactions  with  Pantel  Rt. has  changed
significantly.  First,  the net  receivable  position in the past (related party
receivables  less  related  party  liabilities)  has changed to a net  liability
position through the large trade and loan liability  position of Euroweb Hungary
to  Pantel  Rt.  Second,  sales  dependency  on  Pantel  Rt.  (i.e.  percent  of
consolidated sales derived from Pantel Rt.) will decrease as Euroweb Hungary and
Elender Rt. have insignificant  sales to Pantel Rt. Third,  dependency on Pantel
Rt. as the main supplier of the Company increased as Pantel Rt. is also the main
supplier of Euroweb Hungary.

Transactions:  Both Euroweb  Hungary and Euroweb Romania engage in the following
transactions with Pantel Rt.:

(a) Pantel Rt. receives revenue from the provision of the following  services to
the Company and its subsidiaries:

- Internet and related services;
- National and international leased and telephone lines;
- VOIP services;
- Consulting services; and
- Interest on a loan to the Company.

The  total  amount  of  telecom  related  services  were USD  $6,198,505  (2003:
$5,796,350 - restated)  during the year ended  December  31, 2004.  Additionally
$154,761 (2003:  $292,864 - restated) is interest  expense (2004) and consulting
fees (2003).

(b) Our company and our subsidiaries  received revenue from the provision of the
following services to Pantel Rt.:

                                       12
<PAGE>

-    Cost of international leased lines and local telephone lines in Romania;
-    International/national  data and voice over internet  protocol services for
     Pantel;
-    Internet and related services;
-    Consulting services; and
-    Commission.

Total value of these services were  approximately  $8,503,939 (2003:  $5,740,709
restated) for the year ended December 31, 2004.

During the year ended  December  31,  2004,  direct sales to Pantel Rt. were 23%
(2003: 26% - restated) of total consolidated  revenues.  However, the dependency
on Pantel is even more  significant.  Some third party sales of Euroweb  Romania
involve   Pantel   Rt.   as   the   subcontractor/service   provider   for   the
international/domestic  lines  (hence  the  revenues  related  to Pantel Rt. are
greater than the amounts paid to Pantel Rt.), and some third party customers are
also clients of Pantel Rt.  outside of Romania  (i.e.  their  relationship  with
Pantel is stronger than their relationship with Euroweb Romania).

Effective  dependency  on Pantel  Rt. - taking  into  account  direct and Pantel
Rt.-related sales - represents  approximately 30% of total consolidated revenues
of the Company and  approximately 80% of total sales of Euroweb Romania in 2004.
There is no such dependency in the case of Euroweb Hungary or Euroweb Slovakia.

With respect to pricing,  agreements are made at market prices or a split of the
margin based on the financial  investment into the specific  services by each of
the  parties.  The  Company  always  considers  alternative  suppliers  for each
individual project.

On February 28, 2005, KPN Telecom B.V. (the majority owner of Pantel Rt. and our
largest  shareholder),  completed the sale of its entire  interest in Pantel Rt.
Therefore Euroweb is no longer related party with Pantel from March 1, 2005.

It cannot be predicted in advance  whether  these changes will have an influence
on the  business  relationship  between  the  Company  and Pantel  Rt.  However,
management  believes - although it cannot be assured - that the current business
agreements  were  made on  arms-length  principles  and are  beneficial  to both
parties, and therefore significant changes may not occur.

The Company has not experienced  material changes in the mutual  relationship in
the first quarter of 2005 with Pantel Rt.

Acquisitions and disposals

(a) Acquisition of remaining 51% of Euroweb Hungary Rt.

The Hungarian  operations are conducted  through Euroweb Hungary Rt. In February
2004, the Company  acquired the remaining 51% of Euroweb Hungary Rt. that it did
not already own from Pantel  Telecommunication  Rt.  ("Pantel Rt.") and is fully
consolidated in the financial statements for all periods presented.

The  consideration  paid  by the  Company  for the 51%  interest  comprised  EUR
1,650,000 (USD  $2,105,000)  in cash,  and a guarantee that Euroweb  Hungary Rt.
will  purchase at least HUF 600  million  (approximately  $3  million)  worth of

                                       13
<PAGE>
services from Pantel Rt. in each of the three years ending December 31, 2006.

(b) Acquisition of Elender Business Communications Rt. ("Elender Rt.")

On June 9, 2004, the Company  acquired all of the outstanding  shares of Elender
Rt., an Internet Service Provider ("ISP") located in Hungary. Consideration paid
of USD  $9,350,005  consisted  of USD  $6,500,000  in cash  and  677,201  of the
Company's common shares valued at USD $2,508,353  excluding  registration  cost,
and USD $341,652 in transaction costs (consisting primarily of professional fees
incurred related to attorneys,  accountants and valuation advisors). The results
of Elender  Rt.  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" ("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 consideration has been allocated as follows:

       Fair value of Elender Rt.'s recorded assets acquired and
       liabilities assumed                                            1,379,404
       Identified intangibles - customer contracts                    2,730,420
       Excess purchase price over allocation to identifiable
       assets and liabilities (Goodwill)                              5,240,181
                                                                    -----------
     Total Consideration                                              9,350,005
                                                                    ===========

In performing this purchase price allocation of acquired intangible assets based
in part on the  valuation  performed by an  independent  appraiser,  the Company
considered  its intention  for future use of the assets,  analyses of historical
financial  performance  and  estimates of future  performance  of Elender  Rt.'s
services, among other factors.  Acquired identifiable intangible assets obtained
in the Company's  acquisition of Elender Rt. relate to customer  contracts which
are being amortized over the estimated useful life of 2.5 years.

The Company  estimated the fair values of the identified  intangibles - customer
contracts using the "income"  valuation approach and discount rates ranging from
14% to 18%.  The discount  rates  selected  were based in part on the  Company's
weighted  average  cost of capital and  determined  after  consideration  of the
Company's  rate of  return  on debt and  equity,  and the risk  associated  with
achieving forecasted cash flows.

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 Elender Rt. received shares of common stock of the
Company,  each of the former owners of Elender Rt. 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.

                                       14
<PAGE>
The following unaudited pro-forma information presents a summary of consolidated
results of operations of the Company  including the  acquisition of Elender Rt.,
the disposal of Euroweb  Czech,  and the probable  disposal of Euroweb  Slovakia
(see Note 17 Subsequent  Events) as if the  transactions had occurred at January
1, 2003.

                                           December 31, 2004   December 31, 2003
Revenues                                     $43,341,912          $39,686,446
Net Loss                                     ($2,408,146)         ($2,741,788)
Net Loss per share                                ($0.45)              ($0.51)


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,  2004 or  2003,  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  or synergies  that may result from the  Company's
acquisition of Elender Rt.

(c) Disposal of Euroweb Czech Republic

On  December  16,  2004,  the  Company  sold 100% of  Euroweb  Czech for cash of
$500,000. However, as a part of the transaction, the Company effectively forgave
$400,000 of loans  receivable from Euroweb Czech. The Company realised a gain on
disposal of  approximately  $409,000 on this sale.  The results of Euroweb Czech
are shown as discontinued operations in the accompanying financial statements.

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 1
to the 2004  Consolidated  Financial  Statements.  We  identified  the following
accounting  policies as critical to understanding  the results of operations and
the  effect  of  the  more  significant  judgments  and  estimates  used  in the
preparation of the consolidated  financial  statements:  impairment of long-live
assets, allowance for doubtful accounts, stock-based compensation.

                                       15
<PAGE>
Impairment of long lived assets:  We adopted  Statement of Financial  Accounting
Standard No. 142 ("SFAS 142"),  "Goodwill and Other  Intangible  Assets,"  which
establishes  that  goodwill  acquired  in a business  combination  and that have
indefinite  useful lives are no longer  amortized but rather are tested at least
annually for  impairment.  These  policies  require us to make  significant  and
subjective  estimates and  assumptions,  which are sensitive to deviations  from
actual results.  In particular,  we make estimates regarding future undiscounted
cash flows from the use of long-lived assets in assessing  potential  impairment
whenever  events or changes in  circumstances  indicate the carrying  value of a
long-lived asset may not be recoverable. Since there were some events or changes
in  circumstances  in the past,  the carrying  value of  long-lived  assets were
impaired  by  $887,957  (restated)  in 2003 as we  recorded  adjustments  to the
carrying  value of these  assets.  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 long-lived assets.

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.

Stock-Based   compensation:   We  apply  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  FASB  Interpretation  No. 44,  "Accounting  for Certain  Transactions
involving  Stock  Compensation  an  interpretation  of APB  Opinion  No. 25". to
account  for its stock  options.  Under  this  method,  compensation  expense 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  No.  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  we elected to  continue to apply the
intrinsic  value-based method of accounting described above, and has adopted the
disclosure  requirements  of SFAS No.  123, as  amended.  The FASB has  recently
issued Statement 123R which requires  expense  recognition for stock options and
other types of equity-based  compensation based on the fair value of the options
at the grant date. Additionally, the FASB is evaluating how to develop a measure
of the fair value of an option.  As a result,  we will be required to  recognize
expense related to stock options and other types of equity-based compensation in
future  periods.  Additionally,  we may be  required  to change  our  method for
determining the fair value of stock options. This will result in the increase of
compensation expense and related cost in the profit and loss statement.

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  long-lived assets, such as property,  plant and
equipment and 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

                                       16
<PAGE>
the acquired long-lived assets. Due to inherent  subjectivity in determining the
estimated fair value of long-lived assets and the value of business acquisitions
that we have  completed,  we believe that the  recording of acquired  assets and
liabilities is a critical accounting policy.

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.

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 June 1, 2004,  Elender Rt.  (which has now been merged with  Euroweb  Hungary
Rt.) entered into a bank loan  agreement  with  Commerzbank  (Budapest)  Rt. The
agreement  consists of a loan facility of HUF 300 million  (approximately  $1.67
million) of which approximately $1,070,000 was outstanding at December 31, 2004.
The  loan  is  being  repaid  in  quarterly  installments  of HUF  14.5  million
(approximately  $80,000),  commencing  November 30, 2004.  The interest  rate is
BUBOR (Budapest Interbank Offered Rate) + 1.35%.

Notes payable of  approximately  $808,000  relate to outstanding  liabilities to
three previous shareholders of Elender Rt.: Vitonas Investments Limited,  Certus
Kft.  and Rumed  2000 Kft.  The  outstanding  amount is  payable  in four  equal
quarterly installments of HUF 36.438 million (approximately  $202,000), with the
final payment on December 31, 2005.

During  2002  Pantel Rt., a related  party,  provided a loan of HUF  245,000,000
(approximately  $ 1.36 million using 2004 exchange  rate) to a subsidiary of the
Company. The loan bears interest at a rate of 13% and is repayable in five equal
installments  from  December  2004  semi-annually  until  the end of  2006.  The
year-end balance reflects the payment made in December 2004.

The following table summarizes the commitments described above:


<TABLE>
<CAPTION>

----------------------------------- ---------------- ------------- ------------ ------------- -----------
Contractual Cash Obligations             2005            2006         2007          2008      After 2008
----------------------------------- ---------------- ------------- ------------ ------------- -----------
<S>                                         <C>             <C>          <C>         <C>         <C>
Capital leases                      $       284,463  $     94,201  $    54,159             -           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Operational leases                  $       592,019  $    592,019  $   542,019  $    442,019           -

                                       17
<PAGE>
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Employment agreements (1)           $       425,000  $    200,000            -             -           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Purchase commitment                 $     3,000,000  $  3,000,000            -             -           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Related party note payable          $       543,568  $    543,568            -             -           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Bank loan payable                   $       321,704  $    321,704  $   321,704       103,677           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Note payable                        $       808,441             -            -             -           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
Total Contractual Cash Obligations  $     5,975,195  $  4,751,492  $   917,882  $    545,696           -
----------------------------------- ---------------- ------------- ------------ ------------- -----------
</TABLE>

(1) Csaba Toro's salary without bonus, and fixed term contracts of two managers


In addition to the above contractual cash obligations, our subsidiary in Romania
has entered into a 20 year  Indefeasible  Right of Use agreement whereby for the
duration  of the  agreement,  Euroweb  Romania is obliged to use all  reasonable
endeavours to ensure the Cable System is  maintained in efficient  working order
and in accordance with industry  standards.  The total consideration of $920,000
has already been received, and is being accounted for as an operating lease.

We are also obliged to pay a $2,000 per day penalty ($170,000 as of December 31,
2004)  if  the  registration  of the  677,201  shares  (which  is  currently  in
progress),  issued as part of the  purchase  consideration  for  Elender was not
effected by October 2004.  The penalty is payable  until the  effective  date of
registration  if the  delay is  attributable  to the fault of our  company.  The
Company is presently in discussion  with the former  shareholders  of Elender to
obtain a waiver of the penalty,  if any, and therefore  this  contingency is not
incorporated in the above table.

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, 2004 compared to Year Ended December 31, 2003

Due to the  acquisition  of Elender Rt.  from June 9, 2004,  the profit and loss
statements for the year ended December 31, 2004 and 2003 are not comparable from
an  organic  growth  point  of  view.  The  Company   finalized  the  legal  and
organizational  merger of Euroweb  Hungary and Elender Rt. in the fourth quarter
of 2004, and it expects to realize certain synergy effects from 2005 onwards.

On February 12, 2004, the Company purchased the remaining 51% of Euroweb Hungary
shares  that the  Company  did not  already  own from  Pantel  Rt. As this was a
transaction   between  entities  under  common  control  (at  the  date  of  the
acquisition, KPN owned 50.17% of the voting common shares of the Company and 75%
of the voting common shares of Pantel Rt.),  the  transaction  was recorded in a
manner similar to a  pooling-of-interest,  and  accordingly  the 2003 historical
consolidated  financial  statements  have been restated to include the financial
position,  results  of  operations  and cash flows of  Euroweb  Hungary  for all
periods presented.

                                       18
<PAGE>

Year ended December 31,                      2004          2003 (restated)
                                            ------         --------------
              Total Revenues           $ 36,615,725       $ 22,117,058

The Company experienced a 65% revenue growth, or an increase of $14,498,667, for
the twelve  months ended  December 31, 2004  compared to the twelve months ended
December 31, 2003. The increase was mainly due to the acquisition of Elender Rt.
and increase in VOIP services.

The  following  table  summarizes  the main  changes in revenue  compared to the
previous year with respect to the revenue structure:
<TABLE>
<CAPTION>

------------------------------------ ---------------------  ---------------------  --------------
Revenue / services                           2004             2003 (restated)       % change
------------------------------------ ---------------------  ---------------------  --------------
<S>                                  <C>                    <C>                             <C>
ISP activity                         $          22,230,572  $         10,832,514           +105%
------------------------------------ ---------------------  ---------------------  --------------
Int./dom. leased line *(a)           $           6,515,664  $          6,487,607             +1%
------------------------------------ ---------------------  ---------------------  --------------
VOIP (Hungary and Romania)           $           7,755,215  $          4,511,604            +71%
------------------------------------ ---------------------  ---------------------  --------------
Facilities (a)                       $             114,274  $            285,333            -60%
------------------------------------ ---------------------  ---------------------  --------------
Total                                $          36,615,725  $         22,117,058             65%
------------------------------------ ---------------------  ---------------------  --------------
</TABLE>

* - primarily Pantel or Pantel related sales,
(a) substantially all generated by the Romanian subsidiary

ISP revenue analysis

An estimated 78% (approximately $ 9.5 million) of the increase in ISP revenue is
due to the acquisition of Elender Rt. The remaining  growth of ISP revenue (22%)
can be  attributed  to the weakness of the US Dollar  (10%-13%  depreciation  of
dollar  depending on comparisons  with Hungary,  Romania,  Slovakia) and organic
growth  compared to the previous  year.  Due to economic  conditions and pricing
issues, customers - having access type services - generally transfer from higher
monthly  fee   subscriptions   (such  as  leased  line)  to  lower  monthly  fee
subscriptions (e.g. ADSL).  Although the number of total customers has increased
compared to previous  periods,  organic  revenue  growth  possibilities  in this
segment are limited due to the  structural  change in utilized  service types by
the customers.

International/national Leased Line revenue analysis

Revenue from international leased lines and IP data services produced by Euroweb
Romania  has  stagnated  comparing  to last year.  This  service is  provided in
relationship  with Pantel  Rt.'s  client  base and  services,  and is  generally
provided to a small  number of  Internet  Service  Providers,  telecommunication
firms, and other  international  companies.  Due to developments in the Romanian
market in the last few years,  these  individually  agreed wholesale prices have
started to drop (by at least 20% to more than 50%).  Despite price erosion,  the
Company was able to secure new  contracts  (including a government  contract) in
order to offset the negative  trends in the  international  leased line segment.
Additionally, Euroweb Romania has started to increase the proportion of domestic
leased lines  customers  and has achieved an increase from 103 to 269 by the end
of 2004.


VOIP Service revenue analysis
<TABLE>
<CAPTION>

--------------------------------------------- --------------- ---------------- ---------------
VOIP services revenue                              2004       2003 (restated)   % change
--------------------------------------------- --------------- ---------------- ---------------
<S>                                           <C>              <C>                  <C>
Retail voice origination                      $      585,203   $    492,689        +18%
--------------------------------------------- --------------- ---------------- ---------------
Wholesale voice termination                   $    5,183,000   $  2,413,932       +114%
--------------------------------------------- --------------- ---------------- ---------------
Neophone prepaid phonecard  (Hungary)         $    1,987,012   $  1,604,983       +23%
--------------------------------------------- --------------- ---------------- ---------------
Total                                         $    7,755,215   $  4,511,604       +71%
--------------------------------------------- --------------- ---------------- ---------------
</TABLE>

                                       19
<PAGE>
Retail voice  origination is provided to corporate  customers over leased lines.
Such services  enable the customers to reduce their costs of the  international,
long distance and local calls, which they initiate.  35% of revenue is generated
in Romania,  while the  remaining  65% is generated in Hungary.  From 2005,  the
Hungarian subsidiary  introduced a new voice product,  Neophone Deal, which is a
more  convenient  and cheaper way for  companies  to reduce  their voice  costs.
Consequently  future  increases  from this product is limited,  though new voice
service  categories will be introduced.  The services are mostly  denominated in
local currency,  therefore in Dollar terms the overall  increase is less than 7%
due to the depreciation of the US Dollar.

Wholesale voice  termination  represents  voice minutes received from Pantel Rt.
and  forwarded  to Romanian  telecommunication  companies.  Such  services  have
increased by 114%, but the margin has fallen in 2004 as the Company  changed its
wholesale voice termination business model in the middle of 2003, which resulted
in a reduction  in wholesale  margins of more than 10%. It is a price  sensitive
service which is also affected by the  regulatory  environment  in Romania.  The
service bears a high risk that the voice traffic may be completely eliminated if
a strategic decision is made by Pantel to use alternative providers or customers
can obtain better termination rates from competitors. Such volume reductions may
occur at any time,  although  the  impact on the  result  of  operation  will be
limited as margins are low.  Less than 10% of the increase can be  attributed to
the weakening of the US Dollar from 2003 to 2004 against local currencies.

Neophone prepaid  phonecards enable users (private  individuals) to make cheaper
domestic or international  calls compared to the rates of the incumbent  telecom
operators,  and were first  introduced  three years ago in Hungary.  During this
time, the number of users and voice traffic has continuously  and  significantly
increased.  For the year  ended  December  31,  2004,  revenues  from phone card
traffic  increased  by 23%  compared to the  previous  year mainly due to volume
increases and the  appreciation of the Hungarian  Forint by  approximately  10%.
From 2004, the competition  has introduced  aggressively  low prices:  up to 50%
discounts  depending on the  destination of calls compared to previous  periods.
Consequently, the Company also had to reduce its prices, and so this development
may restrict the increase of such revenues in the following quarters.

Facilities revenue analysis

Revenues from  facilities  consist of lease and sale of fiber optic  cables.  In
2003,  a fibre optic sale  transaction  resulted  in  revenues of  approximately
$190,000. This sales revenue is not expected to continue in the future.

Geographic revenue analysis

The  following  table  summarizes  the main  changes in revenue  compared to the
previous year with respect to the geographical source of revenue:

----------------------------- -------------- --------------------- ------------
Revenue/country                   2004           2003 (restated)      Change in
                                                                       %
----------------------------- -------------- --------------------- ------------
Slovakia                        $3,827,738            $3,424,633         +11%
----------------------------- -------------- --------------------- ------------
Hungary                        $19,150,985            $8,519,346        +124%
----------------------------- -------------- --------------------- ------------
Romania                        $13,637,002           $10,173,079         +34%
----------------------------- -------------- --------------------- ------------
Total                          $36,615,725           $22,117,058         +65%
----------------------------- -------------- --------------------- ------------

                                       20
<PAGE>
Slovakia has increased its revenue by 11%,  which can be divided into two parts:
(a) an increase of $644,719 in domain  revenue and (b) a decrease of $241,614 in
other ISP  revenue,  compared to 2003.  The effect of the  strengthening  of the
Slovak  Koruna  against the US Dollar is  approximately  13%, and  therefore the
revenue in local currency has stagnated.

Elender  Rt. has been  consolidated  from June 9,  2004,  and  consequently  the
Hungarian  operations  have  doubled,  mainly  (approximately  89%)  due to this
acquisition.  Approximately  10% of the  increase  in  Hungary  is  because  the
Hungarian  Forint  has  also  strengthened  against  the US  Dollar,  while  the
remaining part is attributable to organic growth.

The Romanian  operations have  experienced a 34% or $3,463,923  revenue increase
compared  to the  prior  period.  Approximately  80%  of  this  increase  can be
attributed to the increased wholesale voice termination,  while the remaining is
mainly in connection with the increased revenue from ISP activity.

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, 2004 and 2003:

Year ended December 31,                                2004      2003 (restated)
                                                       ----      ---------------
              Total cost of revenues             $  23,432,499    $   13,952,186



Cost of revenues  (excluding  depreciation  and  amortization)  comprise  mostly
telecommunication  expenses.  The increase of 68% is consistent with the overall
increase of revenues of 65%.

Compensation and related costs

The following table  summarizes our  compensation and related costs for the year
ended December 31, 2004 and 2003:

Year ended December 31,                                  2004    2003 (restated)
              Compensation and related costs      $   4,182,977    $   2,814,868



Overall   compensation  and  related  costs  increased  by  48%   (approximately
$1,368,000) due mainly to the following factors:  increase due to acquisition of
Elender Rt. in June 2004 (estimated at approximately  $500,000),  an increase in
compensation   and  accrued  bonus  for  CEO  ($154,000),   and  new  management
($192,000).  The  remaining  increase of $522,000 is due to increase of salaries
and  payroll  costs in  subsidiaries  (approximately  50%) and the effect of the
appreciation  of  Hungarian  and  Slovak   currencies   against  the  US  Dollar
(approximately 50%).

Consulting and professional fees

The following table summarizes our consulting and professional fees for the year
ended December 31, 2004 and 2003:

                                       21
<PAGE>


Year ended December 31                               2004        2003 (restated)
                                                     ----        ---------------
              Consulting and professional fees   $ 2,829,025     $  2,074,565


An estimated 85% of the $754,460  increase can be attributed to the  acquisition
of  Elender  Rt. in June 2004  ($535,000),  while the  remaining  part is due to
increased legal and consultancy costs associated with growth of the business.

Other selling, general and administrative expenses

The following  table  summarizes our other selling,  general and  administrative
expenses for the year ended December 31, 2004 and 2003:

Year ended December 31                                   2004    2003 (restated)
                                                         ----    ---------------
Other selling, general and administrative expenses   $ 4,237,848    $ 2,458,429


Overall other  selling,  general and  administrative  expenses  increased by 66%
(approximately  $1,779,000) mainly due to the acquisition of Elender Rt. in June
2004. The main categories are as follows:  increase in marketing cost mainly due
to the operational merger of Euroweb Rt. ($662,000), increase in insurance costs
due to Officers and  Directors  Insurance - ($ 239,000 - a new policy  effective
from end of 2003),  increase in provision on bad debts  ($200,000),  increase in
repair and  maintenance due to merge of the Hungarian  subsidiaries  ($222,000),
and an increase in telecommunication taxes in Romania ($163,000).  The remaining
part can be  attributed to other cost  categories  and the  appreciation  of the
Hungarian, Romanian and Slovak currencies against the US Dollar.

Depreciation and amortization

The following table  summarizes our  depreciation  and amortization for the year
ended December 31, 2004 and 2003:

Year ended December 31,                                2004      2003 (restated)
                                                       ----       --------------
Depreciation                                         $1,933,632       $1,569,224
Amortization of intangibles                            $677,132          $66,909
Impairment of intangibles                                     -         $100,364
Impairment of goodwill                                        -         $887,957
              Total depreciation and  amortization   $2,610,764       $2,624,454

Depreciation  has  increased  by  $364,408 in the year ended  December  31, 2004
compared  to the  same  period  in  2004.  Although  depreciation  increased  by
$362,217,  this  can be  attributed  to two  main  items:  the  acquisition  and
consolidation of Elender Rt. (over $700,000),  which was offset by the reduction
(over $350,000) of depreciation in Euroweb Hungary Rt. due to certain high-value
computer equipment having been fully depreciated by 2003.

Amortization  of  intangibles  of $677,132 in 2004  relates to certain  customer
contracts  of Elender  Rt,  which were  recognized  as  intangible  assets  upon
acquisition.  The 2003 figure relates to amortization of intangibles  related to
customer lists of Euroweb Romania (which were also fully impaired in 2003).

Net interest income

                                       22
<PAGE>

The  following  table  summarizes  our net  interest  income  for the year ended
December 31, 2004 and 2003:


Year ended December 31,                             2004       2003 (restated)
                                                    ----       --------------
Interest income                                    $275,987          $510,928
Interest expense                                   $493,659          $166,608
              Net interest  income                $(217,672)         $344,320



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
acquisitions,  (ii)  the  effective  interest  rate  on  these  investments  has
decreased over the periods in question (iii) securities  expired on February 15,
2004,  without  new  investments  being  made due to cash  being  needed to fund
acquisitions  in 2004,  and  (iv)  consolidation  of  Elender  Rt.  and the loan
liability of Freestart Kft. has increased interest expense by more than $300,000
due to loans outstanding, and consequently have reduced net interest income.

Liquidity and Capital Resources

In recent years, we maintained  approximately  $11 million in cash invested into
US Government  Securities,  which matured in February  2004.  The main source of
these funds was capital injections by KPN in previous years.

As of December 31, 2004, our cash, cash  equivalents  and marketable  securities
were $4.5  million,  a decrease of  approximately  $10  million  from the end of
fiscal  year 2003.  The  decrease is  primarily  due to the  acquisition  of the
remaining  51% of the  Euroweb  Hungary  shares  that  we did  not  already  own
(approximately  $ 2.1 million),  the acquisition of Elender Rt  (approximately $
6.8 million in cash) and partial repayments of related party liabilities.

Cash flow from  operations in fiscal 2004 was $2.2  million,  an increase of 47%
from fiscal 2003.  Investing  activities  also increased the cash at hand of the
company by $1.4 million due mainly to maturity of securities ($11.5 million) and
sale of Euroweb Czech ($0.5 million) which were partially  offset by fixed asset
additions ($1.7 million) and cash paid in the acquisition of Elender Rt. and the
remaining 51% of Euroweb Rt. ($8.9 million).

Cash used in financing  activities  was  approximately  $2.3  million.  The main
portion of this amount  (almost $1.1  million) was used to repay  related  party
payables  ($0.25  million) and notes payable ($0.8  million).  The notes payable
relates to amounts owed by Elender Rt. to its former shareholders. Approximately
$0.7 million was used to repay bank loans and overdrafts  related to Elender Rt.
Upon the acquisition of Elender Rt., the Company took over an overdraft facility
of approximately $830,000 and a loan facility of $1.67 million. At year-end, the
overdraft  facility was available but not utilized,  with the unutilized portion
of the loan facility being approximately $500,000.

Management   believes   that  the  synergy   effects  and   potential   business
opportunities of the merged  Hungarian  entities may contribute to improving our
cash  generating  ability  from  2005.  We intend to reduce  the loans and trade
liabilities of our company from any such cash generated.

                                       23
<PAGE>

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 also consider the sale
of non-strategic assets or subsidiaries.

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.

Inflation and Foreign Currency

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

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  effect 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 effect,  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  our  currency  exposure.   In  the  future,  we  may  engage  in  hedging
transactions to mitigate foreign exchange risk.

The Slovakian Koruna has strengthened by 13%, The Romanian Lei has strengthed by
12%,  while  the  Hungarian  has   strengthened   against  the  U.S.  dollar  by
approximately 10% when compared with 2003.


Effect of Recent Accounting Pronouncements

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payment.  SFAS No. 123(R)  requires an entity to recognize the  grant-date  fair
value of stock options and other equity-based  compensation  issued to employees
in the income  statement,  but expresses no  preference  for a type of valuation
model.  For  small  business  issuers,  the  Statement  is  effective  as of the
beginning  of the first  interim or annual  reporting  period that begins  after
December 15, 2005.  Early  adoption is encouraged  for interim or annual periods
for which  financial  statements  or interim  reports have not been issued.  The
Company is currently  assessing the impact SFAS 123(R) may have on its financial
statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets:
an  amendment  of  APB  Opinion  No.  29,  which  is  part  of  the   short-term
international convergence project between the FASB and IASB. SFAS 153 eliminates
a company's ability to use the similar  productive assets concept to account for
nonmonetary  exchanges at book value  without  recognizing  a gain.  Nonmonetary
exchanges  will  have to be  accounted  for at  fair  value,  with  gain or loss
recognized,  if the transactions meet a commercial-substance  criterion and fair
value is determinable.  SFAS 153 is effective for nonmonetary asset exchanges in
fiscal periods beginning after June 15, 2005, and early application is permitted
for  nonmonetary  asset  exchanges  occurring in fiscal periods  beginning after

                                       24
<PAGE>
December 16, 2004.  The Company is currently  assessing  the impact SFAS 153 may
have on its financial statements.

In December 2004 the Financial  Accounting  Standards Board ("FASB") issued SFAS
No.  151,  Inventory  Costs,  which  amends  Chapter 4,  Inventory  Pricing,  of
Accounting  Research  Bulletin No. 43,  Restatement  and Revision of  Accounting
Research  Bulletins.  The  Statement  was  issued as a result of the  FASB's and
International Accounting Standards Board's ("IASB") joint project to improve the
comparability  between U.S. and  international  accounting  standards.  SFAS 151
eliminates  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, the Statement 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.

FASB  Statement  No. 150,  Accounting  for Certain  Financial  Instruments  with
Characteristics  of both  Liabilities  and Equity,  was issued in May 2003. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments within its scope. For the Company, the Statement was effective as of
January 1, 2004,  except for mandatory  redeemable  financial  instruments.  For
certain  mandatorily  redeemable  financial  instruments,  the Statement will be
effective  for the  Company  on January 1,  2005.  The  effective  date has been
deferred  indefinitely  for  certain  other  types  of  mandatorily   redeemable
financial  instruments.  The  Company  currently  does not  have  any  financial
instruments that are within the scope of this Statement.

On April 30,  2003,  the FASB  issued  FASB  Statement  No.  149,  Amendment  of
Statement 133 on Derivative  Instruments  and Hedging  Activities,  which amends
FASB  Statement  No. 133,  Accounting  for  Derivative  Instruments  and Hedging
Activities,  to address (1) decisions reached by the Derivatives  Implementation
Group,  (2)  developments  in  other  Board  projects  that  address   financial
instruments,  and (3)  implementation  issues  related  to the  definition  of a
derivative.  The Company  does not believe  that FAS 149 will have any impact on
its financial statements.


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 of  $734,454  for the year ended  December  31, 2004 and
$1,791,027 for the year ended December 31, 2003  (restated).  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,  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

                                       25
<PAGE>
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 Internet service industry becomes
subject to additional regulations.

The Internet  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  telecommunications,  Internet and
media 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.

Moreover,  the applicability to persons engaged in Internet commerce of existing
laws  governing  issues  such as  intellectual  property  ownership,  libel  and
personal  privacy is  uncertain.  Recent  events  relating  to the use of online
services for certain  activities  has  increased  public focus and could lead to
increased pressure on foreign and national legislatures to impose regulations on
online  service  providers.  The  law  relating  to the  liability  of  entities
conducting   business  over  the  Internet  for   information   carried  on,  or
disseminated  through,  their  systems is currently  unsettled  and has been the
subject of several recent private  lawsuits.  In the event that a similar action
be initiated against us, costs incurred as a result of such actions could have a
material adverse effect on the business of our company.

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.


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.

                                       26
<PAGE>
Our  wholly  owned  subsidiary,  Euroweb  Romania,  is highly  dependent  on one
customer,  Pantel Rt. ("Pantel"),  which was owned by KPN Telecom B.V. If Pantel
were to  terminate  our  relationship,  our  results  from  operations  would be
materially  impacted.  We note that on February 28, 2005,  Hungarian Telephone &
Cable Corp. announced the completion of its purchase of the Pantel business from
KPN.

The  majority  owner of  Pantel  Rt.  and the  largest  stockholder  of  Euroweb
International  Corp.  during  2004 and prior  years was KPN  Telecom  B.V.  Such
ownership has led to improved co-operation between the two companies,  which has
resulted in a high level of  dependency in the case of Euroweb  Romania.  Actual
dependency  from  Pantel  Rt.,  taking  into  account  the direct and Pantel Rt.
related sales,  represents  approximately 30% of total  consolidated  revenue of
Euroweb  International  Corp.  and  approximately  85% of total sales of Euroweb
Romania. . In addition,  in February 2004 a Service Contract was entered between
Euroweb  Hungary and its  subsidiaries  and Pantel Rt.,  whereby Euroweb Hungary
agreed to buy  services  from Pantel Rt. on an annual  basis of HUF  600,000,000
(approximately $3 million) plus value added tax during each of 2004-2006. In the
event that  Euroweb  Hungary  does not  satisfy  this annual  commitment,  it is
required  to pay to Pantel Rt. a penalty  equal to 25% of the annual  commitment
less any  services  purchased.  Despite the fact that  co-operation  is based on
arm's length agreements,  disagreements between the management of Pantel Rt. and
EuroWeb,  or an  effective  change of ownership  in one or both  companies,  may
result in the loss of the  Pantel Rt.  related  revenues  and their  significant
margin. On February 28, 2005,  Hungarian  Telephone & Cable Corp.  announced the
completion of its purchase from KPN of the Pantel business. Therefore, Pantel is
no longer considered a related party effective March 1, 2005.

Increased competition in the Internet service industry may make it difficult for
our company to attract and retain  customers  and to  maintain  current  pricing
levels.

The  market  for   Internet-based   products  and  services  is  new,  intensely
competitive,  rapidly evolving and subject to rapid  technological  change.  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 Euroweb  Hungary are five of the largest or most active
providers in Hungary:

     o    The incumbent telecom operator, Matav/Axelero

     o    GTS-Datanet

     o    Pantel

     o    Enternet, and

     o    Interware

The  above  companies  also  provide  internet  services.   Both  Interware  and
GTS-Datanet have a customer base similar to that of the Company's.

Romania's  Internet market is in the initial phase of  development.  At present,
other then  Euroweb  Romania,  there are two other data  transmission  companies
providing internet services, which also cover the entire territory of Romania:

                                       27
<PAGE>
     o    Global One Romania; and

     o    Logic Telecom

We believe that the main competitors of Euroweb Slovakia are four of the largest
or most active providers in Slovakia:

     o    Nextra;

     o    GTS Inec;

     o    SLOVANET; and

     o    the incumbent telecom operator, Slovak Telecom.

The above are all also  providing  internet  services.  Both Nextra and GTS Inec
have a customer base similar to that of the Company's.

     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.

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 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.  Although the Company
has no definitive plans for acquisitions at this time (other than that described
in Note 17 (d) of the consolidated financial  statements),  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

                                       28
<PAGE>
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.

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.

                                       29
<PAGE>
     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

         None.


ITEM 8A. CONTROLS AND PROCEDURES

As of December 31, 2004, 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, 2004. There
have been no significant  changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to December
31, 2004.


ITEM 8B. OTHER INFORMATION

None.

                                       30
<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 25, 2005
<TABLE>
<CAPTION>

Name                           Age               Position with Company

<S>                            <C>                     <C>
Csaba Toro                     39                Chief Executive Officer, Treasurer and Director
Howard Cooper                  48                Director - Resigned on March 21, 2005
Stewart Reich                  60                Director, Board Chairman, Audit and Compensation
                                                 Committees Chairman
Gabor Ormosy                   34                Director
Ilan Kenig                     43                Director, Audit and Compensation
                                                 Committee's member
Yossi Attia                    42                Director, Audit and Compensation
                                                 Committee's member
</TABLE>

Csaba Toro,  age 39,  Director and CEO 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 Company's Hungarian  subsidiary.  Prior thereto,  since 1994, he
was managing director of ENET Kft., which was acquired by the Company in 1997.

Howard Cooper, age 48, has been the President, CEO and Chairman, Teton Petroleum
Company - Denver, CO (AMEX:TPE) from 1996. Teton has raised institutional equity
and US Trade and  Development  Agency funding for the  development of proven oil
fields in Russia.  Teton has been successful in Russia producing oil,  exporting
oil for hard  currency,  and  developing  an oil field with proven and  probable
reserves  in excess of 107  million  barrels.  Previously  he was engaged in oil
projects in the former Soviet Union. On March 21, 2005, Mr. Cooper resigned as a
director of the Company.

Stewart  Reich,  age 60, 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 34, 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

                                       31
<PAGE>
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 42, 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 received a BA in economics and
marketing from Haifa University in 1987 and a MBA from Pepperdine  University in
1995.  Mr. Attia held Series 7 and 63 securities  licenses from 1991 until 2002.
Effective  March 21,  2005,  Mr.  Attia was  appointed  as a member of the Audit
Committee and the Compensation committee.

Ilan Kenig, age 43, 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.

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.

2004 BOARD MEETINGS

     In 2004,  the board met five times.  Except for one  director,  no director
attended  less than 80% of all of the combined  total  meetings of the board and
the committees on which they served in 2004.

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  2004,  the  audit

                                       32
<PAGE>
committee consisted of Messrs. Stewart Reich and Howard Cooper, both of whom are
considered to be  independent.  The audit  committee held four meetings in 2004.
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 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 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 2003. 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,  2004,  there was no
failure to comply with  Section  16(a)  filing  requirements  applicable  to its
officers, directors and ten percent stockholders.

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 2003 approaching $1 million,  and the Company does
not believe that any  executive  officer's  compensation  is likely to exceed $1
million in 2003, 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.

                                       33
<PAGE>

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. The Company does not have
any officer whose annual  salary and bonus  exceeds  $100,000 as of December 31,
2004:
<TABLE>
<CAPTION>


                                        ANNUAL COMPENSATION                LONG-TERM COMPENSATION
                                        -------------------                ----------------------
                                                                                    Restricted      Number of
                                                                  Bonus and         Stock Award(s)  Securities
Name and                         Year Ended                       Other Annual                       Underlying       All Other
Principal Position               December 31,       Salary ($)    Compensation ($)     ($)          Options/SARs(#) Compensation ($)
------------------------------   -------------  ----------------  ----------------- --------------- --------------- ---------------
<S>                                 <C>            <C>               <C>                                <C>                 <C>
Csaba Toro                          2004           $150,000          $100,000          --               125,000              --
  Director, CEO, and Treasurer      2003            $96,000                --          --                    --              --
                                    2002            $96,000                --          --                    --             --
</TABLE>


OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

On April 28, 2004, the Company  granted  125,000  options to the Chief Executive
Officer under the 2004 Incentive Plan.

There  were no other  grants of Stock  Options/SAR  made to the named  Executive
during the fiscal year ended December 31, 2004.


                                       34
<PAGE>
AGGREGATED  OPTION/SAR  EXERCISES  IN LAST FISCAL YEAR AND  YEAR-END  OPTION/SAR
VALUES
<TABLE>
<CAPTION>

------------------------ ---------------------- --------------------- ------------------------ -----------------------
                                                                       Number of securities         Value of the
                                                                      underlying unexercised     unexercised in the
                                                                      options/SARs at FY-end   money options/SARs at
                                                                                (#)                 FY-end ($)*
         Name             Shares acquired on     Value realized ($)   Exercisable/UnexercisableExercisable/Unexercisable
                             exercise (#)
------------------------ ---------------------- --------------------- ------------------------ -----------------------
<S>                             <C>                     <C>                    <C>                      <C>
Csaba Toro, Director             None                   None                  94,250                   $0.00
CEO, and Treasurer
------------------------ ---------------------- --------------------- ------------------------ -----------------------
</TABLE>


* 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 31, 2003),  which was $3.77 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. The amended agreement provides for an annual salary of $150,000
and a bonus of up to $100,000  (guaranteed  minimum of $50,000) in 2004,  and an
annual  salary of $200,000  and a bonus of up to  $150,000 in 2005 and 2006,  as
well as an annual car allowance of $30,000.

The  Company  also  entered  into  two  fixed-term   employment  agreements  for
management  of the  subsidiaries  of the Company  which provide for an aggregate
monthly compensation of $ 18,750 until December 31, 2005.


     The three  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.

     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 1993 Stock Option Plan (described below).

                                       35
<PAGE>

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.

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.

                                       36
<PAGE>
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.

(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.

                                       37
<PAGE>
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.



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 22, 2005 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                38.11%
Maanplein 5
The Hague, The Netherlands

Fleminghouse Investments Limited     522,054                 9.77%
Chrysanthou Mylona 3, P.C.
3030 Limassol
Cyprus

CORCYRA d.o.o.(3)                  2,326,043                43.53%
Verudela 17
Pula Croatia 52100

Csaba Toro  (2)(5)(6)                 94,250                 1.76%
1138 Budapest
Vaci ut 141.
Hungary

                                       38
<PAGE>


Howard Cooper (6)(7)                  50,000                     *
2135 Burgess Creek Road, Ste. #7
Steamboat Springs, CO 80477


Stewart Reich (6)(7)                  50,000                     *
18 Dorset Lane,
Bedminister, NJ 07921

Gabor Ormosy
Fleminghouse Investments Limited           0                     0
Chrysanthou Mylona 3, P.C. (3)
3030 Limassol
Cyprus

Yossi Attia (6)(8)                         0                     0
1061 1/2 Spalding Ave.
West Hollywood, CA 90046

Ilan Kenig (6)(8)                          0                     0
7438 Fraser Park Drive
Burnaby, BC Canada V5J 5B9


All Officers and Directors as a      194,250                 3.63%
Group (6 Persons)


                                       39
<PAGE>

* 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 22,  2005.  For
purposes of computing the percentage of  outstanding  shares held by each person
or group of persons named above on March 22, 2005 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,  1.76% of the issued and outstanding
shares of the Company represented by options to purchase 94,250 shares.
(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  Exchance  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 our company.
(7) Includes an option to purchase  50,000 shares of common stock at an exercise
price of $4.21 per share.  25,000  options vest on April 13, 2004,  while 25,000
options vest on April 13, 2005
(8) Effective March 22, 2005 the Board of Directors decided to grant the two new
directors  100,000  options each,  under the 2004 Incentive Plan. No such option
were vested to date.

The foregoing table is based upon 5,342,533  shares of common stock  outstanding
as of March 22, 2005.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Significant  related party  transactions  exist with Pantel Rt.  Details of
these  transactions  can be found in the MD&A section and in Note 14 of the 2004
Consolidated Financial Statements.

         There are no other significant related party transactions.


                                       40
<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)


     (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.  Incorporated  by  reference to the Form
          10-KSB for the year ended December 31, 2003.
          __________________________________

(1)  Exhibits  are  incorporated  by  reference  to  Registrant's   Registration
Statement  on Form SB-2 dated May 12, 1993  (Registration  No.  33-62672-NY,  as
amended)
(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.


                                       41
<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, 2004 and 2003,  and for the reviews of the  financial
statements included in the Company's Quarterly Reports on Form 10-QSB during the
fiscal years were $217,000 and $178,000, respectively.

Audit related  fees:  Additionally,  in 2004,  fees for the audit of the 2003 US
GAAP financial  statements of Euroweb Hungary Rt. (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. There were no audit related fees in 2003.

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, 2004 and 2003 were  $124,600
and EUR 33,000. - The 2004 fees relate to the SB-2 registration  statement costs
($123,000),  and miscellaneous tax advise ($1,600) provided during the course of
2004.  The 2003  fees  relate  to  assistance  provide  to  Euroweb  Romania  in
connection with the Tax Authority Review on VAT.

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

                                       42
<PAGE>

                                   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 30th day of March 2005.


                                           EUROWEB INTERNATIONAL CORP.




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


     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:


<TABLE>
<CAPTION>


          SIGNATURE                         TITLE                            DATE



------------------------------ --------------------------------------- ---------------
<S>                                           <C>                           <C>
By: /s/Csaba Toro              Chief Executive Officer and Director    March 30, 2005
----------------               (Principal Executive Officer)
Csaba Toro

------------------------------ --------------------------------------- ---------------
By:                            Chairman                                March 30, 2005
Stewart Reich

------------------------------ --------------------------------------- ---------------

------------------------------ --------------------------------------- ---------------
By: /s/ Gabor Ormosy           Director                                March 30, 2005
-------------------
 Gabor Ormosy

------------------------------ --------------------------------------- ---------------
By: /s/ Yossi Attia            Director                                March 30, 2005
--------------------
Yossi Attia

------------------------------ --------------------------------------- ---------------
By: /s/ Ilan Kenig             Director                                March 30, 2005
------------------
Ilan Kenig

------------------------------ --------------------------------------- ---------------
By: /s/ Peter Szigeti          Chief Accounting Officer                March 30, 2005
---------------------
Peter Szigeti

------------------------------ --------------------------------------- ---------------
</TABLE>

                                       43
<PAGE>
                           EUROWEB INTERNATIONAL CORP.


             Consolidated Balance Sheet as of December 31, 2004, and
           Consolidated Statements of Operations & Comprehensive Loss,
                  Stockholders' Equity, and Cash Flows for the
                     Years ended December 31, 2004 and 2003


<PAGE>
                           EUROWEB INTERNATIONAL CORP.

                        Consolidated Financial Statements

                           December 31, 2004 and 2003




                                TABLE OF CONTENTS
                                -----------------



                                                                           Page
                                                                          ------
Report of the Independent Registered Public Accounting Firm                 F-2


Consolidated Financial Statements:


         Consolidated Balance Sheet                                         F-3
         Consolidated Statements of Operations and Comprehensive Loss       F-4
         Consolidated Statements of Stockholders' Equity                    F-5
         Consolidated Statements of Cash Flows                              F-6
         Notes to Consolidated Financial Statements                         F-7




<PAGE>
           Report of the Independent Registered Public Accounting Firm



The Board of Directors and Stockholders
Euroweb International Corp.


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Euroweb
International  Corp. and  subsidiaries  as of December 31, 2004, and the related
consolidated  statements of operations  and  comprehensive  loss,  stockholders'
equity,  and cash flows for the years ended  December  31, 2004 and 2003.  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 financial position of Euroweb
International   Corp.  and  subsidiaries  as  of  December  31,  2004,  and  the
consolidated  results  of their  operations  and their  cash flows for the years
ended  December  31,  2004 and 2003 in  conformity  with  accounting  principles
generally accepted in the United States of America.

The consolidated financial statements give retroactive effect to the purchase of
Euroweb Rt. by the Company on February 29, 2004 which has been  accounted for as
a combination  of entities under common control in a manner similar to a pooling
of interests as described in Note 2(q) to the consolidated financial statements.




KPMG Hungaria Kft.
Budapest, Hungary
March 23, 2005


                                      F-2
<PAGE>



                           Euroweb International Corp.
                           Consolidated Balance Sheet
                                December 31, 2004
                                      2004
<TABLE>
<CAPTION>
<S>                                 <C>                                                                          <C>
ASSETS
  Current assets:
    Cash and cash equivalents (note 3)                                                                           $ 4,537,633
    Trade accounts receivable, less allowance for doubtful accounts of $1,384,415                                  3,695,990
    Related party receivables                                                                                      1,869,667
    Unbilled receivables                                                                                           1,107,501
    Prepaid and other current assets                                                                                 858,694
    Deferred tax asset (note 10)                                                                                     253,425
                                                                                                                 ------------
         Total current assets                                                                                     12,322,910

  Property and equipment (note 4)                                                                                  7,253,113
  Goodwill (note 5)                                                                                                5,806,181
  Intangibles- customer contracts (note 5)                                                                         2,053,288
  Other assets                                                                                                       568,356
                                                                                                                 ------------
       Total assets                                                                                              $28,003,848
                                                                                                                 ============
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Trade accounts payable                                                                                        $4,254,759
    Related party payables                                                                                           564,818
    Related party loan payable - short term portion (note 8)                                                         543,568
    Overdrafts and current portion of bank loans (note 7)                                                            321,704
    Notes payable (note 7)                                                                                           808,441
    Other current liabilities                                                                                      1,091,470
    Accrued expenses                                                                                               2,808,073
    Deferred IRU revenue (note 6)                                                                                     46,000
    Deferred other revenues                                                                                        1,260,225
                                                                                                                 ------------
        Total current liabilities                                                                                 11,699,058

    Deferred tax liability (note 10)                                                                                 253,425
    Non-current portion of related party loan payable (note 8)                                                       543,568
    Non-current portion of bank loans (note 7)                                                                       747,085
    Non-current portion of deferred IRU revenue (note 6)                                                             797,334
    Non-current portion of lease obligations (note 6)                                                                148,359
                                                                                                                 ------------
        Total liabilities                                                                                         14,188,829

   Commitments and contingencies (note 13)

   Stockholders' equity
   Preferred stock, $.001 par value - Authorized 5,000,000 shares;
      no shares issued or outstanding                                                                                      -
   Common stock, $.001 par value - Authorized 35,000,000 shares;
      issued and outstanding 5,342,533 shares                                                                         24,807
   Additional paid-in capital                                                                                     50,780,084
   Accumulated deficit                                                                                           (35,982,726)
   Accumulated other comprehensive (loss)/income                                                                     108,266
   Treasury stock - 175,490 common shares, at cost                                                                (1,115,412)
                                                                                                                 ------------
      Total stockholders' equity                                                                                  13,815,019
                                                                                                                 ------------
      Total liabilities and stockholders' equity                                                                 $28,003,848
                                                                                                                 ============

          See accompanying notes to consolidated financial statements.
</TABLE>
                                      F-3
<PAGE>

                           Euroweb International Corp.
          Consolidated Statements of Operations and Comprehensive Loss
                     Years Ended December 31, 2004 and 2003
<TABLE>
<CAPTION>
                                                                                               2004                2003
                                                                                           -------------       -------------
                                                                                                                (restated)
<S>                                                                                            <C>                 <C>
Revenues
Third party                                                                                $ 28,111,786        $ 16,376,349
Related party                                                                                 8,503,939           5,740,709
                                                                                           -------------       -------------
              Total Revenues                                                                 36,615,725          22,117,058

Cost of revenues  (exclusive of depreciation and amortization
shown separately below)
 Third party                                                                                 17,233,994           8,155,836
 Related party                                                                                6,198,505           5,796,350
                                                                                           -------------       -------------
              Total Cost of revenues (exclusive of                                           23,432,499          13,952,186
depreciation and amortization shown separately below)

Operating expenses
   Compensation and related costs                                                             4,182,977           2,814,868
   Consulting, professional and directors fees                                                2,829,525           2,074,565
   Other selling, general and administrative expenses                                         4,237,848           2,458,429
   Goodwill impairment                                                                                -             887,957
   Impairment of intangibles                                                                          -             100,364
   Depreciation and amortization                                                              2,610,764           1,636,133
                                                                                           -------------       -------------
               Total operating expenses                                                      13,861,114           9,972,316
                                                                                           -------------       -------------
Operating loss                                                                                 (677,888)         (1,807,444)

   Net interest (expense) income                                                               (217,672)            344,320
   Other expenses                                                                              (170,000)                  -

   Gain from sale of
subsidiaries                                                                                     28,751             109,621

Loss from continuing operations before income taxes                                          (1,036,809)         (1,353,503)

Income tax expense-current                                                                       62,367              61,590
Income tax expense-deferred                                                                           -                   -
                                                                                           -------------       -------------
Income tax expense                                                                               62,367              61,590

Loss from continuing operations                                                              (1,099,176)         (1,415,093)

Gain (Loss) from discontinued Czech Republic operations                                         364,722            (375,934)
(including 2004 gain on disposal of $409,314)

Net loss                                                                                       (734,454)         (1,791,027)

Other comprehensive income (loss)                                                               133,768            (261,644)
                                                                                           -------------       -------------
Comprehensive loss                                                                            $(600,686)        $(2,052,671)
                                                                                           =============       =============
Loss per share, before discontinued operations                                                    (0.22)              (0.30)
Discontinued operations                                                                            0.07               (0.08)
Net loss per share, basic                                                                         (0.15)              (0.38)

Weighted average number of shares outstanding                                                 5,043,822           4,665,332

</TABLE>
           See accompanying notes to consolidated financial statements

                                      F-4
<PAGE>
                           EUROWEB INTERNATIONAL CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                                Additional                       Other                     TOTAL
                                          Common Stock          Paid-in      Accumulated    Comprehensive   Treasury   Stockholders'
                                      Shares        Amount      Capital        Deficit       Gains(Losses)    Stock        Equity
                                      ----------    --------   ------------  -------------  -------------- ------------ ------------
<S>                                   <C>           <C>        <C>           <C>                <C>         <C>         <C>
Balances, December 31, 2002
(restated)                            4,665,332     $24,129    $48,227,764   $(31,314,689)      $ 236,142   (1,115,412) $16,057,934
                                      ==========    ========   ============  =============  ============== ============ ============
Foreign currency translation gain             -           -             -               -         (45,237)           -      (45,237)

Reversal of unrealized gain on
securities available for sale                 -           -             -               -        (216,407)           -     (216,407)

Net loss for the period (restated)            -           -             -      (1,791,027)              -            -   (1,791,027)
Treasury stock                                -           -             -               -               -            -            -
                                      ----------    --------   ------------  -------------  -------------- ------------ ------------
Balances, December 31, 2003
(restated)                            4,665,332     $24,129   $48,227,764    $(33,105,716)       $(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
2q)                                           -                                (2,142,556)                               (2,142,556)
Compensation charge on share                  -           -        94,212                                                    94,212
options issued to consultants
Issuance of shares (Elender Rt.
acquisition)                            677,201         678     2,458,108               -               -            -    2,458,786
Net loss for the period                       -           -             -        (734,454)              -            -     (734,454)
                                      ----------    --------   ------------  -------------  -------------- ------------ ------------
Balances, December 31, 2004           5,342,533     $24,807   $50,780,084    $(35,982,726)       $108,266  $(1,115,412) $13,815,019
                                      ==========    ========   ============  =============  ============== ============ ============

</TABLE>
           See accompanying notes to consolidated financial statements

                                      F-5
<PAGE>


                           Euroweb International Corp.
                      Consolidated Statements of Cash Flows
                      Year Ended December 31, 2004 and 2003
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                                2004                2003
                                                                                            --------------       -------------
                                                                                                                  (restated)
<S>                                                                                             <C>               <C>
   Net loss                                                                                     (734,454)         (1,791,027)
   Adjustments to reconcile net loss to net cash provided by operating activities:
   Depreciation and amortization                                                                2,610,764           1,636,133
   Goodwill impairment                                                                                  -             887,957
   Intangibles impairment - customer lists                                                              -             100,364
   Amortization of discount on acquisition indebtedness                                                 -               5,232
   Foreign exchange gain                                                                           11,430             101,134
   Bad debts provision                                                                            238,807            120,859
   Compensation expense charged to equity                                                          94,212                   -
   Gain on sale of subsidiaries                                                                         -           (109,621)
   Realized gain on sale of investment securities                                                (26,383)             (7,113)
   Unrealized interest income on investment securities                                                  -           (360,539)

Changes in operating assets and liabilities net of effects of acquisitions:
   Accounts receivable                                                                           (704,871)           (708,675)
   Prepaid and other assets                                                                       585,974             328,199
   Accounts payable, other current liabilities and accrued expenses                               339,036             825,499
   Deferred revenue                                                                               128,311             320,268
   Adjustments relating to discontinued operations                                              (364,722)             128,621
                                                                                            --------------       -------------
           Net cash provided by operating activities                                            2,178,104           1,477,291
                                                                                            --------------       -------------
Cash flows from investing activities:
   Maturity of securities                                                                      11,464,000             798,567
   Proceed on sale of subsidiaries                                                                500,001               4,933
   Acquisition of 51% of Euroweb Rt.                                                          (2,142,000)                   -
   Acquisition of 100% of Elender Rt. (net of cash)                                           (6,891,897)                   -
   Payment of acquisition indebtedness                                                                  -           (180,000)
   Collection on notes receivable                                                                 173,911             190,065
   Repayment of loan payable                                                                            -           (129,945)
   Capital expenditures in discontinued operations                                                      -            (21,816)
   Acquisition of property and equipment                                                      (1,701,990)         (1,150,167)
                                                                                            --------------       -------------
           Net cash provided by (used in) investing activities                                  1,402,025           (488,363)
                                                                                            --------------       -------------
Cash flows from financing activities:
   Principal payment under capital lease obligations                                            (544,876)           (616,611)
   Repayments on notes payable                                                                  (807,447)                   -
   Repayments on related party loan payable                                                     (249,597)                   -
   Repayments on overdraft and bank loan                                                        (678,906)                   -
                                                                                            --------------       -------------
          Net cash used in financing activities                                               (2,280,826)           (616,611)
                                                                                            --------------       -------------
Effect of foreign exchange rate changes on cash                                                   233,652              72,238
                                                                                            --------------       -------------
Net (decrease) increase in cash and cash equivalents                                            1,532,955             444,555
Cash and cash equivalents, beginning of year                                                    3,004,678           2,560,123
                                                                                            --------------       -------------
Cash and cash equivalents, end of year                                                          4,537,633           3,004,678
                                                                                            ==============       =============
Supplemental disclosure:
Shares issued as consideration in acquisition of Elender Rt.                                   $2,508,353                   -
Interest paid                                                                                    $389,809            $158,306
Income taxes paid                                                                                 $62,367             $61,590
New capital leases                                                                                $81,664            $378,855

</TABLE>
          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


1. Organization of Business

Euroweb  International  Corp. is a Delaware  corporation  which was organized on
November 9, 1992. The largest shareholder of Euroweb International Corp. was KPN
Telecom B.V. ("KPN"),  a Netherlands  corporation,  with a 43.6% shareholding at
December 31, 2004.

Euroweb  International  Corp. owns and operates  Internet  service  providers in
Hungary,  Slovakia and Romania (collectively referred to as the "Company").  The
Company operates in one business segment. In January 2005 the Company decided to
sell its operations in Slovakia (see Note 17, Subsequent Events).

Acquisition  of  remaining  51% of  Euroweb  Hungary  Rt  ("Euroweb  Rt.").
The Hungarian operations are conducted through Euroweb Rt. In February 2004, the
Company  acquired the  remaining  51% of Euroweb Rt. that it did not already own
from  Pantel  Telecommunication  Rt.  ("Pantel  Rt.") and  Euroweb  Rt. is fully
consolidated in the financial  statements for all periods  presented (see Note 2
(q) below).

The  consideration  paid  by the  Company  for the 51%  interest  comprised  EUR
1,650,000 (USD  $2,105,000)  in cash,  and a guarantee that Euroweb  Hungary Rt.
will  purchase at least HUF 600  million  (approximately  $3  million)  worth of
services from Pantel Rt. in each of the three years ending December 31, 2006.

Acquisition of Elender Business Communications Rt. ("Elender Rt.")
On June 9, 2004, the Company  acquired all of the outstanding  shares of Elender
Rt., an Internet Service Provider ("ISP") located in Hungary. Consideration paid
of USD  $9,350,005  consisted  of USD  $6,500,000  in cash  and  677,201  of the
Company's common shares valued at USD $2,508,353  excluding  registration  cost,
and USD $341,652 in transaction costs (consisting primarily of professional fees
incurred related to attorneys,  accountants and valuation advisors). The results
of Elender  Rt.  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" ("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 consideration has been allocated as follows:


   Fair value of Elender Rt.'s recorded assets acquired and
   liabilities assumed                                            1,379,404
   Identified intangibles - customer contracts                    2,730,420
   Excess purchase price over allocation to identifiable
   assets and liabilities (Goodwill)                              5,240,181
                                                                ------------
 Total Consideration                                            $ 9,350,005
                                                                ============

                                      F-7
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


In performing this purchase price allocation of acquired intangible assets based
in part on the  valuation  performed by an  independent  appraiser,  the Company
considered  its intention  for future use of the assets,  analyses of historical
financial  performance  and  estimates of future  performance  of Elender  Rt.'s
services, among other factors.  Acquired identifiable intangible assets obtained
in the Company's  acquisition of Elender Rt. relate to customer  contracts which
are being amortized over the estimated useful life of 2.5 years.

The Company  estimated the fair values of the identified  intangibles - customer
contracts using the "income"  valuation approach and discount rates ranging from
14% to 18%.  The discount  rates  selected  were based in part on the  Company's
weighted  average  cost of capital and  determined  after  consideration  of the
Company's  rate of  return  on debt and  equity,  and the risk  associated  with
achieving forecasted cash flows.

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 Elender Rt. received shares of common stock of the
Company,  each of the former owners of Elender Rt. 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.

Sale of Euroweb Czech
On December  16, 2004,  the Company  sold all of its shares in its  wholly-owned
subsidiary,  Euroweb  Czech  for  cash of  $500,000.  However,  as a part of the
transaction,  the Company  effectively forgave $400,000 of loans receivable from
Euroweb  Czech.  The Company  believes  that the sale of Euroweb Czech meets the
criteria for  presentation  as a discontinued  operation under the provisions of
Statements of Financial  Accounting  Standard ("SFAS") No. 144,  "Accounting for
the  Impairment  or Disposal of  Long-Lived  Assets,  therefore  all periods are
restated to reflect Euroweb Czech Republic as discontinued operations.

The following unaudited pro-forma information presents a summary of consolidated
results of operations of the Company,  as if the acquisition of Elender Rt., the
disposal of Euroweb  Czech,  and the planned  disposal of Euroweb  Slovakia (see
Note 17 Subsequent Events), had occurred at January 1, 2003.

                                           December 31, 2004   December 31, 2003
Revenues                                     $43,341,912          $39,686,446
Net Loss                                     ($2,408,146)         ($2,741,788)
Net Loss per share                                ($0.45)              ($0.51)

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  and  disposals  actually  taken place as of January 1, 2004 or
2003,  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  or synergies that may result from the
Company's acquisition of Elender Rt.

                                      F-8
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


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   inter-company   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.  The  purchase  of the  remaining  51% of Euroweb
Hungary Rt. has been accounted in a manner similar to a pooling-of-interest with
prior periods being restated.

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.  Significant items subject to
such estimates and assumptions made by the Company include the period of benefit
and recoverability of goodwill and other intangible assets. 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.  In general,  the Company  recognizes
revenue  related to its billable  services  when (i)  persuasive  evidence of an
arrangement exists, (ii) services have been rendered,  (iii) the fee is fixed or
determinable and (iv)  collectibility is reasonably  assured.  Generally,  these
criteria   are  met  monthly  as  the   Company's   service  is  provided  on  a
month-to-month  basis and collection for the service is generally made within 30
days of the service being provided.

Billable  services revenues are recognized in the period in which fees are fixed
or  determinable  and the related  services are  provided to the user.  When the
Company's subscribers pay in advance for services, revenue is recognized ratably
over the period in which the related  services are  provided.  Advance  payments
from  users  are  recorded  on  the  balance  sheet  as  deferred  revenue.   In
circumstances  where  payment  is not  received  in  advance,  revenue  is  only
recognized if collectibility is reasonably assured.

                                      F-9
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


Access  revenues  consist  of monthly  fees  charged to  customers  for  dial-up
Internet  access  services.  Access  revenues  also  consist of fees charged for
high-speed,  high-capacity  access services  including digital  subscriber lines
("ADSL") and leased lines.  Voice revenue  relates to the  transmission of voice
information  in digital form in discrete  packets.  Revenues are recognized on a
monthly basis based on usage.

Data revenue  refers to the  provision  of leased  lines to business  customers.
Revenues  are derived from monthly  fixed fees and are  recognized  in the month
earned.

Domain registration revenue is usually billed in advance for a period of between
0-2 years. It is recorded as deferred  revenue on the balance sheet and is taken
into income monthly on a straight-line basis.

Web design  relates to services  performed for customers who require  assistance
with setting up a web page.  Revenue is  recognized  once the final  product has
been accepted by the  customer.  Any  work-in-progress  is classified as ,,other
assets" on the balance sheet. Hosting revenues consist of fees earned by leasing
server space and providing web services to companies and individuals  wishing to
present a web or  e-commerce  presence.  Revenues are derived from monthly fixed
fees and are recognized in the month earned.

Revenues from prepaid  calling card sales are recognized  when the customer uses
the  cards  and are  based  on the  ratio  of  actual  minutes  used to  minutes
purchased.  Once the prepaid calling cards expire, any remaining prepaid amounts
are recognized as revenues.

In 2002, the Company entered into an agreement to provide transmission  capacity
to a customer pursuant to an indefeasible rights-of-use agreement ("IRU"). Since
the  Company's  IRU does not  involve a  transfer  of title  and other  factors,
management  believes the agreement does not qualify for up-front sales treatment
despite  collection  in full of the  $920,000  arrangement  fee. The Company has
accounted for this transaction as an operating lease under Financial  Accounting
Standards Board  Interpretation No. 13, "Accounting for Leases" ("FAS 13"). This
accounting  has  resulted  in a  substantial  amount of deferred  revenue  being
recorded on the balance sheet.  Revenue attributable to the transaction is being
recognized on a straight-line basis over the term of the 20-year lease agreement
(monthly $3,833).

The Company is also obligated to maintain its network in efficient working order
and in  accordance  with industry  standards.  The customer is obligated for the
term  of the  agreement  to pay for  their  allocable  share  of the  costs  for
operating and maintaining the network.

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

Cost of revenues (excluding  depreciation and amortization) comprise principally
of  telecommunication  network  expenses,  costs of content services and cost of
leased lines and are recognized as incurred.

(f) Foreign currency translation

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

                                      F-10
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


The balance sheets of  subsidiaries  are translated  into US$ 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 reflected as
a separate  component  of  shareholders'  equity,  "other  comprehensive  income
(loss)", on the consolidated balance sheet for Euroweb Hungary,  Euroweb Romania
and Euroweb Slovakia.  Until December 31, 2003 the Company  considered Romania a
highly  inflationary  economy (under SFAS 52) and, therefore the U.S. dollar was
used as the  functional  currency,  with resulting  gains/losses  on translation
being charged directly to the Statement of Operations.

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

(g) Cash and cash equivalents

Cash  and  cash  equivalents  at  December  31,  2004  include  cash at bank and
short-term deposits of less than three months duration.

(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.

(i) Property and equipment

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Equipment  purchased  under  capital  lease is  stated at the  present  value of
minimum  lease  payments  at  the  inception  of  the  lease,  less  accumulated
depreciation.  The Company  provides for  depreciation  of  equipment  using the
straight-line  method over the shorter of  estimated  useful lives of up to four
years or the lease term. Total  depreciation from continuing  operations for the
years  ended  December  31,  2004  and  2003  was  $  1,933,632  and  $1,569,224
respectively.

Recurring maintenance on property and equipment is expensed as incurred.

Any gain or loss on  retirements  and  disposals  are included in the results of
operations.


                                      F-11
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


(j) Goodwill and Intangibles

Goodwill  results  from  business  acquisitions  and  represents  the  excess of
purchase  price  over the fair value of net assets  acquired.  Amortization  was
computed over the estimated future period of benefit (generally five years) on a
straight-line  basis until  December  31,  2001.  On January 1, 2002 the Company
adopted  Statement  of  Financial  Accounting  Standard  No. 142  ("SFAS  142"),
"Goodwill and Other  Intangible  Assets,"  which  establishes  that goodwill and
intangible  assets  acquired in a business  combination and that have indefinite
useful lives are no longer amortized but rather are 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  FASB No.  144  "Accounting  for
Impairment or Disposal of Long Lived Assets".  Intangibles  currently consist of
customer  contracts  which were acquired as a result of a purchase of assets and
are being  amortized  over the estimated  future period of benefit of 2.5 years.
The assessment of  recoverability  and possible  impairment are determined using
estimates of undiscounted future cash flows, if an impairment has occurred.  The
Company then measures 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.

(k) Net loss per share

The Company has adopted  Statement of Financial  Accounting  Standards  No. 128,
"Earnings per Share," ("SFAS No. 128"),  which  provides for the  calculation of
"basic"  and  "diluted"  earnings  per share.  Basic  earnings  (loss) per share
include no dilution  and 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 potential effect
of common shares issuable upon exercise of stock options and warrants in periods
in which they have a dilutive  effect.  The  Company  had  potentially  dilutive
common stock  equivalents for the years ended December 31, 2004 and 2003,  which
were not included in the  computation of diluted net loss per share because they
were antidilutive.

(l) Comprehensive income

Comprehensive  income includes all changes in equity except those resulting from
investments by, and distributions to, owners.  All items that are required to be
recognized  under current  accounting  standards as components of  comprehensive
income are  required to be reported in a financial  statement  that is displayed
with the same prominence as other financial  statements.  The Company has chosen
to present a Combined Statement of Operations and Comprehensive Loss.

                                      F-12
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


(m) Business segment reporting

The Company's  operations  fall into one industry  segment:  providing  Internet
access and additional value added services to business customers.  Substantially
all of the Company's  revenues are derived from the provision of such  services.
The Company  manages its operations,  and  accordingly  determines its operating
segments, on a geographic basis.  Consequently,  the Company has three operating
segments: Euroweb Hungary, Euroweb Romania, and Euroweb Slovakia.

(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 FASB Interpretation No. 44,
"Accounting  for  Certain   Transactions   involving  Stock   Compensation,   an
interpretation  of APB  Opinion  No.  25" to  account  for its fixed  plan stock
options.  Under this  method,  compensation  expense 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
No. 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 No. 123, as amended.

Under the accounting provisions of SFAS No. 123, the Company's 2004 and 2003 net
loss and net loss per share would have been  increased to the pro forma  amounts
indicated below:



                                             2004                 2003
                                                                (restated)
Net loss:
    Net loss as reported                      $(734,454)        $(1,791,027)
    Compensation expense                       (943,164)           (110,482)
    Pro forma net loss                       (1,677,618)         (1,901,509)

Basic and diluted loss per share:
    As reported                               $   (0.15)        $     (0.38)
    Pro forma                                     (0.33)              (0.41)


                                      F-13
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


(p) Recently Issued Accounting Standards

In  December  2004,  the FASB issued SFAS No. 123  (revised  2004),  Share-Based
Payment.  SFAS No. 123(R)  requires an entity to recognize the  grant-date  fair
value of stock options and other equity-based  compensation  issued to employees
in the income  statement,  but expresses no  preference  for a type of valuation
model.  For  small  business  issuers,  the  Statement  is  effective  as of the
beginning  of the first  interim or annual  reporting  period that begins  after
December 15, 2005.  Early  adoption is encouraged  for interim or annual periods
for which  financial  statements  or interim  reports have not been issued.  The
Company is currently  assessing the impact SFAS 123(R) may have on its financial
statements.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets:
an  amendment  of  APB  Opinion  No.  29,  which  is  part  of  the   short-term
international convergence project between the FASB and IASB. SFAS 153 eliminates
a company's ability to use the similar  productive assets concept to account for
nonmonetary  exchanges at book value  without  recognizing  a gain.  Nonmonetary
exchanges  will  have to be  accounted  for at  fair  value,  with  gain or loss
recognized,  if the transactions meet a commercial-substance  criterion and fair
value is determinable.  SFAS 153 is effective for nonmonetary asset exchanges in
fiscal periods beginning after June 15, 2005, and early application is permitted
for  nonmonetary  asset  exchanges  occurring in fiscal periods  beginning after
December 16, 2004.  The Company is currently  assessing  the impact SFAS 153 may
have on its financial statements.

In December 2004 the Financial  Accounting  Standards Board ("FASB") issued SFAS
No.  151,  Inventory  Costs,  which  amends  Chapter 4,  Inventory  Pricing,  of
Accounting  Research  Bulletin No. 43,  Restatement  and Revision of  Accounting
Research  Bulletins.  The  Statement  was  issued as a result of the  FASB's and
International Accounting Standards Board's ("IASB") joint project to improve the
comparability  between U.S. and  international  accounting  standards.  SFAS 151
eliminates  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, the Statement 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.

FASB  Statement  No. 150,  Accounting  for Certain  Financial  Instruments  with
Characteristics  of both  Liabilities  and Equity,  was issued in May 2003. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments within its scope. For the Company, the Statement was effective as of
January 1, 2004,  except for mandatory  redeemable  financial  instruments.  For
certain  mandatorily  redeemable  financial  instruments,  the Statement will be
effective on January 1, 2005. The effective date has been deferred  indefinitely
for certain other types of mandatorily  redeemable  financial  instruments.  The
Company  currently does not have any financial  instruments  that are within the
scope of this Statement.

On April 30,  2003,  the FASB  issued  FASB  Statement  No.  149,  Amendment  of
Statement 133 on Derivative  Instruments  and Hedging  Activities,  which amends
FASB  Statement  No. 133,  Accounting  for  Derivative  Instruments  and Hedging
Activities,  to address (1) decisions reached by the Derivatives  Implementation
Group,  (2)  developments  in  other  Board  projects  that  address   financial
instruments,  and (3)  implementation  issues  related  to the  definition  of a
derivative.  The Company  does not believe  that FAS 149 will have any impact on
its financial statements.

                                      F-14
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


(q) Business  Combination  following the "as-if"  pooling-of-interest  method of
accounting

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.  Pantel's  majority
shareholder is also KPN. As this was a transaction between entities under common
control (at the date of the  acquisition,  KPN owned 50.17% of the voting common
shares of the Company and 75% of the voting  common  shares of Pantel Rt.),  the
transaction  was  recorded  in a manner  similar to a  pooling-of-interest,  and
accordingly the historical  consolidated financial statements have been 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 it 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 intercompany  transactions  requiring
elimination in any period.


3. Cash Concentration

All cash and cash  equivalents  are held in current  accounts as of December 31,
2004. Approximately $2.4 million is held in the United States, and approximately
$228,000 is held in United  States  dollars in Romania,  Slovakia  and  Hungary.
Approximately $39,000 is held in Romania in Euro. The remaining amounts are held
in local currency in Romania, Slovakia, and Hungary.


4. Property and equipment -

Property and equipment as at December 31, 2004 comprise the following:



                                                     2004           Useful Life
                                                     ----           -----------
     Software                                   $ 1,406,167           3 years
     Internet equipment                           8,168,003           3 years
     Fibre optic cables-Romania                   1,280,484          20 years
     Vehicles                                       528,344         4-5 years
     Other                                        1,209,190         3-5 years
                                                ------------
       Total                                     12,592,188
       Less accumulated depreciation             (5,339,075)
                                                ------------
                                                $ 7,253,113
                                                ============
                                      F-15
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


5. Goodwill and Acquired Intangible Assets

Goodwill and  acquired  intangible  assets as at December 31, 2004  comprise the
following:



                                                                   2004
                                                                   ----
Customer contracts (Elender Rt.)                                 2,730,420
  Less accumulated amortization-Customer contracts                (677,132)
                                                                -----------
                                                                $2,053,288
                                                                ===========

Goodwill                                                        13,447,287
  Less impairment -Goodwill                                     (5,004,426)
  Less accumulated amortization-Goodwill                        (2,636,680)
                                                                -----------
                                                                $5,806,181
                                                                ===========


Customer contracts

Most  (approximately  87%) of the  Customer  contracts  relate to an Elender Rt.
contract to provide  internet access to schools in Hungary.  The remaining items
are leased line  contracts of Elender Rt. These  contracts  are being  amortized
over a period of 2.5 years from the date of acquisition (June 2004).

Goodwill and Impairment Charges

The Gross book value of Goodwill relates to the following  reporting units under
SFAS 142:  Euroweb Romania  ($2,455,223),  Euroweb  Slovakia  ($4,413,173),  and
Euroweb  Hungary  ($6,578,891).  The  Goodwill  of  Euroweb  Slovakia  was fully
impaired by December  31,  2003,  and the  Goodwill of Euroweb  Romania had been
impaired down to $566,000. The Goodwill relating to Euroweb Hungary arose on the
acquisition of Elender Rt.  ($5,240,181)  which has now been merged into Euroweb
Hungary Rt. and is considered  as one  reporting  unit for purposes of SFAS 142.
The other Goodwill of $1,338,710  relating to Euroweb Hungary arose from several
acquisitions and had been fully impaired by December 31, 2003.

At the  beginning  of 2005 the  Company  performed  its annual  impairment  test
relating to the goodwill as of December 31, 2004. The Company  compared the fair
value of the  reporting  units  (Euroweb  Romania and Euroweb  Hungary) to their
carrying  amounts,  noting  that in each case the fair value was higher than the
carrying amount, and that no impairment charge was required.

In 2003  impairments  of $563,000  for Euroweb  Slovakia,  $324,957  for Euroweb
Romania,  and $92,581 for Euroweb  Czech were  recorded.  The 2003 Euroweb Czech
impairment is included in the `loss from  discontinued  operations' line item in
the accompanying Consolidated Statement of Operations.

The net book value of goodwill of  $5,806,181 as of December 31, 2004 relates to
Euroweb Romania ($566,000) and Euroweb Hungary ($5,240,181).

                                      F-16
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003

6. Leases

Capital leases

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


                                                                2004
                                                                ----
Leased Internet equipment gross value                          128,560
Leased vehicles gross value                                    355,791
                                                             ----------

   Total gross book value leased assets                        484,351
Less accumulated depreciation                                  (90,570)
                                                             ----------
   Total net book value leased assets                         $393,781
                                                             ==========

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, 2004:



            2005                                                284,463
            2006                                                 94,201
            2007                                                 54,159
                                                              ----------
Total minimum lease payments                                    432,823
Less interest costs                                             (37,086)
                                                              ----------
Present value of future minimum lease payments                  395,737
Less:   current installments                                   (247,378)
                                                              ----------
           Non-current portion of lease obligations            $148,359
                                                              ==========


The  current  portion  of lease  obligations  are  included  in  `Other  current
liabilities' on the Balance Sheet.

Operating leases

The Company's  subsidiary in Slovakia (as Lessee) has a five year non-cancelable
lease  agreement for office  premises.  Remaining  minimal rental payments total
approximately $380,000; $138,000 in each of 2005 and 2006, and $104,000 in 2007.

                                      F-17
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


The Company's  subsidiary in Hungary (as Lessee) has a seven year non-cancelable
lease  agreement for office  premises.  Remaining  minimal rental payments total
approximately EUR 1,282,176; EUR 320,544 in each of 2005, 2006, 2007 and 2008.

In 2002, the Company (as Lessor) entered into a twenty year  Indefeasible  Right
of Use  agreement to provide  transmission  capacity and  collected the $920,000
lease payment in full in the same year (Note 2(d)).

7.  Bank loans, overdraft, and notes payable

On June 1, 2004,  Elender Rt.  (which has now been merged with  Euroweb  Hungary
Rt.) entered into a bank loan  agreement  with  Commerzbank  (Budapest)  Rt. The
agreement  consists of a loan facility of HUF 300 million  (approximately  $1.67
million) of which approximately $1,070,000 was outstanding at December 31, 2004.
The  loan  is  being  repaid  in  quarterly  installments  of HUF  14.5  million
(approximately  $80,000),  commencing  November 30, 2004.  The interest  rate is
BUBOR (Budapest Interbank Offered Rate) + 1.35%.

In addition,  the bank also  provided an  overdraft  facility of HUF 150 million
(approximately $830,000) to Elender Rt. The Company did not need to utilize this
facility as at December 31, 2004. The interest rate is BUBOR (Budapest Interbank
Offered Rate) + 1%.

Notes payable of  approximately  $808,000  relate to outstanding  liabilities to
three previous shareholders of Elender Rt.: Vitonas Investments Limited,  Certus
Kft.  and Rumed  2000 Kft.  The  outstanding  amount is  payable  in four  equal
quarterly installments of HUF 36.438 million (approximately  $202,000), with the
final payment on December 31, 2005.


8. Related party loan payable

During  2002  Pantel Rt., a related  party,  provided a loan of HUF  245,000,000
(approximately  $ 1.36 million using 2004 exchange  rate) to a subsidiary of the
Company. The loan bears interest at a rate of 13% and is repayable in five equal
installments  from  December  2004  semi-annually  until  the end of  2006.  The
year-end balance reflects the payment made in December 2004.


9. Discontinued Operations and disposal of subsidiaries

On December  16, 2004,  the Company  sold all of its shares in its  wholly-owned
subsidiary,  Euroweb  Czech  for  cash of  $500,000.  However,  as a part of the
transaction,  the Company  effectively forgave $400,000 of loans receivable from
Euroweb  Czech.  The Company  believes  that the sale of Euroweb Czech meets the
criteria for  presentation  as a discontinued  operation under the provisions of
Statements of Financial  Accounting  Standard ("SFAS") No. 144,  "Accounting for
the  Impairment  or Disposal of  Long-Lived  Assets,  therefore  all periods are
restated to reflect  Euroweb  Czech  Republic as  discontinued  operations.  The
Company  recognized a gain of  approximately  US $409,000 on the sale of Euroweb
Czech.

On April 13,  2004,  the Company sold its 100%  shareholding  in Neophone Rt. (a
non-operational  subsidiary)  for  approximately  $60,000,  realizing  a gain of
$28,751.  In 2003,  Euroweb Hungary sold two  subsidiaries  for  approximately $
5,000.  A gain of $ 109,621 was  recorded on the sales due to the fact that both
subsidiaries had net liabilities at the time of sale.

                                      F-18
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


10. Income taxes

Deferred Tax Assets and Liabilities

Upon the  acquisition of Elender Rt., the Company  recognized a net Deferred Tax
Liability  of  $294,005  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 2.5  years  from
acquisition,  the  Deferred  Tax  Liability  is being  reduced  proportionately.
$83,576  was  expensed  in  2004.  Elender  Rt.  had tax loss  carryforwards  of
approximately  $1.9  million  (resulting  in a potential  Deferred  Tax Asset of
$312,005) which could be carried forward post  acquisition.  An amount up to the
value of the Deferred Tax Liability  ($294,005) was recognized as a Deferred Tax
Asset at acquisition and the remaining  deferred tax asset of $18,000 is covered
by a  valuation  allowance  (subsequent  recognition  of the  benefits  of  this
valuation   allowance  will  be  credited  against  Goodwill  from  the  Elender
acquisition). This amount has been reduced at year-end to $253,425.

The  deferred  income  tax  expense  of zero in 2004 is a  result  of a  $83,576
deferred income tax benefit due to the excess of acquisition of Elender Rt., and
is offset by a deferred  income tax  expense of $83,576 to reduce  Deferred  Tax
Assets.

The loss from continuing  operations before income taxes by tax jurisdiction for
the years ended December 31 2004 and 2003 was as follows:

                                               2004               2003
                                          ------------       ------------
Loss from continuing operations
before income taxes:
  Domestic                                $(1,670,486)        (1,370,658)
  Foreign                                     633,677            17,155
                                          ------------       ------------
Total                                     $(1,036,809)       $(1,353,503)
                                          ============       ============

The current  income tax expense of $62,367  (2003:  61,590) is  attributable  to
income/loss  from continuing  operations and relates entirely to current foreign
tax.

                                      F-19
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


The difference  between the total expected tax expense (benefit) and tax expense
for the years ended December 31, 2004 and 2003 is accounted for as follows:

<TABLE>
<CAPTION>
                                                                  2004                         2003
                                                         Amount             %          Amount           %
                                                       ---------          ------      --------        ------
<S>                                                   <C>                 <C>       <C>             <C>
Computed expected tax
  Benefit                                             $(352,515)          (34.00)   $(460,191)      (34.00)

  Foreign Tax Rate Differential                         696,053            67.13       50,922          3.76

  Utilization of net operating losses
  not previously recognized                             (55,732)           (5.38)     (51,529)        (3.81)

Change in tax rates                                           -                -      194,390         14.36

Non-deductible expenses                                  17,178             1.66      333,383         24.63

Change in Valuation Allowance                          (242,617)          (23.40)      (5,385)        (0.40)
                                                       ---------           ------     ---------        ------
Total Expense                                           $62,367             6.02%     $61,590          4.55%
                                                       =========           ======     =========        ======
</TABLE>
The change in the tax rates in 2003 results from the fact that the corporate tax
rate in Hungary was 18% for 2003 and prior  years,  but in 2003,  the  Hungarian
parliament  enacted  a tax rate of 16% for 2004 and  subsequent  years.  The net
impact  of the  change  in tax rates  has no  material  impact on the  financial
statements as the Company has provided a full  valuation  allowance for deferred
tax assets (see below).

The tax effects of temporary  differences that give rise to significant portions
of deferred tax assets at December 31, 2004 and 2003 are as follows:



                                           2004               2003
                                        -----------        -----------
Deferred Tax Assets:
  Net Operating Loss Carryovers         $5,328,292         $5,241,133
  Other                                          -             76,351
  Capital Loss Carryovers                        -             63,801
                                        -----------        -----------
Gross Deferred Tax Assets                5,328,292          5,381,385
Valuation Allowance                     (5,074,867)        (5,381,385)
                                        -----------        -----------
Net Deferred Tax Assets                    253,425                  -

Deferred Tax Liabilities (Intangibles)    (253,425)                 -
                                        -----------        -----------
Net Deferred Tax Assets                   $      -         $        -
                                        ===========        ===========

                                      F-20
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


The valuation  allowance was  $6,384,117  at January 1, 2003.  During 2004,  the
valuation  allowance  decreased by  $306,518,  while during 2003 it decreased by
$1,002,732.

The Company has unused net operating loss  carryforwards at December 31, 2004 of
approximately  $20 million  available to offset future taxable  income.  Of this
amount,  approximately $10 million of losses that arose in the first three years
of operation  in Hungary can be carried  forward  indefinitely  based on current
Hungarian Tax Legislation.  Of the remaining $10 million of losses, $1.9 million
expire in various years from  2005-2010,  $1.6 million  expires in 2011, and the
remaining  $6.5 million  expire in various years from 2016 through 2024. The Tax
Acts of some jurisdictions  contain provisions which may limit the net operating
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 not that 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 not that the Company
will  realize  the  benefit of these  deductible  differences,  net of  existing
valuation allowances at December 31, 2004.

11.  Stockholders' Equity

On April 28, 2004, 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 (see Note 14(a)).  As the Company follows APB
25 with respect to  accounting  for grants made to  employees,  no  compensation
expense was recorded for the options granted to the Chief Executive  Officer and
the five  employees.  However,  the Company will  recognize  total  compensation
charges of  approximately  $162,000 for the grants made to the two  consultants,
which will be  expensed  over the vesting  period of three  years  (compensation
expense for the year ended December 31, 2004 was $94,212).

In connection  with the  acquisition of Elender Rt. (Note 1), the Company issued
677,201 of common  shares.  The Company is in the process of  registering  these
common shares.

12. Related party transactions

General:  The largest  customer of the Company  since early 2001 has been Pantel
Rt. ("Pantel"), a Hungary-based alternative  telecommunications  provider. As at
December  31,  2004,  KPN was the  majority  owner  of  Pantel  and the  largest
shareholder of the Company.  Pantel  operates within the region and has become a
significant  trading  partner for Euroweb  Romania  through the  provision  of a

                                      F-21
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


direct fiber cable  connection,  which  enables  companies to transmit data to a
variety of  destinations by utilizing the  international  connections of Pantel.
Due to the increase in revenues from International/domestic leased line and VOIP
services provided in conjunction with Pantel, some of the representatives of the
Company work at the premises of Pantel in order to improve the  effectiveness of
the co-operation on international  projects and daily operational issues.  Csaba
Toro, Chief Executive Officer of Euroweb International Corp., was also the Chief
Executive  Officer of Pantel until  February 2003.  Euroweb  Hungary and Euroweb
Romania have engaged in transactions with Pantel:

(a) Pantel provides the following services to the subsidiaries of the Company:

- Internet bandwidth
- National leased and telephone lines within Hungary
- VOIP services
- Consulting services

The total amount of these services  purchased from Pantel was $6,198,505  during
2004 (2003: $5,796,350).  Additionally, consulting services amounted to $292,864
in 2003,  there  was no such  services  in 2004.  In 2004,  Pantel  Rt.  charged
interest of $154,761 (2003: zero).

(b) The Company and its subsidiaries provided the following services to Pantel:

- International leased lines and local loops in Hungary and Romania
- International IP and VOIP services
- Certain  consultants  are hired by the Company,  but also work on projects for
Pantel. In these cases, Pantel is recharged a portion of the consulting fees

The total value of these  services  sold was  approximately  $8,503,939  in 2004
(2003: $5,740,709).

Direct  sales to Pantel  were 23% of total  consolidated  revenue in 2004 (2003:
26%).  However,  the  dependency  on  Euroweb  Romania  on  Pantel  is even more
significant.  Some third party sales involve Pantel as the subcontractor/service
provider for the  international/domestic  lines,  and some third party customers
were introduced to the Company by Pantel (i.e. their relationship with Pantel is
stronger than their relationship with Euroweb Romania).

Effective dependency on Pantel:  Direct sales to Pantel and Pantel-related sales
represent  approximately 30% of total  consolidated  revenues of the Company and
approximately  80% of total  sales of  Euroweb  Romania.  There is no such sales
dependency in the case of Euroweb Hungary and Euroweb Slovakia.

Pricing:  Agreements  are made at market prices or a portion of the margin based
on the financial  investment into the specific  services by each of the parties.
The Company  considers  alternative  suppliers  for  individual  projects,  when
appropriate.

There were no other significant related party transactions in 2004 or 2003.

                                      F-22
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


13. Commitments and Contingencies

(a) Employment Agreements

A  fixed-term  employment  agreement  with the  Chief  Executive  Officer  which
provided for aggregate annual  compensation of $96,000 through December 31, 2005
was amended in 2004.  The amended  agreement  provides  for an annual  salary of
$200,000  and a bonus of up to $150,000 in each of 2005 and 2006,  as well as an
annual car allowance of $30,000.

Two fixed-term  employment agreements for Officers of the Company provide for an
aggregate monthly compensation of $ 18,750 until December 31, 2005.

(b) Lease agreements

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

(c) 20 years' usage rights

In 2002,  Euroweb Romania provided an Indefeasible Right of Use for transmission
capacity on 12 pairs of fiber (see Note 6) over a period of 20 years, commencing
in 2003.  For the duration of the agreement,  Euroweb  Romania is obliged to use
all reasonable  endeavours to ensure the Cable System is maintained in efficient
working order and in accordance with industry standards.

(d) Legal Proceedings

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

(e) Elender Rt. acquisition

On June 9, 2004 the Company  acquired all of the  outstanding  shares of Elender
Business Communications Rt., a leading ISP in Hungary, for USD 6,500,000 in cash
and 677,201 of the  Company's  shares of common  stock.  Under the terms of this
agreement,  the Company has placed 248,111  unregistered  shares of newly issued
(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 these shares.

                                      F-23
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


Pursuant to section 1 of the  Registration  Rights  Agreement  signed on June 1,
2004 with the  Sellers of Elender  Rt.,  if the shares of the  Company's  common
stock were not  registered  within 120 days of Closing  (Closing  was on June 9,
2004) for reasons  attributable to the Company,  a penalty of $ 2,000 per day is
payable  until the  shares are  registered.  The  Company  is in the  process of
registering the shares of common stock issued in connection with the Elender Rt.
acquisition.  The  Company  has made a  provision  of  $170,000  to  accrue  for
potential  penalties  under this Clause until  December  31,  2004.

(f) Euroweb Hungary Rt. purchase guarantee

In February  2004,  the remaining 51% of Euroweb  Hungary Rt. was purchased from
Pantel Rt. The Consideration  paid by the Company for the 51% interest consisted
of EUR  1,650,000  (USD  $2,105,000)  in cash,  and a purchase  commitment  that
Euroweb  Hungary Rt. will  purchase at least HUF 600 million  (approximately  $3
million)  worth of services from Pantel Rt. in each of  2004-2006.  In the event
that Euroweb Hungary and its subsidiaries do not satisfy this commitment, Pantel
Rt. may charge a penalty equal to 25% of the commitment amount less any services
purchased. Purchases in 2004 exceeded this amount.

(g) Indemnities provided upon sale of subsidiaries

On April 13,  2004,  the Company sold its 100%  shareholding  in Neophone Rt. (a
non-operational  subsidiary) for approximately  $60,000.  Under the terms of the
sale the Company  has  indemnified  the Buyer for any  unaccrued  costs,  fines,
penalties  and lawsuits  which  relate to a period prior to the sale.  No claims
have been made to date.

Under the terms of the sale  agreement for Euroweb Czech (see Note 9), the Buyer
has a right  to  make  claims  against  the  Company  for up to  $200,000  under
representation and warranties  provisions of the sale agreement.  This provision
is applicable  for claims made within 12 months of closing.  No claims have been
made to date.

14. Stock Option Plan and Employee Options

a) Stock Option Plan

The  Company's  Stock Option Plan expired in 2003,  although  unexpired  options
issued  under this Plan are  exercisable  until  expiry.  At December  31, 2004,
options for 26,000 (December 31, 2003: 46,000) Common Stock were outstanding and
exercisable (by the Chief Executive Officer) under this Stock Option Plan.

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  (the  "Committee").  The Board 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.

                                      F-24
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


Options  granted under the Plan are generally  exercisable for a period of up to
ten years from the date of grant.  No Option  shall be  transferable,  except by
will or the laws of descent and  distribution.  Incentive  options  granted to a
Principal  Stockholder  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.


Under the Plan,  the Company on April 26, 2004  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 3-4 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 will be recorded for the options granted to
the Chief Executive  Officer and the five employees.  However,  the Company will
recognize total  compensation  charges of approximately  $162,000 for the grants
made to the two consultants,  which is being expensed over the vesting period of
three years.

(b) Other Options

The Company has issued exercisable options pursuant to employment agreements. As
of December  31,  2004 (and 2003)  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 expire on April 2,
2005. The options are 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 of 2004-2007.

(c) Accounting for stock-based options

SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"  ("SFAS No.  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 No. 123. The Company  estimates  the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model.

The  amount  calculated  as total  compensation  expense  under  SFAS No. 123 is
$632,766 for the 200,000  options  granted to directors on October 13, 2003, and
$1.3 million for the 365,000  options  granted on April 26, 2004  (calculated at
grant date using Black-Scholes  valuation model with volatility of 88%, interest
rate of 4%,  expected life of 6 years and a no-dividend  assumption).  Under the
accounting  provisions  of SFAS No. 123, this  compensation  expense is recorded
over the vesting  period of the options (3-4 years) and the  Company's  2004 and
2003 net loss and net loss per  share  would  have  increased  to the pro  forma
amounts indicated below:

                                      F-25
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


                                               2004                 2003
                                                                  (restated)
Net loss:
    Net loss as reported                        $(734,454)        $(1,791,027)
    Compensation expense                         (943,164)           (110,482)
    Pro forma net loss                         (1,677,618)         (1,901,509)

Basic and diluted loss per share:
    As reported                               $     (0.15)        $     (0.38)
    Pro forma                                       (0.33)              (0.41)



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:

<TABLE>
<CAPTION>
                                                                             2004                  2003
                                                                      -------------------      -------------------
                                                                            Weighted                Weighted
                                                                            average                 average
                                                                            exercise                exercise
                                                              Options       Price       Options     Price
                                                              ---------     ---------   ---------   --------
<S>                  <C>                                       <C>            <C>        <C>         <C>
Outstanding, January 1,                                        309,000        $5.95      124,500     $9.00
Granted                                                        365,000         4.78      200,000      4.21
Cancelled                                                            -            -            -         -
Expired                                                        (20,000)        5.00      (15,500)     7.65
                                                              ---------     ---------   ---------   --------
Outstanding, December 31,                                      654,000         5.33      309,000      5.95
                                                              =========     =========   =========   ========
</TABLE>
250,250  options are  outstanding  and  exercisable  at December 31, 2004 (2003:
109,000)

The 200,000  options  granted to Directors in 2003 are  exercisable  as follows:
50,000  exercisable on each April 14 of 2004,  2005, 2006, and 2007. The 365,000
options granted on April 26, 2004 are exercisable as follows: 111,250 options on
November  1, 2004,  111,250  options on each of October 1, 2005,  and October 1,
2006,  and 31,250  options on October 1,  2007.  The  remaining  89,000  options
outstanding as at December 31, 2004 are all exercisable as at December 31, 2004.

No options were exercised in 2004 and 2003.

At December 31, 2004 the range of exercise prices and weighted average remaining
contractual  life of  outstanding  options  was $4.21 - $10.47  and 5.93  years,
respectively.

15. Stock Warrants

As at December 31, 2003 the total number of shares for which  warrants have been
issued  and are  exercisable  (at $ 11 per  share) was  10,000.  These  warrants
expired unexercised on May 2, 2004. No warrants were issued in 2004.

16. Geographic information

                                      F-26
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003

The Company's  operations  fall into one industry  segment:  providing  Internet
access and additional  value added services to business  customers.  The Company
manages its operations,  and accordingly determines its operating segments, on a
geographic  basis.  Consequently,  the  Company  has three  operating  segments:
Euroweb  Hungary,  Euroweb  Romania,  and Euroweb  Slovakia.  The performance of
geographic  operating  segments  is  monitored  based on net income or loss from
operations (before 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  inter-segment  sales
revenues.




The following tables summarize  financial  information by geographic segment for
the year ended December 31, 2004 and 2003:
<TABLE>
<CAPTION>

Geographic information for 2004
                                   Slovakia   Romania      Hungary         Corporate        Total
<C>                              <C>         <C>         <C>               <C>             <C>
3rd party revenues               3,827,738   5,637,991   18,646,057              -      $28,111,786
Pantel related revenues                  -   7,999,011      504,928              -        8,503,939
Total revenues                   3,827,738  13,637,002   19,150,985              -       36,615,725

Depreciation                       185,758     626,564    1,119,262          2,048        1,933,632
Intangible amortization
(customer contract)                      -          -       677,132              -          677,132

Interest income                     32,857      24,437       95,539         49,154          201,987
Interest expense                     8,718      30,571      380,370             -           419,659
Net interest (expense)
income                              24,139      (6,134)    (284,831)        49,154         (217,672)

Income tax                          31,275      31,092            -              -           61,590
Net loss                           313,754     (53,704)     (97,317)      (897,187)        (734,454)

Fixed assets, net                  234,557   2,195,881    5,274,303              -        7,704,741
Fixed asset additions               76,807     985,492      639,691              -        1,701,990
Goodwill                                 -     566,000    5,240,181                       5.806.181


Geographic information for 2003



                                   Slovakia    Romania   Hungary         Corporate        Total
3rd party revenues               3,424,633    4,539,215    8,412,501             -       $16,376,349
Pantel related revenues                  -    5,633,864      106,845             -         5,740,709
Total revenues                   3,424,633   10,173,079    8,519,346             -        22,117,058

Depreciation                       328,182      466,853      841,098             -         1,636,133
Intangible impairment                    -      100,364            -             -           100,364
Goodwill impairment                563,000      324,957            -             -           887,957

Interest income                     18,990        3,934       82,012       390,349           495,285
Interest expense                    28,269       24,333       93,132         5,231           150,965
Net interest (expense)
income                              (9,279)     (20,399)     (11,120)      385,118           344,320

Income tax                               -       61,590            -             -            61,590
Net loss                          (457,092)    (399,232)    (214,967)     (719,736)       (1,791,027)

Fixed assets, net                  326,788    1,575,851      879,385             -         2,782,024
Fixed asset additions               94,954      752,848      310,270             -         1,158,072
Goodwill                                 -      566,000            -             -           566,000

</TABLE>
                                      F-27
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003

Goodwill  and  related  impairment  amounts  are  recorded  in the  books of the
Corporate entity and allocated to reporting units. The Gain/Loss on discontinued
operations is included in the Corporate Net Loss.

17. Subsequent events

(a) Status of Pantel Rt. as a related party

On February 28, 2005, it was announced  that the sale of KPN NV's 75.1% interest
in the Pantel  business to the  Hungarian  Telephone  and Cable  Corp.  had been
completed.  Therefore,  Pantel is no longer considered a related party effective
March 1, 2005.


(b) Euroweb Slovakia

In January 2005,  the Company  decided that the  operations of Euroweb  Slovakia
were no longer  considered  part of the core assets of the Company.  In light of
this  decision,  the Company,  in January  2005,  approached  a potential  buyer
interested in acquiring  internet service providers in Slovakia.  The Company is
currently  negotiating the sale of Euroweb  Slovakia with this potential  buyer.
The Company  intends to treat Euroweb  Slovakia as a discontinued  operation for
purposes of US GAAP reporting in future periods, with appropriate restatement of
comparative  prior period  amounts.  The following  table  presents the carrying
amounts of the major classes of assets and liabilities of Euroweb Slovakia as at
December 31, 2004:

                                                                2004
                                                                ----
Current assets                                               1,480,522
Long-term assets                                               234,557
   Total assets                                             $1,715,079

Current liabilities                                          1,244,310
Long-term liabilities                                            6,701
   Total liabilities                                        $1,251,011

Net equity                                                    $464,068



                                      F-28
<PAGE>
                           Euroweb International Corp.
                   Notes to Consolidated Financial Statements
                           December 31, 2004 and 2003


(c) Announced sale of the Company's shares by KPN

Pursuant to a Stock Purchase Agreement dated as of January 28, 2005, between KPN
Telecom  B.V.   (the  largest   shareholder   of  the   Company),   and  CORCYRA
d.o.o.("CORCYRA"),  CORCYRA  purchased  289,855  shares of the Company's  common
stock from KPN Telecom B.V.  and has also agreed to purchase KPN Telecom  B.V.'s
remaining shares of the Company's common stock by April 30, 2006.

(d) Potential acquisition

In March  2005,  the Company  signed a Letter of Intent  relating to a potential
acquisition.  The  finalisation  of the  transaction  terms  is  subject  to the
completion of due  diligence  procedures  (currently  underway) and agreement on
terms  which will be  detailed  in a formal  purchase  agreement.  The  purchase
consideration,  if the  transaction  goes  ahead,  is  expected  to  comprise  a
combination of cash and Company stock.

(e) New Stock options

On March 22nd,  2005 the Board of Directors  decided to grant two new  directors
100,000 stock options each under the 2004  Incentive  Plan.  These stock options
are  exercisable  as follows:  50,000  exercisable on each September 22 of 2005,
2006, 2007, and 2008.


                                      F-29