<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

                                       OR

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

       FOR THE TRANSITION PERIOD FROM _______________ TO _______________ .

                        COMMISSION FILE NUMBER: 000-31201

                                IASIAWORKS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                 94-3228782
    (STATE OR OTHER JURISDICTION OF                    (IRS EMPLOYER
    INCORPORATION OR ORGANIZATION)                   IDENTIFICATION NO.)

                      2000 ALAMEDA DE LAS PULGAS, SUITE 126
                           SAN MATEO, CALIFORNIA 94403
                                 (650) 524-1790

 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
                    REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [_] No

The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 39,880,745 at November 5, 2001.

                                        1

<PAGE>

                                IASIAWORKS, INC.
                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION                                                                   PAGE
<S>                                                                                             <C>
Item 1. Financial Statements

             Condensed Consolidated Balance Sheets as of December 31, 2000 and September
             30, 2001 (unaudited) ...........................................................     3

             Unaudited Condensed Consolidated Statements of Operations for the Three and Nine
             Months Ended September 30, 2000 and 2001 .......................................     4

             Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
             Ended September 30, 2000 and 2001 ..............................................     5

             Notes to Unaudited Condensed Consolidated Financial Statements .................     7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations    15

Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........................    42

PART II: OTHER INFORMATION

Item 1. Legal Proceedings ...................................................................    43
Item 2. Changes in Securities and Use of Proceeds ...........................................    44
Item 3. Defaults Upon Senior Securities .....................................................    44
Item 4. Submission of Matters to a Vote of Security Holders .................................    44
Item 5. Other Information ...................................................................    44
Item 6. Exhibits and Reports on Form 8-K ....................................................    44
</TABLE>

Signatures

                                        2

<PAGE>

PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                IASIAWORKS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands, except par value)

<TABLE>
<CAPTION>
                                                                                  December 31,    September 30,

                                                                                      2000             2001
                                                                                  ------------    --------------
                                                                                                    (unaudited)
<S>                                                                               <C>             <C>
ASSETS
Current assets:
     Cash and cash equivalents                                                    $     62,045    $        7,281
     Marketable securities                                                               9,339                --
     Accounts receivable, net                                                            4,480             2,156
     Prepaid expenses and other current assets                                           6,578             7,400
                                                                                  ------------    --------------
           Total current assets                                                         82,442            16,837
Restricted cash                                                                          7,063               503
Property and equipment, net                                                             69,276            32,123
Goodwill, intangibles and other assets, net                                             34,786               293
                                                                                  ------------    --------------
           Total assets                                                           $    193,567    $       49,756
                                                                                  ============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
     Accounts payable                                                             $      5,087    $        4,510
     Accruals and other liabilities                                                      5,442            11,926
     Deferred revenue                                                                    1,121               468
     Current portion of capital lease obligations                                          560             1,995
     Current portion of long-term debt                                                     349               349
                                                                                  ------------    --------------
           Total current liabilities                                                    12,559            19,248
Capital lease obligations, net of current portion                                        1,045             1,070
Long-term notes payable                                                                 28,986            31,929
                                                                                  ------------    --------------
           Total Liabilities                                                            42,590            52,247
                                                                                  ------------    --------------

Stockholders' equity (deficit):
Common stock, $0.001 par value; 300,000 shares authorized; 39,634 shares issued
     and outstanding at December 31, 2000
     and 39,881 shares issued and outstanding at September 30, 2001                         39                39

Additional paid-in capital                                                             251,551           244,693
Deferred stock-based compensation                                                      (13,123)           (1,708)
Accumulated deficit                                                                    (85,809)         (241,501)
Accumulated other comprehensive loss                                                    (1,681)           (4,014)
                                                                                  ------------    --------------
           Total stockholders' equity (deficit)                                        150,977            (2,491)
                                                                                  ------------    --------------

           Total liabilities and stockholders' equity (deficit)                   $    193,567    $       49,756
                                                                                  ============    ==============
</TABLE>

   The accompanying notes are an integral part of these condensed consolidated
                              financial statements.

                                        3

<PAGE>

                                IASIAWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended       Nine Months Ended
                                                                                        September 30,            September 30,

                                                                                     2000          2001       2000          2001
                                                                                   ---------    ---------   ---------    ---------
<S>                                                                                <C>          <C>         <C>          <C>
Revenue:
     Internet access and related services                                          $   4,027    $   2,586   $  11,373    $  10,194
     Hosting, co-location and other managed services                                   3,968          835       7,389       10,491
                                                                                   ---------    ---------   ---------    ---------
         Total revenue                                                                 7,995        3,421      18,762       20,685
                                                                                   ---------    ---------   ---------    ---------

Cost of revenue:
     Cost of revenue                                                                   6,738        3,097      15,157       21,453
     Depreciation                                                                        634        1,913       2,031        5,004
                                                                                   ---------    ---------   ---------    ---------
         Total cost of revenue                                                         7,372        5,010      17,188       26,457
                                                                                   ---------    ---------   ---------    ---------
     Gross profit (loss)                                                                 623       (1,589)      1,574       (5,772)
                                                                                   ---------    ---------   ---------    ---------

Operating expenses:
  Network operations and support (including stock-based compensation of $433 and
   $(187) for the three months ended September 30, 2000 and 2001, respectively,
   and $1,154 and $317 for the nine months ended September 30, 2000 and 2001,
   respectively)                                                                       3,935        2,198       6,606       12,935
  Sales and marketing (including stock-based
   compensation of $634 and $(118) for the three months ended September 30,
   2000, and 2001, respectively, and $1,552 and $(759) for the nine months ended
   September 30, 2000 and 2001, respectively)                                          4,284          913       8,586        9,090
  General and administration (including stock-based compensation of $1,695 and
   $360 for the three months ended September 30, 2000 and 2001, respectively,
   and $6,603 and $2,175 for the nine months ended September 30, 2000 and 2001,
   respectively)                                                                       4,374        4,707      12,864       19,569
  Amortization of intangibles                                                          3,993            -      11,709        7,423
  Impairment of goodwill                                                                   -            -           -       24,160
Non-recurring operating expenses                                                           -        7,473           -       75,170
                                                                                   ---------    ---------   ---------    ---------
         Total operating expenses                                                     16,586       15,291      39,765      148,347
                                                                                   ---------    ---------   ---------    ---------
Loss from operations                                                                 (15,963)     (16,880)    (38,191)    (154,119)
     Interest income                                                                   1,163           20       2,147          921
     Interest expense                                                                    (35)        (874)       (180)      (1,753)
     Other income (expenses), net                                                        (23)        (404)         61         (741)
                                                                                   ---------    ---------   ---------    ---------
Net loss                                                                           $ (14,858)   $ (18,138)  $ (36,163)   $(155,692)
                                                                                   =========    =========   =========    =========
Net loss per share - basic and diluted                                             $   (0.57)   $   (0.46)  $   (3.31)   $   (3.92)
                                                                                   =========    =========   =========    =========
Shares used in computing basic and diluted net loss per share                         25,982       39,839      10,922       39,731
                                                                                   =========    =========   =========    =========
</TABLE>

  The accompanying notes are an integral part of these condensed consolidated
                             financial statements.

                                        4

<PAGE>

                                IASIAWORKS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended September 30,
                                                                                          2000                2001
                                                                                       ------------      -------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities:
   Net loss                                                                            $    (36,163)     $    (155,692)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                          13,838             13,146
      Warrants issued in connection with loans recorded as interest expense                      23                  -
      Stock-based compensation expense                                                        9,309              4,332
      Impairment of goodwill                                                                      -             24,159
      Loss on sale of virtual hosting business                                                    -              2,359
      Impairment of property and equipment                                                        -             56,788
      Provision for doubtful accounts                                                           496                804
      Gain on dissolution of entities                                                             -             (8,406)
      Changes in operating assets and liabilities:
         Accounts receivable                                                                 (1,328)             1,057
         Prepayments and other current assets                                                (9,863)            (2,301)
         Accounts payable and accrued expenses                                                6,344             16,701
         Deferred revenue                                                                       996               (378)
         Long-term liabilities                                                                    -             15,145
         Other long-term assets                                                                   -                625
         Deposits                                                                                 -                596
         Restricted cash                                                                     (5,948)             6,561
                                                                                       ------------      -------------
              Net cash used in operating activities                                         (22,296)           (24,504)
                                                                                       ------------      -------------

Cash flows from investing activities:
   Purchase of property and equipment, net                                                  (25,470)           (59,007)
   Proceeds from sale of property and equipment                                                   -             31,057
   Business acquisitions                                                                     (1,950)                 -
   Sale of (purchase of) marketable securities                                              (13,477)             9,339

                                                                                       ------------      -------------
              Net cash used in investing activities                                         (40,897)           (18,611)
                                                                                       ------------      -------------

Cash flows from financing activities:
   Principal payments under capital lease obligations                                             -               (332)
   Principal payments on loans                                                                    -            (11,644)
   Proceeds from capital leases                                                                   -                  -
   Proceeds from loans                                                                        1,557                382
   Exercise of stock options                                                                      -                 44
   Proceeds from issuance of preferred stock and preferred stock warrants, net                  943                  -
   Proceeds from sale of common stock, net                                                  106,578                193
                                                                                       ------------      -------------
              Net cash provided by (used in) financing activities                           109,078            (11,357)
                                                                                       ------------      -------------

Effect of exchange rate changes on cash and cash equivalents                                    283               (292)
Net increase (decrease) in cash and cash equivalents                                         46,168            (54,764)
Cash and cash equivalents at beginning of the period                                         42,222             62,045
                                                                                       ------------      -------------
Cash and cash equivalents at end of the period                                         $     88,390      $       7,281
                                                                                       ============      =============

Supplemental cash flow disclosures:
      Cash paid during the period for
</TABLE>

                                        5

<PAGE>

<TABLE>
<S>                                                                                 <C>                  <C>
            Interest                                                                $           134      $       1,902
                                                                                    ===============      =============
Supplemental disclosure of non-cash investing and financing activities:

         Assets acquired under capital leases                                       $         1,521      $       2,188
                                                                                    ===============      =============

         Issuance of preferred stock in connection with acquisition                 $         4,850      $           -
                                                                                    ===============      =============
</TABLE>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.

                                        6

<PAGE>

                                IASIAWORKS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

NOTE 1 - ORGANIZATION AND BACKGROUND

The Company

         Prior to the quarter ended June 30, 2001, iAsiaWorks, Inc. (the
"Company") offered a broad range of Internet solutions that allowed business
customers to build or extend their presence across multiple markets in the
Asia-Pacific region. These Internet solutions included high-speed leased-line
Internet access, hosting, co-location, managed services and other value-added
services.

         During the second and third quarters of the year ending December 31,
2001, in light of the deteriorating business climate, its diminished resources
and inability to access financing, the Company has refocused the scope and
geographic reach of its business activities with the objective of reducing its
operating expense structure to be more in line with its expected revenue streams
and financing opportunities. As a result, the Company now emphasizes co-location
connectivity and remote hands services in one principal market - Taiwan - and
has de-emphasized its focus on sales of high-speed, leased-line Internet access
and managed services.

Restructuring and Downsizing Activities

         As part of the Company's efforts to realign its operating expense
structure, the Company has made reductions in force and has sold, closed or
liquidated various business units, sales offices and subsidiaries. Earlier in
2001, the Company sold its virtual hosting business in Australia and made
significant headcount reductions of approximately 100 people company-wide, which
together resulted in a $7.5 million charge to non-recurring operating expense in
the first quarter of 2001.

         The Company underwent an additional reduction in force in June 2001,
which resulted in the layoff of 127 employees. The Company also closed all of
its remote sales offices in the United States, and entered into a Creditors
Voluntary Liquidation of its Hong Kong subsidiary in July 2001.

         Effective as of September 29, 2001 and pursuant to an Asset Transfer
Agreement dated September 1, 2001 and an Asset Sale Agreement dated September
19, 2001, iAsiaWorks Korea Ltd sold certain assets related to its Internet data
center business and terminated all employees of the Korean entity (see NOTE 8).

         The Company will continue to assess its operating expense structure and
will make additional changes as it deems appropriate.

Going Concern

         The Company's unaudited condensed consolidated financial statements for
the three and nine months ended September 30, 2001 have been prepared on a going
concern basis, which

                                        7

<PAGE>

contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company incurred a net loss of $155.7 million
for the nine-month period ended September 30, 2001 and has an accumulated
deficit of $241.5 million as of September 30, 2001. The Company has suffered
recurring losses from operations and, as of September 30, 2001, has a working
capital deficit of $2.4 million. Apart from the sale of certain assets related
to its Internet data center business in Korea, the Company has not been
successful in raising sufficient additional funding to support its operating
activities through the middle of the first quarter of 2002. These factors raise
substantial doubt about the Company's ability to continue as a going concern.

         Without obtaining third party debt or equity financing, the Company
currently anticipates that cash on hand and anticipated cash flow from
operations are inadequate to continue to fund its operations in the ordinary
course. Cash on hand is being carefully monitored and the Company anticipates
that such cash will allow it to continue to operate until the middle of the
first quarter of 2002. Consequently, the Company will require substantial
additional funding to continue to operate its business as a going concern. Many
companies in the Internet infrastructure industry have experienced difficulty
raising additional financing in recent months. Apart from the sale of certain
assets related to its Internet data center business in Korea, the Company has
been attempting to obtain additional financing for several months and has not
succeeded. Additional financing may not be available to the Company on favorable
terms or at all. If additional financing is not available, the Company may need
to further modify its business plan, sell or merge its business, sell assets,
including its Internet data center in Taiwan, or face bankruptcy.

         Negotiations for the restructuring of the Company's short term and
long-term liabilities, including debt agreements, are being conducted. However,
the Company's creditors could force the Company into involuntary bankruptcy at
any time. If this were to occur, it is likely that the Company's creditors will
receive less than 100% of the face value of their claims and that the Company's
stockholders will not receive any return from their investment, and most likely
would lose their investment altogether. In addition, any issuance of equity or
equity-related securities would substantially dilute the ownership interest of
existing stockholders and the issuance of debt securities could increase the
risk or perceived risk of the Company.

         The absence of additional funding has and will continue to have a
significant impact on the Company's ability to generate revenues from the sale
of its services to new customers or retain existing customers.

         The Company's plans in light of this uncertainty include, but are not
limited to, one or more of the following:

         .  exploring various strategic alternatives, which may include a
            merger, asset sale, or other comparable transactions;

         .  raising additional capital to fund continuing operations by private
            placements of equity, debt securities and/or securing new loans
            which may be collateralized by the Company's assets;

         .  negotiating with creditors to either reduce or restructure the
            Company's current outstanding obligations;

         .  forming a joint venture with a strategic partner or partners to
            provide additional capital resources to fund operations; and

                                        8

<PAGE>

         .  executing additional cost-cutting measures, which could include
            additional lay-offs and/or the closure or sale of certain business
            units and facilities.

         To date, the Company has been exploring all of the aforementioned
alternatives. If the Company is unable to raise additional funds by consummating
one of the aforementioned alternatives or restructure its obligations, it may
not be able to grow its business or continue operating to achieve its business
objectives and, as a result, may need to further modify its business plan or
file for bankruptcy under Chapter 11 or Chapter 7 of the United States Federal
Bankruptcy Code, or institute similar proceedings in a foreign jurisdiction. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

NOTE 2 - INTERIM BASIS OF PRESENTATION

         The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and the rules of the
Securities and Exchange Commission. Accordingly, they do not contain all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the Company's financial position as of September 30, 2001,
and the results of its operations and cash flows for the three and nine months
ended September 30, 2001 and 2000. The consolidated balance sheet data as of
December 31, 2000 is derived from the audited financial statements which are
included in the Company's annual report filed on Form 10-K, which should be read
in conjunction with these financial statements. Operating results for the three
and nine months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

         The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, with the exception of the
Company's wholly owned subsidiary in Hong Kong, over which the management
responsibility was relinquished to a court-appointed administrator as a result
of the Company entering into a creditors voluntary liquidation on July 3, 2001
for this entity. Outstanding balances due to and from the Company's Hong Kong
subsidiary after such date have been recorded as third party balances, due to
this loss of control. Apart from activity with Hong Kong after July 3, 2001, All
inter-company transactions and balances have been eliminated upon consolidation.

Revenue Recognition

         The Company's revenue has historically been derived from contracts for
Internet access and related services and monthly fees from customer use of
Internet data centers, managed services, and professional services and sales of
equipment. Internet access, hosting and co-location revenues are generally
billed and recognized ratably over the term of the contract, which generally has
a one-year term. Internet access-related services revenue includes installation
fees and related direct costs. Installation fees and related direct costs are
deferred and recognized over the contract term.

         Managed and other value-added services include administration,
monitoring, security, data backup and consulting services, and equipment sales.
The Company recognizes revenue from maintenance fees for ongoing customer
support ratably over the period of the maintenance

                                        9

<PAGE>

contract. Payments for maintenance fees are generally made in advance and are
non-refundable. Consulting revenue is generally billed on a time and materials
basis, and is recognized as the consulting services are rendered. Revenue from
equipment sales is recognized when the equipment has been delivered to the
customer or placed into service at the Company's Internet data center.

Net Loss Per Share

         Net loss per share has been computed by dividing the net loss by the
weighted-average number of shares outstanding during the period.

         The following table sets forth the computation of net loss per share
for the periods indicated. For periods prior to the Company's initial public
offering, the computation does not reflect the conversion of preferred stock
into common stock, which occurred upon the closing of the Company's initial
public offering, nor does it include the exercise of outstanding options and
warrants for any period. The information set forth is stated in thousands,
except for per share data:

<TABLE>
<CAPTION>
                                     Three Months Ended September 30,    Nine Months Ended September 30,
                                          2000              2001              2000               2001
                                    ---------------  ----------------- -----------------  ------------------
<S>                                 <C>              <C>               <C>                <C>
Numerator:

        Net loss attributable to
        common stockholders             $(14,858)          $(18,139)         $(36,163)          $(155,692)
                                     ===============  ================= =================  ==================

Denominator:

        Shares used in computing net
        loss per share attributable
        to common stockholders,
        basic and diluted                  25,982             39,839            10,922              39,731
                                     ===============  ================= =================  ==================

        Net loss per share
        attributable to common
        stockholders, basic and
        diluted                           $(0.57)            $(0.46)           $(3.31)             $(3.92)
                                     ===============  ================= =================  ==================
</TABLE>


NOTE 4 - RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141 "Business
Combinations" ("SFAS 141") that requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the adoption of SFAS 141
will not have a significant impact on its financial statements.

         In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning
after March 15, 2001. SFAS 142 requires, among other things, the discontinuance
of goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company is currently assessing but

                                       10

<PAGE>

has not yet determined the impact of SFAS 142 on its consolidated financial
position and results of operations.

         In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets", which is required to be
applied starting with years beginning after December 15, 2001. SFAS 144
requires, amongst other things, the application of one model for long-lived
assets that are impaired or to be disposed of by sale as well as addressing the
principal implementation issue. The of one adoption of SFAS 144 is not expected
to have a significant impact on the Company's financial statements.

NOTE 5 - ASSET IMPAIRMENT

         The Company substantially completed construction of its two Internet
data centers in Taiwan and South Korea in the quarter ended June 30, 2001,
following completion of the construction of an Internet data center in Hong Kong
in the quarter ended March 31, 2001, funded by proceeds from the Company's
initial public offering in August 2000. Following the sale of the Internet data
center and other assets in Korea in September 2001 (see NOTE 8), the Company's
sole remaining Internet data center is located in Taiwan. Although the Taiwan
Internet data center is available for co-location and connectivity services,
additional work must be completed to make all space within it fully conform to
the Company's specifications. Due to continued and severe liquidity constraints,
exacerbated in the second and third quarters of 2001 by the failure of the
Company to secure additional financing, the Company has determined that it
cannot complete the build-out of the Taiwan Internet data center or continue
normal operations unless it obtains additional financing.

         In response to further and significant downsizing of activities in each
of Taiwan and Korea during the quarter ended June 30, 2001, the existence of
excess capacity of Internet data center space in the Asia-Pacific region, the
significant decline in the Company's stock price during this period as well as
the announcement on July 3, 2001 that the Company was entering into a creditors
voluntary liquidation of its Hong Kong subsidiary, last quarter the Company
performed an impairment assessment of all of its long-lived assets in Hong Kong,
Taiwan and South Korea, as well as long-lived assets in the United States that
support revenue-generating activities throughout the Asia-Pacific region for the
Company. This assessment included both tangible and intangible assets. Tangible
assets comprised property and equipment to be held and used - principally the
Internet data centers in Taiwan and South Korea as well as certain assets in the
United States - and property and equipment to be disposed of - principally in
Hong Kong. Intangible assets were comprised of goodwill and identified
intangible assets recorded in the acquisition of AT&T Easylink Asia/Pacific
Limited in Hong Kong.

         As a result of this review, the Company recorded a $75.6 million
impairment charge during the quarter ended June 30, 2001. This charge included
the write-off of goodwill and identified intangible assets of $20.5 million,
property and equipment write-downs of $8.2 million for property and equipment to
be disposed of and $46.9 million for property and equipment to be held and used.
There were no events or changes in circumstances during the quarter ended
September 30, 2001 that resulted in additional impairment charges. The proceeds
from the sale of the Internet data center and other assets in Korea approximated
their carrying values on the date of sale.

         The write-off of goodwill and other intangible assets recorded in the
Company's Hong Kong subsidiary during the second quarter of 2001 was based on
the Company's announcement on July 3, 2001 that it was liquidating its
subsidiary in Hong Kong. The write-down of property and equipment that will be
disposed was based on a third party distressed sale valuation. The write-down of
property and equipment to be held and used was based on a determination that
future cash flows could not support the carrying value of such assets and was
computed by

                                       11

<PAGE>

comparing the carrying value with the discounted net present value of the
expected future net cash flows. The assumptions supporting the cash flows were
determined using the best available estimates.

NOTE 6 - NON-RECURRING OPERATING EXPENSES

         In the nine months ended September 30, 2001, in response to the
deteriorating economic environment and resulting cut-backs in technology
spending, particularly by large telecommunications carriers, global service
providers and undersea cable companies that comprise the target customer base
for the Company, the Company took steps to refocus its business and reduce its
cost structure. Actions undertaken by the Company included, amongst other
initiatives, the sale of its virtual hosting business in Australia, significant
headcount reductions across the Company (and certain acceleration of vesting of
outstanding stock options for selected individuals), impairment charges
associated with the Company's property and equipment, the termination of the
lease of its corporate headquarters effective July 2001, the announcement, on
July 3, 2001, of the liquidation of its subsidiary in Hong Kong, the liquidation
of its entities in Singapore and Australia, and the sale of certain assets
related to its Internet data center business in Korea in September 2001.

         In connection with these restructuring activities and strategic
imperatives, the Company recorded a non-recurring operating expense of $7.5
million in the three months ended September 30, 2001. $6.1 million of this
expense resulted from the fact that, due to the Company's liquidation of its
Hong Kong subsidiary and its consequent deconsolidation from the consolidated
group upon transfer of management control to a court-appointed liquidator, net
intercompany payables to Hong Kong that previously eliminated on consolidation
have been accrued as third party payables as of September 30, 2001. $0.4 million
of the expense relates to additional asset impairment charges, and $1.0 million
was recorded in connection with certain severance arrangements entered into
during the three months ended September 30, 2001. The individuals impacted by
this further reduction in force were from all departments, and were located in
the US, Taiwan and South Korea.

         The following table summarizes the major components of the
restructuring and other nonrecurring expenses, by geographic region (in
thousands):

<TABLE>
<CAPTION>
                                                                                                       Total restructuring
                                                                                                       -------------------
                                                               Accelerated                                and other non-
                                                               -----------                                --------------
                                                   Asset       Office lease   Stock option             recurring operating
                                                   -----       ------------   ------------             -------------------
                                                 impairment    termination      vesting       Other          expenses
                                                 ----------    -----------     ---------      -----          --------
<S>                                             <C>          <C>             <C>            <C>         <C>
Three months ended March 31, 2001
---------------------------------

Hong Kong                                       $    --        $    --         $    --      $   --            $     --
Taiwan                                               --             --              --          --                  --

South Korea                                          --             --              --          --                  --

United States and Other                              --            172          2,599       2,387                5,158
                                                ----------------------------  ----------------------------------------

Consolidated expense for
3 months ended March 31,
2001                                                 --            172           2,599       2,387               5,158

Non-cash portion                                     --             --           2,599          --               2,599

Cash payments for 3
months ended March 31,
2001                                                 --             --              --          --                  --
                                                ----------------------------  ----------------------------------------

Accrual Balance, March
31, 2001                                             --            172              --       2,387               2,559
</TABLE>

                                       12

<PAGE>

<TABLE>
<S>                         <C>             <C>                 <C>    <C>              <C>
Three Months ended June
-----------------------
30, 2001
--------

Hong Kong                        5,101            -                -        517            5,618
Taiwan                          24,124            -                -        149           24,273
South Korea                     22,761            -                -         16           22,777
United States and Other          3,083        2,936                -      1,493            7,512
                            --------------------------------------------------------------------

Consolidated expense for
3 months ended June 30,
2001                            55,069        2,936                -      2,175           60,180

Non-cash portion                55,069          936               --         --           56,005

Cash payments for 3
months ended June 30,
2001                                 -            -                -      1,950            1,950
                            --------------------------------------------------------------------

Accrual Balance, June
30, 2001                            --        2,172                       2,612            4,784

Three Months ended
------------------
September 30, 2001
------------------

Hong Kong                           --           --               --     (8,724)          (8,724)
Taiwan                              84           --               --      4,874            4,958
South Korea                         --           --               --        984              984
United States and Other            361           --               --      9,894           10,255
                            --------------------------------------------------------------------

Consolidated expense for
3 months ended September
30, 2001                           445           --               --      7,028            7,473

Non-cash portion                   445           --               --         --              445
Write-off of restricted
cash deposit                        --        2,000               --         --            2,000
Cash payments for 3
months ended September
30, 2001                            --           --               --        204              204

                            --------------------------------------------------------------------
Accrual Balance,
September 30, 2001            $     --      $   172             $ --   $  9,436         $  9,608
                            --------------------------------------------------------------------
</TABLE>

                                       13

<PAGE>

NOTE 7 - COMPREHENSIVE LOSS

The components of the comprehensive loss are as follows (in thousands):

<TABLE>
<CAPTION>
                                            Three Months Ended                  Nine Months Ended
                                               September 30,                      September 30,
                                          2000             2001             2000                2001
                                      --------------  --------------- -----------------   -----------------
<S>                                   <C>             <C>             <C>                 <C>
Net loss                                $(14,858)        $(18,138)         $(36,163)          $(155,692)
Change in unrealized gain on
marketable securities                          -                -                10                   -
Change in foreign currency
translation adjustments                      439              (41)              600              (2,333)
                                       ---------         --------           --------          ---------
Comprehensive loss                     $ (14,419)        $(18,179)          $(35,553)         $(158,025)
                                       =========         ========           ========          =========
</TABLE>


NOTE 8 - SALE OF CERTAIN ASSETS IN KOREA

         Effective as of September 29, 2001 and pursuant to an Asset Transfer
Agreement dated September 1, 2001, iAsiaWorks Korea Ltd, a wholly owned
subsidiary of the Company, sold substantially all of its assets related to its
Internet data center business to Korea Internet Data Center, Inc. for
approximately $28.5 million in cash consideration, of which approximately $2.1
million is being held in escrow until the finalization of the transfer of
certain of the assets. This escrowed amount will released to iAsiaWorks Korea
Ltd upon the delivery or demonstration of the ability to deliver title or
unrestricted ownership of these assets.

         Effective as of September 29, 2001 and pursuant to an Asset Sale
Agreement, dated September 19, 2001, iAsiaWorks Korea Ltd, a wholly owned
subsidiary of the Company, sold certain assets related to its Internet data
center business to DACOM Corporation for approximately $2.3 million in cash
consideration. The assets sold pursuant to this Asset Sale Agreement consisted
primarily of certain contracts, equipment, and intangible assets related to the
access customer base in Korea.

         The proceeds from these asset sales have been and will be used to
settle outstanding obligations, primarily in Korea, including severance payments
to the company's employees in Korea who were laid off as a consequence of these
transactions. Any remaining proceeds will be used to support ongoing working
capital requirements for the Company's remaining operations.

NOTE 9 - CONTINGENCIES

         Beginning on March 23, 2001, several putative class action lawsuits
were filed against the Company, several of the Company's officers and directors,
and the underwriters of the Company's initial public offering in the United
States District Court for the Southern District of New York on behalf of all
persons who purchased shares of the Company's stock between August 3, 2000 and
November 27, 2000. The plaintiffs allege claims under Sections 11, 12, and 15 of
the Securities Act of 1933 and seek unspecified damages arising out of, among
other things, allegedly false or misleading statements in the prospectus and
registration statement issued in connection with the Company's initial public
offering. In August 2001, these actions were transferred to the Northern
District of California. These actions are at a very early stage and,
accordingly, the Company is unable to predict their ultimate outcome.

         However, the Company believes the foregoing actions are without merit
and intends to defend against them vigorously. An unfavorable outcome in these
actions could have a material adverse effect on the Company's business,
financial condition and results of operations. In

                                       14

<PAGE>

addition, even if the ultimate outcome is resolved in the Company's favor, the
defense of such litigation could entail considerable cost and the diversion of
efforts of management away from operation of the business, either of which could
have a material adverse effect on the Company's results of operations.

         The Company is party to several actions which relate to the Company's
alleged failure or alleged anticipated failure to pay contractual obligations.
These actions have been commenced by counterparties to agreements or instruments
to which the Company or subsidiaries of the Company are parties, and seek
payment of obligations under the agreements or instruments allegedly breached or
to be breached by the Company or subsidiaries of the Company. The parties
bringing these actions seek payment and, in come cases, extraordinary relief
such as the attachment of assets. In certain cases, plaintiffs are seeking
punitive damages or asserting alleged tort claims relating to alleged breaches
or alleged anticipatory breaches by the Company or subsidiaries of the Company.
Currently, total amounts sought by the plaintiffs in these actions could be in
excess of $500,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         This Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. Forward-looking statements are
identified by words such as "believes," "anticipates," "expects," "intends,"
"will," "may" and other similar expressions. In addition, any statements that
refer to expectations, projections or other characterizations of future events
or circumstances are forward looking statements. Readers are urged to review and
consider carefully the various disclosures made by us in this report and in
other reports filed with the Securities and Exchange Commission that advise
interested parties of risks and uncertainties that may affect our business. Our
actual results may differ materially from any forward-looking statements due to
such risks and uncertainties.

Overview

         From inception in August 1995 until July 1999, we focused on providing
high-speed, leased-line Internet access to business customers in selected
markets in the Asia-Pacific region and derived substantially all of our revenue
from these services. In July 1999, we began to implement a significant change in
our business strategy by focusing on the delivery of dedicated hosting,
co-location and managed services. Prior to that time, we derived virtually no
revenue from hosting, co-location and managed services.

         As part of this new initiative, we planned and began construction of
two new Internet data centers in Taiwan and South Korea in the last half of
fiscal year 2000, and also entered into a long-term lease of an Internet data
center in Hong Kong.

         On August 3, 2000, we raised $106.1 million, net of underwriting
discounts, commissions and offering costs, in an initial public offering of nine
million shares of our common stock on the Nasdaq National Market. The proceeds
from the offering have been used principally to fund the build-out of Internet
data centers in the Asia-Pacific region and to fund our growth. Initial
construction of our Internet data centers in Hong Kong and Taiwan were completed
in

                                       15

<PAGE>

February 2001. Initial construction of our Internet data center in South Korea
was completed in May 2001. In the third quarter of 2001 we liquidated our Hong
Kong entity and sold assets related to our Internet data center business in
Korea. Although the remaining Internet data center in Taiwan is operational and
capable of serving customers, not all space within it is available for
co-location services. Additional work must be completed on the Internet data
center to make all space within it fully conform to our specifications.

         This work may not be completed unless we obtain additional financing.
We are currently attempting to raise additional financing to fund our
operations. Without obtaining additional financing, we currently anticipate that
cash on hand and anticipated cash flow from operations are inadequate to
continue to fund our operations in the ordinary course. We are carefully
monitoring our cash on hand and we anticipate that such cash will allow us to
continue to operate until the middle of the first quarter of 2002. Consequently,
we will require substantial additional funding to continue to operate our
business. Many companies in the Internet infrastructure industry have
experienced difficulty raising additional financing in recent months. Aside from
the sale of certain assets related to our Internet data center business in
Korea, the proceeds from which are being and will be used to settle outstanding
indebtedness and other obligations, and are not expected to result in sufficient
additional working capital funding, we have been attempting to obtain additional
financing for several months and have not succeeded. Additional financing may
not be available to us on favorable terms or at all. If additional financing is
not available, we may need to further modify our business plan, sell or merge
our business, sell assets, including the Internet data center, or face
bankruptcy.

         We are conducting negotiations with our creditors for the restructuring
of our short term and long-term liabilities, including debt agreements. However,
our creditors could force us into involuntary bankruptcy at any time. If this
were to happen, it is likely that our creditors will receive less than 100% of
the face value of their claims and that our stockholders will not receive any
return from their investment, and most likely would lose their investment
altogether. In addition, any issuance of equity or equity-related securities
would dilute the ownership interest of existing stockholders and the issuance of
debt securities could increase the risk or perceived risk of the Company.

         Our business has been impacted by Internet-related companies reducing
the size and scope of operations. Existing customers have expanded their use of
our services more slowly than we expected, and the sales cycle for new customers
has grown longer. Many Internet companies who are customers or prospective
customers have gone out of business. Additionally, price has become one of the
key decision criteria for customers, which creates downward pressure on our
prices and consequently our gross margins. Many customers and prospective
customers have scaled down their budgets for capital expenditures and are
allocating less money for expansion into new geographic markets, which
frequently includes the market we serve in Taiwan. Several large customers have
cancelled or not renewed their contracts in light of these factors as well as
our overall financial instability and our decreasing geographic coverage.

         As discussed in this Form 10-Q and in our previous filings, we have
stated that our capital requirements under our business plan and for fiscal year
2001 are greater than available capital resources. We acknowledge that in the
event we are unable to significantly reduce our capital expenditures, sell
assets, or obtain financing, we may be unable to satisfy our obligations to
third-parties, which could result in defaults under our mortgage agreements and
other financing agreements, we are currently not in compliance with the
covenants contained in certain of these agreements. Such events may have a
material adverse impact on us and threaten our ability to continue as a going
concern. In light of these facts, we have taken a number of recent actions,
including the modification and reduction in scope of our current business plan,
in order to further streamline and reorganize operations and reduce capital
expenditures.

                                       16

<PAGE>

         In order to maximize our cash resources in an uncertain funding
environment, we began to take steps in early 2001 to modify our business plan
and reduce our cost structure. Currently, our business strategy is focused on
selling primarily to large, technologically sophisticated customers that need a
world-class facility in Taiwan. These customers include multi-national
corporations, telecommunications carriers, global service providers, and
undersea cable companies. As part of our efforts to realign the operating
expense structure, we made reductions in force, and have sold, closed or
liquidated various business units, sales offices or subsidiaries. In April of
2001, we sold our virtual hosting business in Australia and made significant
headcount reductions across the Company, resulting in a $7.5 million charge to
non-recurring operating expense in the first quarter of 2001. We underwent an
additional reduction in our force in June 2001, which resulted in the layoff of
127 employees. We also closed all of our remote sales offices in the United
States, liquidated entities in Singapore and Australia and entered into a
Creditor Voluntary Liquidation of our Hong Kong subsidiary in July.
Additionally, in September 2001 we sold certain assets related to our Internet
data center business in Korea, and in the process terminated all employees of
our Korean entity.

         We have closed or sold those business units or locations whose expense
structure could not be supported by their associated revenue streams in light of
our current fiscal condition. Our business plan now focuses on operations that
support our most valuable asset -- the Internet data center in Taiwan. Given the
general business climate and our own financial instability, we cannot be assured
of success in growing our revenue and controlling our expenses.

         The Company's plans in light of this uncertainty include, but are not
limited to, one or more of the following:

         .   exploring various strategic alternatives, which may include a
             merger, asset sale, or another comparable transaction;

         .   raising additional capital to fund continuing operations by private
             placements of equity, debt securities and/or securing new loans
             which may be collateralized by our assets;

         .   negotiating with creditors to either reduce or restructure our
             current outstanding obligations;

         .   forming a joint venture with a strategic partner or partners to
             provide additional capital resources to fund operations; and

         .   executing additional cost-cutting measures which could include
             additional lay-offs and/or the closure or sale of certain business
             units and facilities.

         To date, we have been exploring all of the aforementioned alternatives.
If we are unable to raise additional funds or restructure our obligations by
consummating one of the aforementioned alternatives or restructure our
obligations we may not be able to grow our business or continue operating to
achieve our business objectives and, as a result, may need to further modify our
business plan or file for bankruptcy under Chapter 11 of the United States
Federal Bankruptcy Code or institute similar proceedings in a foreign
jurisdiction. Funding alternatives may not be available to us within the
necessary timeframe, on favorable terms or at all. The factors leading to and
the existence of the explanatory paragraph in the audit report will have a
material adverse effect on our ability to obtain additional financing.

                                       17

<PAGE>

         If we file for Chapter 11 bankruptcy protection, Chapter 7 liquidation,
or institute similar proceedings in a foreign jurisdiction, or if involuntary
proceedings are commenced against us by our creditors, other parties in interest
may be permitted to propose their own plan, and we could be unsuccessful in
having a plan of reorganization confirmed which is acceptable to the requisite
number of creditors and equity holders entitled to vote on such a plan. This
could lead to our inability to emerge from Chapter 11.

         Moreover, once bankruptcy proceedings are commenced, either by our
filing of a voluntary petition or if an involuntary petition is filed against us
by our creditors, our creditors and other parties in interest could seek our
liquidation. If a plan were consummated or if we were liquidated, it would
almost certainly result in our creditors receiving less than 100% of the face
value of their claims, and in the claims of our equity holders being cancelled
in whole.

Results of Operations

         We believe that period-to-period comparisons of our historical
operational results are not necessarily meaningful and should not be relied upon
as being indicative of future performance. Our prospects must be considered in
light of the risks, expenses and difficulties frequently experienced by
companies in the early stages of development, particularly companies in new and
rapidly evolving markets like ours. The following table presents financial data
for the periods indicated as a percentage of total revenue.

                                       18

<PAGE>


<TABLE>
<CAPTION>
                                                  Three Months Ended       Nine Months Ended
                                                     September 30,           September 30,
                                                 ---------------------   ---------------------
                                                   2000         2001       2000        2001
<S>                                              <C>         <C>         <C>        <C>
                                                      (unaudited)             (unaudited)
Revenue:
     Internet access and related services              50%          76%        61%          49%
     Hosting, co-location and other managed
       services                                        50           24         39           51
                                                 --------    ---------   --------   ----------

          Total revenue                               100%         100%       100%         100%

Cost of revenue:
     Cost of revenue                                   84           90         81          104
     Depreciation                                       8           56         11           24
                                                 --------    ---------   --------   ----------

          Total cost of revenue                        92          146         92          128
                                                 --------    ---------   --------   ----------

     Gross margin (loss)                                8          (46)         8          (28)

Operating expenses:
     Network operations and support                    49           64         35           62
     Sales and marketing                               54           27         46           44
     General and administration                        55          138         69           95
     Amortization of intangibles                       50            -         62           36
     Impairment of goodwill                             -            -          -          117
     Non-recurring operating expenses                   -          218          -          363
                                                 --------    ---------   --------   ----------

          Total operating expenses                    208          447        212          717
                                                 --------    ---------   --------   ----------

Loss from operations                                 (200)        (493)      (204)        (745)
Interest income                                        15            1         12            4
Interest expense                                       (1)         (26)        (1)          (8)
Other income (expense), net                             -          (12)         -           (4)
                                                 --------    ---------   --------   ----------

Net loss                                             (186%)       (530%)     (193%)       (753%)
                                                 ========    =========   ========   ==========
</TABLE>

Three and nine months ended September 30, 2000 and 2001

Revenue

         Total revenue decreased 57 percent to $3.4 million for the three months
ended September 30, 2001 from $8.0 million for the three months ended September
30, 2000. The decrease in revenue is primarily due to the liquidation of our
entity in Hong Kong, the relinquishment of our leased Internet data center
facility located in Hong Kong, and the expiration of several large customer
contracts.

         Total revenue increased 10 percent to $20.7 million for the nine months
ended September 30, 2001 from $18.8 million for the nine months ended September
30, 2000.

                                       19

<PAGE>

         Since we have modified our business plan significantly, sold certain
revenue generating assets in South Korea and we expect that if we continue to
operate as a going concern it will be on a reduced capacity with an operation
only in Taiwan, it is anticipated that we will experience reduced capacity which
will result in a significant reduction in revenue on a going-forward basis.
Revenue generated from our operation in Taiwan during the first two quarters of
2001 was $2.4 million. Revenue generated from operations in Taiwan during the
third quarter of 2001 was $634,000.


Cost of Revenue

         Cost of revenue decreased 32 percent to $5.0 million for the three
months ended September 30, 2001, from $7.4 million for the three months ended
September 30, 2000. As a percentage of sales, cost of revenue increased to 146
percent for the three months ended September 30, 2001, from 92 percent for the
three months ended September 30, 2000.

         Cost of revenue increased 54 percent to $26.5 million for the nine
months ended September 30, 2001, from $17.2 million for the nine months ended
September 30, 2000. As a percentage of sales, cost of revenue increased to 128
percent for the nine months ended September 30, 2001, from 92 percent for the
nine months ended September 30, 2000.

         The relative and absolute increase for the nine months ended September
30, 2001 when compared with the nine months ended September 30, 2000 was caused
by the build-out of our international network and expenses resulting from the
opening of our new Internet data center facilities in Taiwan and South Korea.
Going forward, we expect to generate negative gross margins until we have
achieved the necessary revenue levels to offset the initial and significant
fixed costs and expenses relating to operating our Internet data center facility
and other infrastructure activities. Additionally, going forward we expect the
absolute level of cost of revenue to reduce given the sale of certain assets
related to our Internet data center business in Korea.

Network Operations and Support

         Network operations and support expenses decreased 44 percent to $2.2
million for the three months ended September 30, 2001, from $3.9 million for the
three months ended September 30, 2000. Network operations and support expenses
as a percentage of total revenue increased to 64 percent for the three months
ended September 30, 2001, from 49 percent for the three months ended September
30, 2000. The decrease in network operations and support expenses in dollar
terms in both periods is primarily due to a decrease in our engineering,
operations and professional service staff.

         Network operations and support expenses increased 96 percent to $12.9
million for the nine months ended September 30, 2001, from $6.6 million for the
nine months ended September 30, 2000. Network operations and support expenses as
a percentage of total revenue increased to 62 percent for the nine months ended
September 30, 2001, from 35 percent for the nine months ended September 30,
2000. The increase in network operations and support expenses in dollar terms in
both periods is primarily due to an increase in our engineering, operations and
professional service staff to support the new Internet data centers.

         Going forward, we do not expect network operations costs to increase
substantially in

                                       20

<PAGE>

absolute terms, since we believe our Internet data center is operational with an
adequate headcount to meet current and potential future demand for space and
services.


Sales and Marketing

         Sales and marketing expenses decreased 79 percent to $913,000 for the
three months ended September 30, 2001, from $4.3 million for the three months
ended September 30, 2000. Sales and marketing expense as a percentage of total
revenue decreased to 27 percent for the three months ended September 30, 2001,
from 54 percent for the three months ended September 30, 2000.

         Sales and marketing expenses increased 6 percent to $9.1 million for
the nine months ended September 30, 2001, from $8.6 million for the nine months
ended September 30, 2000. Sales and marketing expense as a percentage of total
revenue decreased to 44 percent for the nine months ended September 30, 2001,
from 46 percent for the nine months ended September 30, 2000.

         We expect sales and marketing expenses will decrease in absolute terms
compared to the last several quarters during which the Company was focused on an
extensive marketing and brand building campaign. We expect ongoing costs will
also be reduced as a result of reduced headcount in the sales and marketing
organization as we focus our sales efforts on large customers and focus on the
market in Taiwan.

General and Administration

         General and administration expenses increased 8 percent to $4.7 million
for the three months ended September 30, 2001, from $4.4 million for the three
months ended September 30, 2000. General and administration expense as a
percentage of total revenue increased to 138 percent for the three months ended
September 30, 2001, from 55 percent for the three months ended September 30,
2000. This increase in general and administration expenses in absolute dollars
was due primarily to an increase in the amount of staffing and related expenses
both in the Asia-Pacific region and in the United States.

         General and administration expenses increased 52 percent to $19.6
million for the nine months ended September 30, 2001, from $12.9 million for the
nine months ended September 30, 2000. General and administration expense as a
percentage of total revenue increased to 95 percent for the nine months ended
September 30, 2001, from 69 percent for the nine months ended September 30,
2000. This increase in general and administration expenses in absolute dollars
was due primarily to an increase in the amount of staffing and related expenses
both in the Asia-Pacific region and in the United States.

         We expect that going forward, general and administration expenses will
not increase in absolute terms, since we believe we are sufficiently staffed to
support our current and near-term business activities. We expect that general
and administration expenses will be equal to or lower as a percentage of total
operating expenses compared to prior periods.

Amortization of Intangible Assets

         We recorded no amortization of intangible assets for the three months
ended September 30, 2001, a decrease of 100% percent from $4.0 million for the
three months ended

                                       21

<PAGE>

September 30, 2000.

         We recorded amortization of intangible assets of $7.4 million for the
nine months ended September 30, 2001, which represents a decrease of 37% percent
from $11.7 million for the nine months ended September 30, 2000.

         As a result of the liquidation of our Hong Kong subsidiary in July
2001, we wrote off the goodwill related to the acquisition of AT&T
EasyLink/AsiaPacific Limited, which represented a total write-down of $20.5
million in the three months ended June 30, 2001.

Impairment of Assets

         In the first quarter of 2001, we determined that, based on a
significant decline in revenues generated from customers of Web Professionals,
the forecasted future cash flows from Web Professionals could not support the
carrying value of identified intangibles and goodwill recorded in connection
with the acquisition of Web Professionals. As a result, we recorded a $3.7
million impairment charge to reduce goodwill, representing the difference
between the carrying value and the discounted net present value of the expected
future net cash flows. The assumptions supporting the cash flows were determined
using our best estimates as of such date and were the result of the losses
incurred by that business in the quarter and those losses projected for the
remaining life of the goodwill.

         We substantially completed construction of our two Internet data
centers in Taiwan and South Korea in the quarter ended June 30, 2001, following
completion of the construction of an Internet data center in Hong Kong, in the
quarter ended March 31, 2001, funded by proceeds from our initial public
offering in August 2000. Following the sale of the Internet data center and
other assets in Korea, our sole remaining Internet data center is located in
Taiwan. Although the Taiwan Internet data center is available for co-location
and connectivity services, additional work must be completed to make all space
within it fully conform to our specifications. Due to continued and severe
liquidity constraints, exacerbated in the second and third quarters of 2001 by
the failure to secure additional financing, we determined that we cannot
complete the build-out of the Taiwan Internet data center or continue normal
operations unless we obtain additional financing.

         In response to further and significant downsizing of activities in each
of Taiwan and Korea during the quarter ended June 30, 2001, the existence of
excess capacity of Internet data center space in the Asia-Pacific region, the
significant decline in our stock price during this period as well as the
announcement on July 3, 2001 that we were entering into a creditors voluntary
liquidation of its Hong Kong subsidiary, in the quarter ended June 30, 2001 we
performed an impairment assessment of all of its long-lived assets in Hong Kong,
Taiwan and South Korea, as well as long-lived assets in the United States that
support revenue-generating activities throughout the Asia-Pacific region. This
assessment included both tangible and intangible assets. Tangible assets
comprised property and equipment to be held and used - principally the Internet
data centers in Taiwan and South Korea as well as certain assets in the United
States - and property and equipment to be disposed of - principally in Hong
Kong. Intangible assets comprised goodwill and identified intangible assets
recorded in the acquisition of AT&T Easylink Asia/Pacific Limited in Hong Kong.

         As a result of this review, we recorded a $75.6 million impairment
charge during the quarter ended June 30, 2001. This charge included the
write-off of goodwill and identified intangible assets of $20.5 million,
property and equipment write-downs of $8.2 million

                                       22

<PAGE>

for property and equipment to be disposed of and $46.9 million for property and
equipment to held and used.

         The write-off of goodwill and other intangible assets recorded in our
Hong Kong subsidiary during the second quarter of 2001 was based on our
Company's announcement on July 3, 2001 that it was liquidating its subsidiary in
Hong Kong. The write-down of property and equipment that will be disposed was
based on a third party distressed sale valuation. The write-down of property and
equipment to be held and used was based on a determination that future cash
flows could not support the carrying value of such assets and was computed by
comparing the carrying value with the discounted net present value of the
expected future net cash flows. The assumptions supporting the cash flows were
determined using the best available estimates.


Non-recurring Operating Expenses

         In the first quarter of 2001, we recorded a non-recurring operating
charge of $7.5 million as part of our efforts to refocus our business and reduce
our cost structure. Of this amount $2.4 million related to a loss on the sale of
our virtual hosting business in Australia and a write down of the associated
goodwill arising from the acquisition of that business, $300,000 related to
redundancy costs associated with significant headcount reductions across the
Company and other items, $1.5 million was incurred in connection with our
ongoing financing initiatives in the first quarter of 2001 and $3.3 million
related to severance costs associated with the resignation of our former Chief
Executive Officer. The severance costs associated with our former Chief
Executive Officer included $700,000 in severance costs and a non-cash charge of
$2.6 million relating to the accelerated vesting of stock options previously
granted to our former Chief Executive Officer.

         Continuing our restructuring and downsizing activities in the second
quarter of 2001 in light of further and more significant deterioration than we
had anticipated in the economic environment and resulting cut-backs in
technology spending, particularly by our target customer base (multinational
corporations, large telecommunications carriers, global service providers and
undersea cable companies), we recorded additional non-recurring operating
charges of $60.2 million in the second quarter ended June 30, 2001. These
charges included the write down of our property and equipment based on an
impairment analysis performed during the second quarter of 2001 of $55.1 million
and charges associated with the termination of our corporate headquarters lease
effective in July 2001 of $2.9 million.

         In the third quarter of 2001, we recorded a non-recurring operating
charge of $7.5 million in connection with our continued efforts to refocus our
business. The liquidation of the Hong Kong entity on July 3, 2001 and its
consequent deconsolidation from the consolidated group upon transfer of
management control to a court-appointed liquidator, resulted in accruing
intercompany balances that were previously eliminated, as third party balances.
As a result we recorded a non-recurring operating expense of $6.1 million. A
significant component of the liabilities recorded on the books of the Hong Kong
entity related to amounts due to vendors contracted for the construction of our
Internet data centers in Taiwan and South Korea. In order to maintain or obtain
title to the equipment related to such contracts we are in the process of
entering into debt restructuring agreements with the appropriate parties. This
has enabled us to proceed with the sale of the Internet data center in Korea,
and upon completion of this process should enable us to retain title of the
assets related to the build-out of the Internet data center in Taiwan. If we are
unable to enter into such debt restructuring agreements on favorable terms, it
may further hinder our ability to maintain ongoing operations beyond the middle
of the first quarter of 2002. These liabilities are approximate as of September
31, 2001. Additionally, we reduced our headcount in the third quarter by 18
employees in Taiwan

                                       23

<PAGE>

and by 57 employees in Korea, resulting in a non-recurring severance charge of
$739,000. We also liquidated our entities in Singapore and Australia, incurred a
write down of ancillary assets held in Taiwan, and paid severance costs
associated with the departure of our former Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer resulting in a combined
non-recurring charge of $650,000.

Interest Income and Other Income (Expense)

         Net interest and other income (expense) decreased to an expense of $1.3
million for the three months ended September 30, 2001, from an income of $1.1
for the three months ended September 30, 2000. The decrease in net interest and
other income was due to interest expense in relation to the long-term debt in
Taiwan and South Korea.

         Net interest and other income (expense) decreased to an expense of $1.6
million for the nine months ended September 30, 2001, from an income of $2.0
million for the nine months ended September 30, 2000. The increase in net
interest and other income was due to interest expense in relation to the
long-term debt in Taiwan and South Korea.

Provision for Income Taxes

         We have incurred operating losses for all periods from inception
through September 30, 2001. We have recorded a valuation allowance for the full
amount of our deferred tax assets, as the future realization of the tax benefits
is uncertain. Accordingly, we have recorded no provision for income taxes.

Liquidity and Capital Resources

         From our inception until our initial public offering, we financed our
operations primarily from private sales of convertible preferred stock, net of
issuance costs, which aggregated $109.4 million and, to a lesser extent, from
bank borrowings and lease financings. The size of our accumulated deficit, our
losses since inception and our ongoing need for capital to continue our
operations raises substantial doubt as to our ability to continue operations
through the middle of the first quarter of 2002. We will need to obtain
additional financing to fund continuing operating losses. There can be no
assurance that we will be successful in our efforts to reduce expenses or to
obtain additional financing. Failure to reduce expenses and/or to obtain
additional financing will have a material adverse effect on our ability to meet
our business objectives and continue as a going concern.

         On August 3, 2000, we completed our initial public offering and
received approximately $106.1 million in cash, net of underwriting discounts,
commissions and offering costs. In our prospectus for our initial public
offering, we stated that proceeds from the offering would only fund the business
for nine months, and that we would likely need additional capital beyond that
nine-month period. Absent outside debt or equity financing, and excluding
significant expenditures required for the completion of the build-out of our
Internet data center in Taiwan, we currently anticipate that cash on hand and
anticipated cash flow from operations are inadequate to continue to fund our
operations in the ordinary course. We continue to carefully monitor our cash on
hand and we anticipate that such cash will allow us to continue to operate until
the middle of the first quarter of 2002. Consequently, we will require
substantial additional funding to continue to operate our business. Many
companies in the Internet infrastructure industry have experienced difficulty
raising additional financing in recent months. Indeed, we have been attempting
to obtain additional financing for several months and have not succeeded.
Additional financing may not be available to us on favorable terms or at all. If
additional

                                       24

<PAGE>

financing is not available, we may need to further modify its business plan,
sell or merge our business, sell assets, including the Internet data centers, or
face bankruptcy. In addition, any issuance of equity or equity-related
securities would substantially dilute the ownership interest of existing
stockholders and the issuance of debt securities could increase the risk or
perceived risk of the Company.

         Net cash used in operating activities for the nine months ended
September 30, 2001 was approximately $24.5 million, as adjusted for
non-recurring operating expense charges. Net cash used in investing activities
for the nine months ended September 30, 2001 was approximately $18.6 million,
the principal component being cash outflows related to the build-out of our
Internet data centers in Taiwan and South Korea and cash inflows related to the
sale of our Internet data center in South Korea. Net cash used in financing
activities for the nine months ended September 30, 2001 was approximately $11.4
million, the principal component being cash outflows related to the repayment of
the loan on the land and buildings in South Korea.

         At September 30, 2001, we had cash and cash equivalents aggregating
$7.8 million of which $503,000 was restricted cash. In addition, we had a
long-term debt balance at September 30, 2001, of $32.2 million, related to the
purchase of land and buildings in Taiwan for our Internet data center and
outstanding liabilities related to the build-out of our Internet data centers.
We had capital lease obligations of $3.1 million at September 30, 2001.

         Accounts payable and accrued liabilities have increased significantly
due to increased level of activity related to the build-out of the Internet data
center and timing of payments for the work performed as a result of our
deteriorating liquidity situation. Furthermore, due to the Company's liquidation
of its Hong Kong subsidiary and its consequent deconsolidation from the
consolidated group upon transfer of management control to a court-appointed
liquidator, net intercompany payables to Hong Kong that previously eliminated on
consolidation have been accrued as third party payables as of September 30, 2001
which further increased accounts payable and accrued liabilities.

         Our capital outlays primarily relate to the build-out of our Internet
data centers in South Korea and Taiwan. Although the Taiwan Internet data center
is operational and capable of servicing customers, not all space in the Internet
data center is available for the provision of co-location and connectivity
services. Additional work must be completed on the Taiwan Internet data center
to make all space in it fully conform to our specifications. This work may not
be completed unless we obtain additional financing.

         Our liquidity and capital requirements depend on numerous factors
discussed under the section entitled "Risk Factors" beginning on page 26.
Factors such as our possible need to file for bankruptcy protection under
Chapter 11 or Chapter 7 of the Federal Bankruptcy Code, creditors filing
involuntary bankruptcy proceedings against us, ability to obtain additional
financing to continue operations, drastic modification of our current business
plan, the need to further reduce the scope of our operations, inability to
expand our customer base, default of obligations to existing creditors,
inability to raise additional capital due to a lack of liquidity caused by a
delisting from Nasdaq, and our inability to repatriate capital would all greatly
affect our liquidity requirements. The nature of these effects and the timing
and amount of any additional capital requirements caused by these factors cannot
be accurately predicted.

          Our unaudited condensed consolidated financial statements for the
three and nine months ended September 30, 2001 have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. We incurred a net loss of
$155.7 million for the nine-month period ended September 30, 2001 and has an
accumulated deficit of $241.5 million as of September 30, 2001. We have incurred
net losses from operations since inception and, as of September 30, 2001, have a
working capital deficit of $2.4 million. We have not been successful in raising
additional funding to support its operating activities beyond the middle of the
first quarter of 2002. These factors raise substantial doubt about our ability
to continue as a going

                                       25

<PAGE>

concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

         We may enter into additional credit arrangements in order to raise
additional funds. These credit arrangements may not be available to us on
reasonable terms or at all.

         Our failure to adequately remedy any non-compliance with any of our
credit arrangements may cause the Company to be in default under one or more of
our credit arrangements and, if declared by the lenders, such defaults will
trigger cross defaults in our other credit arrangements, and accelerate
repayment of certain debts. Such events could materially adversely affect our
business, financial condition, results of operations and cash flows.

         If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our stockholders will be diluted
substantially. Furthermore, any new securities could have rights, preferences
and privileges senior to those of our common stock. There is currently no
agreement in place with any source of financing, and there can be no assurance
that we will be able to raise additional funds or that such funds will be
available on acceptable terms or at all. Lack of additional funds will
materially adversely affect us and our business and may cause us to sell assets
or to cease operations. Consequently, our stockholders could incur a loss of
their entire investment in us.

Recent Accounting Pronouncements

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141") that requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes that the adoption of SFAS 141
will not have a significant impact on its financial statements.

         In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"), which is effective for fiscal years beginning
after March 15, 2001. SFAS 142 requires, among other things, the discontinuance
of goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company is currently assessing but has not yet determined the impact of SFAS 142
on its consolidated financial position and results of operations.

         In October 2001, the FASB issued SFAS No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets", which is required to be
applied starting with years beginning after December 15, 2001. SFAS 144
requires, amongst other things, the application model for long-lived assets that
are impaired or to be disposed of by sale. The adoption of SFAS 144 is not
expected to have a significant impact on the Company's financial statements.

RISK FACTORS

Our business, financial condition or operating results could be seriously harmed
by any of the following risks. In addition, the trading price of our common
stock could decline due to any of the following risks, and you may lose all or
part of any investment you make in our common stock.

                          Risks Related to Our Business

We may seek protection under the Federal Bankruptcy Code or seek the similar
statutory protections afforded in the different jurisdictions of the
Asia-Pacific region in which we operate or recently operated.

         We may seek protection under Chapter 11 or Chapter 7 of the Federal
Bankruptcy Code or similar statutes in Taiwan and/or South Korea. Additionally,
we are subject to the risk that creditors may seek to commence involuntary
bankruptcy proceedings against us both here in the United States and against our
subsidiaries in other jurisdictions of the Asia-Pacific region in which we
operate or recently operated. If we file for Chapter 11 or Chapter 7 bankruptcy
protection or institute similar proceedings in foreign jurisdictions or if
involuntary proceedings are commenced against us by our creditors, our creditors
or other parties in interest may be permitted to propose their own plan, and we
could be unsuccessful in having a plan of reorganization confirmed which is
acceptable to the requisite number of creditors and equity holders entitled to
vote on such a plan. This could lead to our inability to emerge from a Chapter
11 filing. Moreover, once bankruptcy proceedings are commenced, either by the
filing of a voluntary petition or if an involuntary petition is filed against
us, our creditors could seek our liquidation. If a plan were consummated or if
we were liquidated, it would almost certainly result in our creditors receiving
less than 100% of the face value of their claims, and in the claims of our
equity holders being cancelled in whole.


                                       26

<PAGE>

         Even if we do propose a plan and it is accepted, we are unable to
predict at this time what treatment would be accorded under any such plan to
inter-company indebtedness, licenses, transfer of goods and services and other
inter-company and intra-company arrangements, transactions and relationships. In
addition, during any bankruptcy or similar proceeding, we would need court
approval to take many actions out of the ordinary course, which could result in
our inability to manage the normal operations of the company and which would
cause us to incur additional costs associated with the bankruptcy process. For
example, we have liquidated our Hong Kong subsidiary and ceased operations in
Hong Kong. During this process a provisional liquidator was appointed to handle
all aspects of winding down the Hong Kong subsidiary's operations and, other
than in an advisory capacity, management had no role in the administration or
operations of the Hong Kong subsidiary.

We cannot assure you that we will have access to sufficient funds to meet our
operating needs, which will likely limit our ability to continue as a going
concern

         As previously announced, we have determined that our capital
requirements under our business plan for fiscal year 2001 are greater than
available resources. As discussed in this Form 10-Q and in our previous filings,
there exist uncertainties as to our ability to continue as a going concern. Our
independent certified public accountants have included an explanatory paragraph
to this effect in their audit report in our Form 10-K with respect to our
financial statements for the fiscal year ended 2000.

         Without obtaining third-party debt or equity financing, and excluding
significant expenditures required for the completion of the build-out of our
Internet data center in Taiwan, we currently anticipate that cash on hand and
anticipated cash flow from operations are inadequate to continue to fund our
operations in the ordinary course. We continue to carefully monitor our cash on
hand and we anticipate that such cash will allow us to continue to operate until
the middle of the first quarter of 2002. Any significant increase in capital
expenditures or other costs or any decrease in or elimination of anticipated
sources of revenue could cause us to further refine our business plan or to
deplete our available cash. We need to find additional funding to finance our
operations. We have been attempting to obtain additional financing for several
months and have not succeeded. If we do not realize significant additional
revenue or raise additional debt or equity financing, we will be unable to
execute our business plan, and we may be unable to continue as a going concern.

We may not be able to continue operating and may need to further modify our
business plan if we cannot raise additional financing

         We historically have been unable to generate sufficient cash flow from
operations to meet our operating needs and have relied upon financings to fund
our operations. In addition, due to our operating losses, declining cash
balances and declining stock value, recent changes in the financial markets and
a general decrease in investor interest in the Internet industry, it has become
extremely difficult, if not impossible, for us to attract equity or debt
financing, including vendor and lease financing, or strategic partners on
favorable terms or at all. Accordingly, we have revised our business plan
significantly and, we expect that if we continue to operate as a going concern,
it will be on a reduced capacity with operations in Taiwan only. In addition, we
have developed a strategy to reduce expenses and capital expenditure
requirements by selling non-strategic assets, negotiating with our creditors for
the reduction of and restructuring of payables, reducing our foot-print in the
Asia-Pacific region, reducing our workforce, and focusing on filling our
Internet data center in Taiwan. We have already begun to reduce expenses and
capital expenditures and have sold some non-strategic and strategic assets,
including our recent sale of



                                       27

<PAGE>

our Korean Internet data center and other assets in Korea related to our
Internet data center business. However, despite the efforts currently underway,
we do not believe that these efforts will be sufficient to fund our operations,
meet our future capital expenditures and working capital requirements, or
satisfy our debt or contractual obligations to third parties, including
satisfying the covenant requirements of our existing debt. In addition to the
foregoing, a failure to meet our future capital expenditures and working capital
requirements may force us to sell additional strategic assets, including, most
notably, our Internet data center and the land upon which it was built in
Taiwan.

         As the results of our efforts to date have not been sufficient, we are
looking at and have been pursuing aggressively other alternatives to raise
additional funding, including, but not limited to, one or more of the following:

         . exploring strategic alternatives, which may include a merger, asset
           sale, or another comparable transaction;

         . raising additional capital to fund continuing operations by private
           placements of equity, debt securities and/or securing new loans which
           may be collateralized by our assets;

         . negotiating with creditors to either reduce or restructure our
           current outstanding obligations;

         . forming a joint venture with a strategic partner or partners to
           provide additional capital resources to fund operations; and

         . executing additional cost-cutting measures which could include
           additional lay-offs and/or the closure or sale of certain business
           units and facilities.

         If we are unable to raise additional funds by consummating one of the
aforementioned alternatives, we may not be able to grow our business or continue
operating and, as a result, may need to further modify our business plan or file
for bankruptcy under Chapter 11 or Chapter 7 of the Federal Bankruptcy Code or
institute similar proceedings in a foreign jurisdiction. Funding alternatives
may not be available to us within the necessary timeframe, on favorable terms or
at all. The factors leading to and the existence of the explanatory paragraph in
the audit report in our Form 10-K with respect to our financial statements for
the year ended 2000 will likely have a material adverse effect on our ability to
obtain additional financing.

Our inability to raise capital has forced us to modify our business plan by
reducing the scope of our operations; however, we cannot assure you that we will
be successful in implementing our modified business plan.

         Due to our cash shortage and our inability to access the capital
markets, we have modified our business plan significantly. Our modified business
plan expects that if we continue to operate as a going concern it will be on a
reduced capacity with operations in Taiwan only. Furthermore, it is anticipated
that this reduced capacity will result in a significant reduction in revenue on
a going-forward basis.

         In an effort to continue as a going concern, in addition to exploring
the alternatives set forth in the risk factor "We may not be able to continue
operating and may need to further modify our business plan if we cannot raise
additional financing" on page 27, we

                                       28

<PAGE>

are focusing on filling the Internet data center we still have operational in
Taiwan. We cannot assure you that we can successfully implement our new plan
and, even if we do successfully sell our non-strategic and, if necessary,
strategic assets, there are risks involved in our revised plan. We may encounter
the following risks in connection with the sale of additional non-strategic or
strategic assets:

         . We may not be able to sell our assets at favorable prices or on
           favorable terms;

         . We may be required to write down the carrying value of our assets;

         . If we sign an agreement for the potential sale of a particular asset,
           we cannot assure you that we will be successful in completing that
           sale; and

         . Our agreements with purchasers may subject us to reductions in or
           adjustments to purchase price or to indemnification claims by such
           purchasers after the asset sales have been consummated to the extent,
           if any, that we are unable to achieve specified performance targets
           or that such purchasers are able to successfully assert a claim
           against us for a breach of a representation, warranty or covenant
           contained in such agreement.

         In addition, we may encounter the following risks in connection with a
reduction of expenses and capital expenditures:

         . To the extent that we reduce our planned expenditures, we may not be
           able to fulfill certain of our contractual obligations and the
           parties with whom we have such contracts may assert a claim for
           breach of contract or assert a claim for anticipatory breach; and

         . It is uncertain what effect such a reduction would have on our
           relationships with our customers, vendors and employees and our
           growth prospects and financial results. Our customers may choose to
           cease doing business with us if they perceive that our reductions
           could adversely affect the quality of the services we provide, and we
           may be unable to retain our employees if they perceive that our
           reductions could adversely affect our ability to pay wages and
           salaries as and when they become due.

Our existing indebtedness may complicate our financing efforts and adversely
affect our business, financial condition and results of operations.

         Our current indebtedness secured by our Internet data center in Taiwan,
as well as any additional indebtedness incurred, may make it more difficult for
us to obtain additional debt financing. In addition, a further downturn in our
financial situation, bankruptcy proceedings or other action against us based
upon our financial condition may result in non-compliance with our other
existing arrangements or non-compliance with our Taiwan mortgage facility. Our
failure to adequately remedy any non-compliance with any of our credit
arrangements may cause the Company to be in default under more of our credit
arrangements and, if declared by the lenders, such defaults will trigger cross
defaults in our other credit arrangements, and accelerate repayment of certain
debts. Such events may also enable creditors in respect of those obligations to
assert other remedies against us. We cannot assure you that we would be able to
cure any such events of default. Any such events could have a material adverse
effect upon us and the foregoing factors could threaten our ability to continue
as a going concern.

                                       29

<PAGE>

         In the event we are the subject of bankruptcy proceedings or we are
declared in default under one of our outstanding mortgage agreements, we may be
forced to reorganize or possibly dissolve, and our stockholders may not receive
any proceeds upon liquidation. In addition, we may be delisted by the Nasdaq
National Market. Such events could materially affect in an adverse manner our
business, financial condition and results of operations.

We have a limited amount of cash to support our operating needs and are not able
to service our debt and repay creditors.

         As of December 31, 2000 and September 30, 2001, we had approximately
$7.3 million and $503,000, respectively, of cash, cash equivalents, short-term
investments and marketable securities, and restricted amounts. Our cash, cash
equivalents, short-term investments marketable securities, and additional cash
generated by the expected proceeds from additional non-strategic and, if
necessary, additional strategic asset sales may not be sufficient to meet our
anticipated cash needs. Even if we successfully implement one or more of the
alternatives we currently have under consideration, we cannot assure you that we
will not completely deplete our cash resources. Other events, such as an
unfavorable outcome in pending litigation, could further affect our cash flow.

         The uncertainty as to our ability to continue as a going concern may
adversely affect our ability to retain or expand relationships with existing
customers and may make it more difficult for us to attract new customers. In the
event that we default on any payment of interest or principal on the mortgage in
Taiwan, such default will constitute an event of default under the mortgage
agreement and, as a result, the bank could take steps to attach, seize or
auction the underlying land and building where our Internet data center is
located in Taiwan. In addition, payment defaults could result in litigation to
enforce rights to receive payments on the mortgage or the asserting of other
claims.

We cannot assure you of the continued listing of our securities on the Nasdaq
National Market and other securities exchanges and associations.

         Our common stock is currently listed on The Nasdaq National Market. We
must satisfy a number of requirements to maintain its listing on The Nasdaq
National Market, including maintaining a minimum bid price for our common stock
of $1.00 per share. As of November 5, 2001, the price of our common stock was
$0.091. If the common stock loses its Nasdaq National Market status, it would
likely trade on The Nasdaq Over the Counter Bulletin Board, which is viewed by
most investors as a less desirable, less liquid marketplace.

         Although our common stock is currently listed on The Nasdaq National
Market, we have been notified by Nasdaq that it has questions concerning, among
other things, our ability to maintain the minimum listing requirements and
initiated the process to terminate our listing from Nasdaq. Specifically, we
have received correspondence from Nasdaq stating that we do not meet the minimum
share price requirements, but that if at any time before October 8, 2001, the
bid price of our common stock is at least $1.00 for a minimum of ten consecutive
trading days, Nasdaq will re-examine whether we comply with the minimum listing
requirements. We cannot assure you that we will be able to satisfy the minimum
listing requirements on a going forward basis. In the event our common stock is
delisted, we may or may not choose to appeal the delisting. Even if we do decide
to appeal, we cannot assure you that an appeal would be successful.

                                       30

<PAGE>

         Despite this correspondence from Nasdaq, in response to the
extraordinary market conditions following the tragedy of September 11th, The
Nasdaq Stock Market implemented an across-the-board moratorium on the minimum
bid and public float requirements for continued listing on Nasdaq. These
requirements are suspended until January 2, 2002. Companies currently under
review for deficiencies or in the hearings process, such as us, will be taken
out of the process with respect to the bid price or market value of public float
requirements. During this time, Nasdaq will consider whether it is appropriate
to recommend further and more permanent action.

         If our common stock is delisted from Nasdaq, the trading market for
such securities could be disrupted which could make it difficult for investors
to trade in our common stock. If our common stock is delisted from The Nasdaq
National Market we may or may not apply for listing on The Nasdaq SmallCap
Market, the OTC Bulletin Board or another quotation system or exchange for which
we could qualify. We cannot guarantee, however, that we would apply for listing
on another quotation system or exchange if we are delisted from The Nasdaq
National Market or that if we do apply for listing that we would be eligible
initially for such listing or that if we do become listed, that we would be able
to maintain eligibility.

We may depend on the ability to repatriate capital from our subsidiaries in
order to satisfy our debt obligations and repay creditors.

         Our operating cash flow and, consequently, our ability to service our
debt is partially dependent upon our ability to repatriate capital from our
subsidiaries. In addition, we may also depend on loans, advances and other
payments of funds to us by our subsidiaries. If we were to sell additional
non-strategic and strategic assets in each country, for either the purpose of
streamlining operations, reorganizing or satisfying our obligations, after the
repayment of each subsidiary's in-country obligations, the net result could be a
significant amount of cash and cash equivalents in each country. If for some
reason these funds were restricted and we were unable to repatriate even a
portion of the amounts, we would be adversely affected. Our subsidiaries are
separate legal entities and have no obligation, contingent or otherwise, to pay
any amount due pursuant to our commitments and as a result may not make any
funds available for such purposes. Our subsidiaries' ability to make payments
may be subject to the availability of sufficient surplus funds, the terms of
such subsidiaries' financings, applicable law and other factors. Our
subsidiaries' creditors will have priority to the assets of those subsidiaries
over the claims, if any, as a stockholder that we may have against those assets
and claims that holders of our indebtedness may indirectly have. Our inability
to repatriate capital would severely undermine any efforts we take to reorganize
our business, either in or out of bankruptcy, or to further modify our business
plan.

We expect continued losses.

         We have never achieved profitability, have accumulated net losses of
$241.5 million from our inception through September 30, 2001 and have had to
rely on the proceeds of the sale of equity securities and the incurrence of debt
to fund our operations. We believe that we will continue to incur losses for the
foreseeable future and that our losses will increase significantly from current
levels. We expect to fund our business through equity or debt financings or
business combination transactions, if available.

Our cost-cutting efforts may harm our business.

         Our management is implementing plans designed to reduce our cash
requirements through a combination of reductions in components of working
capital, equipment purchases and

                                       31

<PAGE>

operating expenditures, including a significant reduction in force. However,
there can be no assurance that we will be able to successfully implement these
plans or that we will be able to do so without a material adverse effect on our
business, financial condition or results of operations.

Any financing we obtain may significantly dilute the ownership of our existing
stockholders.

         If we raise additional funds by issuing equity or convertible debt
securities, the percentage ownership of our stockholders will be significantly
diluted. Furthermore, any new securities could have rights, preferences and
privileges senior to those of our common stock. There is currently no agreement
in place with any source of financing, and there can be no assurance that we
will be able to raise additional funds or that such funds will be available on
acceptable terms. Lack of additional funds will materially adversely affect us
and our business and may cause us to cease operations or cause us to sell
assets. Consequently, our stockholders could incur a loss of their entire
investment in us.

As a result of questions concerning our status as a going concern, our customers
and vendors may decide not to do business with us and we will have greater
difficulty in collecting revenue.

         Due to concerns regarding our ability to continue operations, customers
and vendors may decide not to conduct business with us, or may conduct business
with us on terms that are less favorable than those customarily extended by
them. Additionally, we are currently experiencing resistance in the marketplace
and we believe that one of the several factors for this resistance is related to
concerns regarding our ability to continue our business as a going concern. In
any event, if customers and vendors decide not to conduct business with us, our
net sales would further decrease, and our business will suffer significantly.

If we are unable to motivate and retain our personnel, it could have a material,
adverse effect on our business.

         Our success depends in large part on our ability to motivate and retain
highly-skilled employees on a timely basis. The tenuous viability of the
Company, our cost-cutting efforts as well as our recent and any future workforce
reductions will result in some disruption of our ongoing operations and impair
our efforts to motivate existing employees. Our failure to retain highly-skilled
personnel may limit the rate at which we generate revenue and develop new
products and services or product enhancements. This could have a material
adverse effect on our business, operating results and financial condition.

We are the subject of, and may be the subject of additional, class action suits,
which would divert significant resources away from our business.

         We are a defendant in several punitive class action lawsuits alleging
violations of the Federal securities laws. All of these lawsuits are at a very
early stage, and we are unable to predict their outcomes. These lawsuits may
adversely affect our ability to obtain financing necessary to continue our
operations. In addition an unfavorable outcome in any of these lawsuits could
have a material adverse effect on our prospects and financial condition. Even if
the litigation is resolved in our favor, the defense of that litigation will
entail considerable cost and diversion of efforts of management, either of which
are likely to adversely affect our results of operations. We believe that these
lawsuits are without merit and intend to vigorously defend against these
lawsuits.

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Continuing uncertainty of the U.S. economy may have serious implications for the
growth and stability of our business and may negatively affect our stock price.

         The revenue growth and profitability, if any, of our business depends
significantly on the overall demand for co-location, connectivity services
and remote hands in Taiwan. Softening demand for these services caused by
ongoing economic uncertainty may continue to result in decreased revenues or
earnings levels or growth rates. The U.S. economy has weakened and market
conditions continue to be challenging. This has resulted in individuals and
companies delaying or reducing expenditures for purposes such as increasing
their use of Internet services. Further delays or reductions in Internet
services expansion spending could have a material adverse effect on demand for
our services, and consequently on our business, operating results, financial
condition, prospects and stock price.

Our Internet data center construction plans may be delayed, never be completed
or experience other significant problems, which would delay or prevent us from
realizing our ultimate profitability.

         Due to reductions in our footprint in the Asia-Pacific region, we
currently only operate one large-scale, high performance Internet data center.
We have a limited track record for the operation of large-scale, high
performance Internet data centers. In addition, construction delays, inability
to obtain additional adequate financing, inability to obtain necessary
authorizations or technological problems may affect our Internet data center
operations, the benefits of our substantial investment in these Internet data
centers may be delayed or never occur. In that case, we will be delayed or
prevented from realizing our ultimate profitability.

We will need to greatly expand our revenue base to benefit from our investment
in our Internet data center in Taiwan.

          We have incurred and will continue to incur significant costs to
establish and operate our Internet data center in Taiwan. If we are unable to
significantly grow our revenue base, we will not be able to achieve the
economies of scale necessary to offset our fixed and other operating costs. We
have limited experience in attracting and servicing our co-location and
connectivity customers. Our ability to attract and retain additional customers
for these services depends on a variety of factors including the willingness of
businesses to outsource their Internet operations and the quality, reliability
and cost-effectiveness of our services. If we are unable to significantly
increase our customer base for co-location, connectivity services and remote
hands, we will not realize our expected growth or achieve profitability.

Our stock price has been extremely volatile in the past and is likely to be
extremely volatile in the future, which could lead to a high rate of attrition
of our employees and lost revenue and lost contracts with customers and vendors.

         The market price of our common stock has been and may continue to be
extremely volatile in the future. The stocks of Web-related and technology
companies like ours have experienced extreme price and volume fluctuations in
recent months. Although the market price of our stock will in part be based on
our business, financial condition and operating results, we expect that it will
also be affected to a significant degree by these market-wide and industry-wide
factors.

         Fluctuations in our stock price could continue to lead to employees
leaving us due to their

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<PAGE>

perception of the value of their stock options in relation to the price of our
common stock. If this were to continue to occur, our business, results of
operations and financial condition could be harmed.

         Fluctuations in our stock price could also lead to a loss of revenue
due to our inability to engage new customers and vendors and to renew contracts
with our current customers and vendors. We are currently experiencing some
resistance in the marketplace and we believe that one of the several factors for
this resistance is related to our fluctuating stock price. Existing and
potential customers and vendors may perceive our fluctuating stock price as a
sign of instability and may therefore be unwilling to do business with us. If
this were to continue to occur, our business, results of operations and
financial condition could continue to be harmed.

Recent economic conditions in the securities markets may decrease our chances of
obtaining additional financing and may make the terms of any additional
financings or tender offers unfavorable to us or our shareholders.

         The market prices of the equity securities of many public companies and
in particular Internet technology companies have decreased in recent months as a
result of market conditions in the United States. These current economic
conditions make raising capital through equity financings more difficult to
obtain. Potential investors in our company may perceive an investment in us as
being risky due to the recent trends in our stock price and the stock prices of
similar companies. If this were to occur, raising additional capital through an
equity financing may not be obtainable or may only be obtainable on terms
unfavorable to us or the stockholders or both. Potential terms may have negative
consequences, such as dilution of stockholders or a further decline in our
common stock price.

         Any further declines in our common stock price resulting from current
economic conditions may make us more vulnerable to becoming acquired through a
tender offer. If this were to occur, we may be acquired at a price or on terms
unfavorable to the stockholders.

We have taken steps and may take further steps to reduce our expenses to help
maintain our viability. Failure to manage these and earlier cost reductions may
result in adverse effects on our business, operating results and financial
condition.

         In order to preserve our capital resources, we have taken steps and may
take further steps to streamline our business and reduce costs. These
cost-cutting efforts have included significant reductions in our workforce in
each of April, June and September, and we may engage in additional workforce
reductions. If we do not properly manage reductions in our cost structure, it
could have a material adverse effect on our business, financial condition and
results of operations. Any failure to manage the impact of cost-cutting efforts
on our operations, our customer service, our ability to retain remaining
personnel, or our ability to recruit new employees in the future could have a
material adverse effect on our business, operating results and financial
condition. In addition, there will be costs associated with these cost-cutting
efforts that could materially adversely affect our operating results and
financial condition.

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We operate in a relatively new and evolving market with rapid technological
changes and uncertain prospects for growth. This market may evolve in a manner
that jeopardizes our prospects for growth and profitability.

         The market for our services in the Asia-Pacific region has only
recently begun to develop and is uncertain of evolving beyond current levels.
Projected growth of this market may not be realized. The market for our services
may not grow, our services may not be adopted and businesses may not use these
Internet-based services to the degree or in the manner that we expect. In
addition, if we are not able to effectively respond to technological changes or
if technological advances diminish the benefits derived by our customers from
the use of our products and services, future demand for our services could be
reduced. For example, it is possible that businesses may find it cheaper, more
secure or otherwise preferable to host their web sites and applications
internally and decide not to outsource the management of their web sites and
applications. In addition, the market for our services has developed more slowly
than we originally expected. If we are not able to react quickly to changes in
the market, if the market fails to develop or continues to develop more slowly
than expected or if our services do not achieve market acceptance, we will not
achieve growth levels necessary to become profitable.

The potential market for Internet services in the Asia-Pacific region may
attract new and existing competitors, which could narrow our margins and limit
our business prospects.

         The market for Internet access, as well as for co-location,
connectivity services and remote hands is extremely competitive and there are
few substantial barriers to entry. New market entrants or the creation of
stronger competitors through combinations could result in increased price
competition, which would make it difficult for us to attract new customers,
retain existing customers, or attain revenue and gross margin levels sufficient
to generate a return on our prior investment in our business.

         We are dependent upon businesses, such as national telecommunications
carriers that are monopolies or have significant regulatory advantages over us,
which provide us with resources we need to provide services. These businesses
either currently compete with us or may compete with us in the future.
Increasingly, Internet service providers, hosting companies, telecommunications
companies and equipment manufacturers have announced plans to enter into or
expand their operations in markets in the Asia-Pacific region, including Taiwan.
For example, companies such as WorldCom, Singapore Telecom and Pihana Pacific
have announced plans to enter into or expand their current operations. When
these companies expand their presence in the Asia-Pacific region, customers may
decide to use their services in Taiwan instead of ours, based on both financial
criteria and the broader operating footprint and scope of geographic reach
offered by these companies.

          Many of our competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition and more established relationships in the
industry than we do. As a result, certain of these competitors may be able to
develop and expand their network infrastructures and service offerings more
quickly, adapt to new or emerging technologies and changes in customer
requirements more readily, take advantage of acquisition and other opportunities
more effectively, devote greater resources to the marketing and sale of their
products and adopt more aggressive pricing policies than we can. In addition,
these competitors have entered and will likely continue to enter into joint
ventures or consortiums to provide additional services competitive with those
provided by us. We may not have, or be able to acquire, the resources or
expertise to compete successfully in the future, which could narrow our margins
and limit our growth prospects.

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Our limited operating history makes forecasting difficult. Because most of our
expenses are based on planned operating results, failure to achieve forecast
revenue could significantly increase our net losses in any given period.

         As a result of our limited operating history, particularly since our
change in strategic focus in mid-1999, it is difficult to accurately forecast
our revenue, and we have limited meaningful historical financial data upon which
to base planned operating expenses. We base our current and future expense
levels on, among other factors, our operating plans, our financing needs and
availability, expected use of our Taiwan Internet data center and estimates of
future revenue. We may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. In addition, if we are unable
to obtain additional funding, we may not be able to adjust our spending levels
downward in a timely manner so as to maximize our available capital. This could
significantly increase our net losses in any given period or cause us to deplete
our cash more quickly than expected.

Our operating results are difficult to predict. If we fail to meet the
expectations of public market analysts and investors, the market price of our
common stock may decline significantly.

         Our annual and quarterly operating results have fluctuated in the past
and will continue to fluctuate significantly in the future due to a variety of
factors, many of which are outside of our control. For example, for several
quarters beginning in late 1997, our operating results were adversely affected
by the economic crisis in the Asia-Pacific region. It is possible that, in the
future, our quarterly operating results may fall below the expectations of
securities analysts and investors, especially in light of our modified business
plan which focuses solely on Taiwan. In this event, the trading price of our
common stock may decline significantly.

We may be unable to hire and retain the skilled engineering and technical
personnel necessary to develop our business.

          Depending on the availability of funding, we may hire additional
engineering and technical personnel. Competition for these individuals with
relevant experience and expertise is intense, and we may not be able to attract,
assimilate or retain highly qualified personnel in the future. The market for
qualified engineering and technical personnel in Taiwan is extremely limited and
finding individuals with relevant country specific experience may be difficult.
Our failure to attract and retain the highly trained engineering and technical
people who are integral to our business may limit our growth rate and harm our
business. We have had greater difficulty attracting these personnel with equity
incentives as a public company than we did as a privately held company.

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<PAGE>

Our network is dependent upon the availability of adequate connectivity with
third party providers and any failure or delay in obtaining necessary
connectivity would harm our operations.

         We rely upon connectivity and bandwidth from Internet service providers
and local and international telecommunications carriers to operate our business.
In some of our markets, we are dependent on one or a limited number of
connectivity providers. Many of these carriers are our competitors. Because of
market and competitive factors, it is uncertain whether we will be able to
obtain the requisite network connectivity at commercially viable prices or that
the necessary connectivity will be available on a timely basis or at all.
Failure to obtain this connectivity would jeopardize our ability to conduct our
business in Taiwan and would harm our operations.

We must offer services priced above the overall cost of bandwidth, and any
failure to do so could cause us to sell our services at a loss.

         We purchase our bandwidth capacity in amounts based upon projected
usage by our customers on a fixed-price basis in advance of the sale of our
services. We sell our services, by contract, on the basis of actual usage. If we
do not obtain adequate bandwidth capacity on acceptable terms and realize
appropriate customer volume for such bandwidth, we will not achieve positive
gross profit.

         We expect that the cost of obtaining bandwidth for the transport of
data over our network will decline over time as a result of, among other things,
the large amount of capital currently being invested to build network
infrastructure. We expect the prices we charge for data transported over our
network will also decline over time as a result of, among other things, the
lower cost of obtaining bandwidth and existing and new competition in the
markets we address. If we fail to accurately predict the decline in costs of
bandwidth, are unable to sell our services at acceptable prices, or fail to
offer additional services from which we can derive additional revenue, the value
of our services will be substantially reduced, our revenue will decrease and our
business, results of operations and financial condition will suffer.

If we lose the services of key members of our management, we may not be able to
effectively execute our business plan and our trading price may suffer.

         Our future success depends to a significant degree on the skills,
experience and efforts of our key personnel. In the past several months, we have
lost the services of two CEOs, two COOs, a CFO, a Vice President of Internet and
Data Center Technology, a Vice President of Marketing, and a Vice President of
Sales. We recently promoted our Vice President of Corporate Development to CEO,
and our Vice President of Finance to CFO. The loss of the services of either of
these individuals could compromise our ability to effectively operate our
business. In addition, we have not obtained key person life insurance on any of
our key employees. If any of our key employees left or was seriously injured and
unable to work and we were unable to find a qualified replacement, our business,
results of operations and financial condition could be harmed.

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<PAGE>

We could lose customers and be exposed to liability if our service to our
customers is disrupted or damaged or the security of confidential information
stored in our computer systems is compromised.

         Our success, in particular our ability to successfully provide our
services in a high quality and reliable manner, largely depends upon the
efficient and uninterrupted operation of our Internet data center, including our
computer and communications hardware and software systems and the power and
cooling systems upon which they rely. Any of the acts or events described below
could lead to interruptions, physical or electronic loss of data, delays or
cessation of service to our customers or a decrease in responsiveness, which
could harm our relationships with our customers, result in liability damages and
reduce revenue. Our systems and operations are vulnerable to damage or
interruption from:

    .    earthquake, fire, flood and other natural disasters;

    .    failure of our internal systems, including failure of our computer
         systems or our telecommunications network, operator negligence,
         improper operation by or supervision of our employees;

    .    third party or systemic infrastructure failures, including Internet
         network outages, power and utility loss and problems with the satellite
         systems used for our data back-up; and

    .    disruptions due to human intervention, including computer viruses,
         interruption, break-ins, security breaches, misappropriation, denial of
         service, vandalism and similar disruptive problems caused by our
         customers or Internet hackers.

         Furthermore, any inappropriate use of the network by third parties
could potentially jeopardize the security of confidential information stored in
our computer systems and our customers' computer systems, which may result in
liability to us and act as a deterrent to potential customers. Although we
intend to continue to implement security measures, any measures we implement may
be circumvented in the future. The costs and resources required to eliminate
computer viruses and alleviate other security problems may divert resources from
other activities and may result in interruptions or delays to our customers that
could cause our business, results of operations and financial condition to
suffer.

Because of the significant stock ownership of our officers, directors and
significant stockholders, you will be unable to exert significant control over
our future direction.

         Based upon our shares outstanding as of November 5, 2001, our executive
officers and directors and their affiliates will together control approximately
thirty-eight percent (38%) of our outstanding common stock as a result of their
shareholdings, which if they act together, would enable them to significantly
influence matters requiring our stockholders' approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may delay, prevent or deter a change in control,
could deprive our stockholders of an opportunity to receive a premium for their
common stock as part of a sale of iAsiaWorks or our assets and might adversely
affect the trading price of our common stock.

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<PAGE>

Provisions of our certificate of incorporation and bylaws may make changes of
control difficult, even if they would be beneficial to stockholders.

     Anti-takeover provisions of Delaware law and in our certificate of
incorporation and bylaws may make a change in control of iAsiaWorks difficult,
even if a change in control would be beneficial to our stockholders. These
provisions may allow our board of directors to prevent or make changes in the
management and control of iAsiaWorks. In addition, under Delaware law, our board
of directors may adopt additional anti-takeover measures in the future. The
rights of holders and the price of our common stock could be adversely affected
by these anti-takeover provisions.

Our long-lived assets may be further impaired if we are unable to obtain the
financing necessary to expand our business to the level necessary to achieve
profitability and generate positive cash flows.

     We cannot assure you that we will be able to obtain financing in a
sufficient amount to expand our business to the level necessary to achieve
profitability and generate positive cash flow from operations. Our failure to do
so will likely result in our conclusion that the remaining carrying amount of
certain long-lived assets are not recoverable. Under generally accepted
accounting principles relating to the impairment of assets, we would then be
required to write off all, or an additional portion of long-lived assets,
including tangible fixed assets, which would have a material and adverse effect
on our business, results of operations and financial position.

The large number of shares that may be resold in the public market could cause
our stock price to decline.

     As our shares become eligible for public resale, the market price of our
common stock may drop if the holders of these shares sell them or are perceived
by the market as intending to sell them. Most of the shares we have outstanding
or assumable upon exercise of options or warrants became eligible for public
resale in January 2001. For a more detailed description of the eligibility of
the outstanding shares of our common stock for resale in the public market, see
our Registration Statement filed with the SEC, SEC File No. 333-35278.

Our business operations may be adversely affected by the California energy
crisis.

     Our principal executive offices are located in the Silicon Valley in
Northern California. California has been experiencing an energy crisis that has
resulted in disruptions in power supply and increases in utility costs to
consumers and businesses throughout the State. Should the energy crisis
continue, together with many other Silicon Valley companies, we may experience
power interruptions and shortages and be subject to significantly higher costs
of energy. Although we have not experienced any material disruption to our
business to date, if the energy crisis continues and power interruptions or
shortages occur in the future, they may adversely affect our business.

          Risks specific to the Internet, our industry and our markets

The political, legal and economic climate in the Asia-Pacific region is
volatile, uncertain, subject to change and presents risks that could materially
adversely affect our business.

     We currently operate primarily in Taiwan. As a result, our results of
operation and future growth depend on the economies in these markets. There are
certain risks

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inherent in conducting business in the Asia-Pacific region that could affect our
profitability, if any, including:

        . political and economic instability;

        . risk of expropriation;

        . risk of currency exchange controls and repatriation;

        . export restrictions, tariffs and other trade barriers;

        . changes in regulatory requirements;

        . legal restrictions on the business practices of United States
          companies operating outside of the United States, such as the Foreign
          Corrupt Practices Act;

        . lack of clarity, transparency and consistency in the application of
          laws and regulations in various jurisdictions; and

        . potential adverse tax consequences.

        Beginning in mid-1997, many countries in the Asia-Pacific region
experienced significant economic downturns and related difficulties. As a result
of the decline in the value of the region's currencies, many governments in the
Asia-Pacific region and companies operating in the region had difficulties
servicing foreign currency denominated debt and many corporate borrowers
defaulted on their payments. These currency fluctuations, as well as resulting
higher interest rates and other factors, materially adversely affected the
economies of many countries in the Asia-Pacific region. While the region has
generally shown signs of improvement in recent periods, the economic conditions
in the Asia-Pacific region may not continue to improve and any recent
improvements may not be sustained.

        Governmental regulation and the application of existing laws of
countries in the Asia-Pacific region often lack clarity and are subject to
change without notice. Such uncertainty and lack of transparency may result in
unexpected liabilities and violation of local law, especially with regard to
obtaining local and national government approvals, limitations on foreign
investments and the purchase of real property, and complying with zoning,
environmental, labor and similar regulatory requirements. In particular, zoning
and land use regulations in the Asia-Pacific region often reflect the time lag,
often considerable, between telecommunications liberalizations and corresponding
amendments to zoning, use and other local land regulations to accommodate such
liberalizations. Applicable zoning regulations and use permits in the
Asia-Pacific region in certain countries where we operate do not explicitly
allow for the operation of Internet data centers, as land is zoned into broad
categories, such as commercial, industrial and residential, that do not always
take account of current business usage. If we violate these regulations, we may
face significant fines and penalties and may be unable to operate our
facilities, all of which could have a material adverse effect on our business,
results of operations and financial condition.

        Any adverse political, legal or economic development in the Asia-Pacific
region could materially adversely affect our markets and our business. For
example, any conflict between mainland China and Taiwan or between North Korea
and South Korea may also destabilize the region and render us unable to transact
business in the region.

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If any such event were to occur, our business model would be undermined.

Governmental regulation and the application of existing laws to the Internet may
slow the Internet's growth, increase our costs of doing business and create
potential liability for the dissemination of information over the Internet.

     Laws and regulations directly applicable to Internet communications are
becoming more prevalent. Uncertainty and new laws and regulations, as well as
the application of existing law to the Internet, in our markets could prevent or
limit our ability to operate in certain of our markets, expose us to compliance
costs and substantial liability and could result in costly and time consuming
litigation, all of which could materially harm our business, operating results
and financial condition.

     The international nature of the Internet and the possibility that we may be
subject to conflicting laws of, or the exercise of jurisdiction by, different
countries may make it difficult or impossible to comply with all the laws that
may govern our activities. Furthermore, the law relating to the liability of
online service providers for information carried on or disseminated through
their networks is currently unsettled.

Underdeveloped telecommunications and Internet infrastructure may limit the
growth of the Internet in the Asia-Pacific region and the growth of our
business.

     Access to the Internet requires advanced telecommunications infrastructure.
The telecommunications infrastructure in many parts of the Asia-Pacific region
is not as well developed as in the United States and is owned and operated by
current or former national monopoly telecommunications carriers or may be
subject to a restrictive regulatory environment. The quality and continued
development of telecommunications infrastructure in the Asia-Pacific region will
have a substantial impact on our ability to deliver our services and on the
market use and acceptance of the Internet in general.

     In addition, the recent growth in the use of the Internet has caused
frequent periods of performance degradation, requiring the upgrade of routers
and switches, telecommunications links and other components forming the
infrastructure of the Internet by Internet service providers and other
organizations with links to the Internet. Any perceived degradation in the
performance of the Internet as a whole could undermine the benefits of our
services. The quality of our services is ultimately limited by and reliant upon
the speed and reliability of the networks operated by third parties.
Consequently, the emergence and growth of the market for our services is
dependent on improvements being made to the entire Internet infrastructure in
the Asia-Pacific region to alleviate overloading and congestion.

Inability to acquire sufficient power to facilitate our operations may limit our
growth in the Asia-Pacific region.

     The underdeveloped infrastructure in many countries in the Asia-Pacific
region, including Taiwan, may inhibit our ability to attain sufficient,
reasonably priced sources of electrical power to support our Internet data
centers. The quality and reliability of the available power sources may also
interfere with the uninterrupted operation of our services, which could
adversely impact the operation of our Internet data centers.

Currency fluctuations could decrease our revenue or increase our costs. In
addition,

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restrictions on currency exchange could prevent us from effectively using our
funds.

     In addition to our primary business operations in Taiwan, we occasionally
conduct business in multiple countries in the Asia-Pacific region and generate
revenue, expenses and liabilities in multiple Asia-Pacific currencies. Gains and
losses on the conversion of foreign payments may contribute to fluctuations in
our results of operations and fluctuating exchange rates could cause reduced
revenue and gross margins from our international sales. Additionally, the U.S.
Dollar value of overseas assets may decline if exchange rates in the region
weaken in relation to the U.S. Dollar. We currently engage only in very limited
currency hedging activities. In addition, some of the countries in which we
operate or plan to operate impose exchange controls. As a result, we may not be
able to freely convert the relevant local currencies into other Asia-Pacific or
non Asia-Pacific currencies, including U.S. dollars, which could prevent us from
effectively using our funds. Currency rate fluctuations and exchange controls
could negatively impact our financial performance by increasing costs and
offsetting revenue or income from our operations.

Our business and prospects will suffer if the Internet does not develop into an
effective commercial and information medium in the Asia-Pacific region.

     The market for Internet services in the Asia-Pacific region has only begun
to develop. Because the Internet is an unproven medium for information,
advertising and other commercial services in the Asia-Pacific region, our future
operating results and prospects depend substantially on the increased acceptance
and use of the Internet for publication, distribution and commerce in the
Asia-Pacific region. Many potential customers may have limited experience with
the Internet, may not have devoted a significant portion of their available
funds to web site development and may not find the Internet to be effective for
promoting, distributing or conducting their products and services relative to
traditional means. Furthermore, critical issues concerning the commercial use of
the Internet in the Asia-Pacific region, such as security, reliability, cost,
ease of deployment, administration and quality of services, may affect the
adoption of the Internet to solve business needs.

ADDITIONAL DISCUSSION OF THESE AND OTHER RISK FACTORS IS DISCLOSED IN OUR ANNUAL
REPORT ON FORM 10-K, AS AMENDED, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, AS WELL AS IN OUR OTHER PUBLIC FILINGS.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk inherent in our operations, primarily related
to currency risk. This risk arises from transactions and operations entered into
in the normal course of business.

     Our subsidiaries primarily operate in foreign markets, and predominantly
have their local currencies as their functional currencies. These subsidiaries
do not have third party borrowings in currencies other than their local
currencies, and therefore there are no appropriate quantitative disclosures.

     Our primary currency rate risk exposures relate to:

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     .   the fact that approximately ninety-nine percent (99%) of our revenues
         during the fiscal quarter ended September 30, 2001 were derived from
         operations in the Asia-Pacific region, and were denominated in
         currencies other than the U.S. dollar;

     .   the ability of our United States operations to satisfy cash flow
         requirements of predominantly U.S. dollar denominated long-term debt
         without the need to repatriate into the United States foreign earnings
         and profits, which are denominated in currencies other than the U.S.
         dollar; and

     .   our investments in foreign subsidiaries being primarily directly from
         us as the U.S. parent, resulting in U.S. dollar investments in foreign
         currency functional companies.

         We manage our currency rate risks through a variety of measures. We
operate on a decentralized regional basis with operations located in most major
Asia-Pacific markets. As a result, our individual markets are not necessarily
impacted by changes in currency exchange rates. In addition, in certain limited
instances in fiscal year 2000, we entered into, and expect to enter into
additional, forward exchange contracts in connection with inter-company
transactions. We do not expect these contracts to extend longer than one year.

PART II: OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Beginning on March 23, 2001, several putative class action lawsuits were
filed against us, several of our officers and directors, and the underwriters of
our initial public offering in the United States District Court for the Southern
District of New York on behalf of all persons who purchased shares of our stock
between August 3, 2000 and November 27, 2000. The plaintiffs allege claims under
Sections 11, 12 and 15 of the Securities Act of 1933 and seek unspecified
damages arising out of, among other things, allegedly false or misleading
statements in the prospectus and registration statement issued in connection
with our initial public offering. In August 2001, these actions were transferred
to the Northern District of California. These actions are at a very early stage
and, accordingly, we are unable to predict their ultimate outcome.

     However, we believe the foregoing actions are without merit and we intend
to defend against them vigorously. An unfavorable outcome in these actions could
have a material adverse effect on our business, financial condition and results
of operations. In addition, even if the ultimate outcome is resolved in our
favor, the defense of such litigation could entail considerable cost and the
diversion of efforts of management, either of which could have a material
adverse effect on our results of operation.

     We are party to several actions which relate to our alleged failure or
alleged anticipated failure to pay contractual obligations. These actions have
been commenced by counterparties to agreements or instruments to which we or our
subsidiaries are parties, and seek payment of obligations under the agreements
or instruments allegedly breached or to be breached by us or our subsidiaries.
The parties bringing these actions seek payment and, in some cases,
extraordinary relief such as the attachment of assets. In certain cases,
plaintiffs are seeking punitive damages or asserting alleged tort claims
relating to alleged breaches or alleged anticipatory breaches by us or our
subsidiaries. Currently, total amounts sought by the plaintiffs in these actions
are in excess of $500,000.

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ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     On August 8, 2000, we consummated our initial public offering of common
stock, $0.001 par value. The underwriters in the offering were Goldman Sachs &
Co., Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. The shares
of common stock sold in the offering were registered under the Securities Act of
1933, as amended, on a registration statement on Form S-1 (Reg. No. 333-35278)
that was declared effective by the SEC on August 2, 2000. All 9,000,000 shares
of common stock registered under the registration statement were sold at a price
of $13.00 per share. The aggregate offering amount registered was $117,000,000.
In connection with the offering, we paid an aggregate of $8,190,000 in
underwriting discounts to the underwriters. The net offering proceeds to us
after deducting the underwriting discounts and total expenses related to the
offering were approximately $106,061,000. Of the proceeds and the existing cash
balance on the date of the IPO, as of September 30, 2001, approximately $113
million were used for the establishment of Internet data center facilities in
Hong Kong, South Korea and Taiwan, the hiring of additional personnel and for
general corporate purposes.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.

ITEM 5.  OTHER INFORMATION
Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

   a. Exhibits

Exhibit
Number        Description
------        -----------

2.2           Asset Transfer Agreement dated as of September 1, 2001 by and
              between iAsiaWorks Korea, Ltd. and Korea Internet Data Center,
              Inc. (Incorporated by reference from Exhibit 2.1 to Registrant's
              current Report on Form 8-K filed with the SEC on October 15,
              2001).

2.3           Asset Sale Agreement dated as of September 19, 2001 by and between
              iAsiaWorks Korea, Ltd. and DACOM Corporation. (Incorporated by
              reference from Exhibit 2.2 to Registrant's current Report on Form
              8-K filed with the SEC on October 15, 2001).

10.33         Separation Agreement, dated October 9, 2001, by and between the
              Registrant and Jonathan Engman.

10.34         Separation Agreement, dated October 12, 2001, by and between the
              registrant and Jonathan Beizer.

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<PAGE>

     10.35   Employment Agreement, dated October 12, 2001 by and between the
             Registrant and Nicholas Pianim.

     10.36   Employment Agreement, dated October 12, 2001, by and between the
             Registrant and Andrew Gidney.

     10.37   Separation Agreement, dated October 14, 2001, by and between the
             Registrant and Dennis Muse.

          b. Reports on Form 8-K

The Company filed one report on Form 8-K during the quarter ended September 30,
2001. Information regarding the item reported on is as follows:

Date                                 Item Reported On

September 7, 2001                    The Company announced Robert Lee's
                                     resignation from its Board of Directors



Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: November 14, 2001


                                     IASIAWORKS, INC.

                                     By: /s/ Nicholas Pianim
                                         ---------------------------------------
                                         Nicholas Pianim
                                         Chief Executive Officer

                                       45