**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

| **ý** |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|------------|--------|-----------------------------------------------------------------------------------------------|
|       |   |                                                                                          |
|       |   | **FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003**                                             |
|       |   |                                                                                          |
| **OR**     |
|       |
| **o**      |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Commission file number: 000-29391**

 

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**VIA NET.WORKS, INC.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                   |   | **431203483800**                      |
|--------------------------------|--------|---------------------------------------|
| (State  or other jurisdiction) |   | (I.R.S.  Employer Identification No.) |

 

**H. Walaardt Sacrestraat 401-403**

**1117 BM Schiphol**

**Amsterdam, The Netherlands**

(Addressof principal executive offices)

 

Registrant’stelephone number, including area code: **+31203 483800**

 

**St GilesHouse 25 Kings Road**

**Reading,RG1 3AR**

**UnitedKingdom**

(Formername or former address, if changed since last report)

 

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Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such report) and (2) hasbeen subject to such filing requirements for the past90 days. Yes ý  No o

 

Indicate by check mark whether the registrant is: an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

 

As of May 6th, 2003, there were outstanding 55,794,900 shares ofthe registrant’s common stock and 5,050,000 shares of the registrant’snon-voting common stock.

 

 

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**VIA NET.WORKS, INC.**

 

**TABLE OF CONTENTS**

 
| PART I FINANCIAL INFORMATION |
|------------------------------|
| Item 1.                      | Financial Statements: |
|                         | Consolidated Balance Sheets  as of December 31, 2002 and March 31, 2003 |
|                         | Consolidated  Statements of Operations for the three months ended March 31, 2002 and 2003 |
|                         | Consolidated  Statements of Cash Flows for the three months ended March 31, 2002 and 2003 |
|                         | Notes to  Consolidated Financial Statements |
| Item  2.                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| Item  3.                     | Quantitative  and Qualitative Disclosures About Market Risk |
| Item 4.                      | Controls and Procedures |
| PART II. OTHER INFORMATION   |
| Item  1.                     | Legal  Proceedings |
| Item  2.                     | Changes  in Securities and Use of Proceeds |
| Item 3.                      | Defaults Upon  Senior Securities |
| Item  4.                     | Submission  of Matters to a Vote of Security Holders |
| Item  5.                     | Other  Information |
| Item 6.                      | Exhibits  and Reports on Form 8-K |
| SIGNATURES                   |
| 302 CERTIFICATIONS           |
| EXHIBIT INDEX                |

 

1

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**PART I**

 

**Item 1.Financial Statements**

 

**VIA NET.WORKS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(In thousands of U.S dollars, except share data)**

 
|                                                                                                                  |   | **December 31, 2002** |    | **March 31, 2003** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|---------|--------------------|--------|
|                                                                                                                  |   |                  |    | **(Unaudited)**    |   |
| **ASSETS**                                                                                                            |   |                  |    |               |   |
| Current assets:                                                                                                       |   |                  |    |               |   |
| Cash and cash equivalents                                                                                             |   | $                     | 97,813  |               | $      | 91,068 |   |
| Restricted cash                                                                                                       |   | 895                   |    | 912                |   |
| Trade and other accounts receivable, net of allowance of $4,529 and  $3,628 respectively                              |   | 13,037                |    | 10,618             |   |
| Other current assets                                                                                                  |   | 3,900                 |    | 5,583              |   |
| Total current assets                                                                                                  |   | 115,645               |    | 108,181            |   |
| Property and equipment, net                                                                                           |   | 13,696                |    | 12,131             |   |
| Goodwill, net                                                                                                         |   | 9,189                 |    | 9,236              |   |
| Other non-current assets                                                                                              |   | 762                   |    | 751                |   |
| Deferred tax asset                                                                                                    |   | 3,387                 |    | 3,387              |   |
| Assets of businesses transferred under contractual arrangements                                                       |   | 3,142                 |    | 2,971              |   |
| Total assets                                                                                                          |   | $                     | 145,821 |               | $      | 136,657 |   |
|                                                                                                                  |   |                  |    |               |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                         |   |                  |    |               |   |
| Current liabilities:                                                                                                  |   |                  |    |               |   |
| Accounts payable                                                                                                      |   | $                     | 7,897   |               | $      | 6,962 |   |
| VAT and other taxes payable                                                                                           |   | 922                   |    | 768                |   |
| Short-term notes, current portion of long-term debt and capital lease  obligations                                    |   | 63                    |    | 31                 |   |
| Deferred revenue                                                                                                      |   | 13,516                |    | 12,367             |   |
| Accrued expenses                                                                                                      |   | 9,922                 |    | 10,303             |   |
| Deferred tax liability                                                                                                |   | 3,387                 |    | 3,387              |   |
| Other current liabilities                                                                                             |   | 2,092                 |    | 2,262              |   |
| Total current liabilities                                                                                             |   | 37,799                |    | 36,080             |   |
| Long-term debt and capital lease obligations, less current portion                                                    |   | 46                    |    | 47                 |   |
| Liabilities of businesses transferred under contractual arrangements                                                  |   | 3,396                 |    | 3,211              |   |
| Total liabilities                                                                                                     |   | 41,241                |    | 39,338             |   |
|                                                                                                                  |   |                  |    |               |   |
| Commitments and contingencies                                                                                         |   |                  |    |               |   |
| Stockholders’ equity:                                                                                            |   |                  |    |               |   |
| Preferred stock, $.001 par value; 10,000,000 shares authorized; no  shares issued and outstanding                     |   | —                |    | —             |   |
| Common stock, $.001 par value; 132,500,000 shares authorized;  60,844,900 shares issued and outstanding; respectively |   | 61                    |    | 61                 |   |
| Additional paid-in capital                                                                                            |   | 555,574               |    | 555,574            |   |
| Treasury stock, 697,196 shares                                                                                        |   | (733                  | )       | (733               | )      |
| Accumulated deficit                                                                                                   |   | (427,574              | )       | (433,049           | )      |
| Accumulated other comprehensive loss                                                                                  |   | (22,463               | )       | (24,264            | )      |
| Accumulated other comprehensive loss of businesses transferred under  contractual arrangement                         |   | (285                  | )       | (270               | )      |
| Total stockholders’ equity                                                                                       |   | 104,580               |    | 97,319             |   |
| Total liabilities and stockholders’ equity                                                                       |   | $                     | 145,821 |               | $      | 136,657 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

2

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**VIA NET.WORKS, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands of U.S. dollars, except share and per sharedata)**

**(Unaudited)**

 
|                                                      |   | **For the three months ended March 31,** |   |
|-----------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                      |   | **2002**                                      |   | **2003** |   |
|                                                      |   |                                          |   |   |   |
| Revenue                                                   |   | 18,285                                        |   | 18,080 |   |
| Operating costs and expenses:                             |   |                                          |   |   |   |
| Internet services                                         |   | 11,157                                        |   | 8,623 |   |
| Selling, general and administrative                       |   | 20,732                                        |   | 14,913 |   |
| Restructuring and impairment charges                      |   | —                                        |   | 867 |   |
| Depreciation and amortization                             |   | 2,822                                         |   | 2,048 |   |
| Total operating costs and expenses                        |   | 34,711                                        |   | 26,451 |   |
| Operating loss from continuing operations                 |   | (16,426                                       | )      | (8,371 | ) |
| Interest income                                           |   | 686                                           |   | 422 |   |
| Interest expense                                          |   | (41                                           | )      | (9 | ) |
| Other expense, net                                        |   | (209                                          | )      | (64 | ) |
| Foreign currency gains (losses), net                      |   | (2,491                                        | )      | 2,547 |   |
| Loss from continuing operations before income taxes       |   | (18,481                                       | )      | (5,475 | ) |
| Income tax                                                |   | —                                        |   | — |   |
| Net loss from continuing operations                       |   | (18,481                                       | )      | (5,475 | ) |
| Discontinued operations:                                  |   |                                          |   |   |   |
| Loss from discontinued operations                         |   | (1,075                                        | )      | — |   |
| Net loss                                                  |   | (19,556                                       | )      | (5,475 | ) |
| Basic and diluted loss per share:                         |   |                                          |   |   |   |
| Continuing operations                                     |   | (0.31                                         | )      | (0.09 | ) |
| Discontinued operations                                   |   | (0.02                                         | )      | — |   |
| Net loss per share—basic and diluted                 |   | (0.33                                         | )      | (0.09 | ) |
|                                                      |   |                                          |   |   |   |
| Shares used in computing basic and diluted loss per share |   | 60,147,704                                    |   | 60,147,704 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

3

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**VIA NET.WORKS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(in thousands of U.S. dollars)**

**(Unaudited)**

 
|                                                                                                    |   | **For the three months ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                    |   | **2002**                                  |   | **2003** |   |
| Cash flows from operating activities:                                                                   |   |                                      |   |   |   |
| Net loss from continuing operations                                                                     |   | (18,481                                   | )      | (5,475 | ) |
| Adjustments to reconcile net loss from continuing operations to net  cash used in operating activities: |   |                                      |   |   |   |
| Depreciation and amortization                                                                           |   | 2,822                                     |   | 2,048 |   |
| Impairment of fixed assets                                                                              |   | —                                    |   | 134 |   |
| Employee stock compensation                                                                             |   | 527                                       |   | — |   |
| Provision (benefit) for doubtful accounts receivable                                                    |   | (838                                      | )      | 234 |   |
| Unrealized foreign currency transaction (gains) losses                                                  |   | 2,052                                     |   | (1,769 | ) |
| Non-cash other expense                                                                                  |   | 358                                       |   | — |   |
| Changes in assets and liabilities, net of acquisitions:                                                 |   |                                      |   |   |   |
| Trade accounts receivable                                                                               |   | 735                                       |   | 2,321 |   |
| Other current assets                                                                                    |   | (1,018                                    | )      | (1,768 | ) |
| Other non-current assets                                                                                |   | (62                                       | )      | — |   |
| Accounts payable                                                                                        |   | 4,291                                     |   | (1,065 | ) |
| VAT and other taxes payable                                                                             |   | (779                                      | )      | (150 | ) |
| Accrued expenses                                                                                        |   | (2,674                                    | )      | 349 |   |
| Other current liabilities                                                                               |   | (90                                       | )      | 106 |   |
| Deferred revenue                                                                                        |   | 596                                       |   | (1,122 | ) |
| Net cash used in operating activities                                                                   |   | (12,561                                   | )      | (6,157 | ) |
| Cash flows from investing activities:                                                                   |   |                                      |   |   |   |
| Increase in restricted cash                                                                             |   | —                                    |   | (17 | ) |
| Purchases of property, equipment and other assets                                                       |   | (1,003                                    | )      | (552 | ) |
| Note receivable from related party                                                                      |   | (1,000                                    | )      | — |   |
| Net cash used in investing activities                                                                   |   | (2,003                                    | )      | (569 | ) |
| Cash flows from financing activities:                                                                   |   |                                      |   |   |   |
| Repayment of debt and principal payments on capital lease obligations                                   |   | (440                                      | )      | (30 | ) |
| Net cash used in financing activities                                                                   |   | (440                                      | )      | (30 | ) |
| Cash flows used by discontinued operations                                                              |   | (454                                      | )      | — |   |
| Effect of currency exchange rate changes on cash                                                        |   | (558                                      | )      | 11 |   |
| Net decrease in cash and cash equivalents                                                               |   | (16,016                                   | )      | (6,745 | ) |
| Cash and cash equivalents, beginning of period                                                          |   | 137,854                                   |   | 97,813 |   |
| Cash and cash equivalents, end of period                                                                |   | 121,838                                   |   | 91,068 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

4

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**VIA NET.WORKS, INC.**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**(Unaudited)**

 

**1.             Basis of Presentation and RecentPronouncements**

 

These consolidated financial statements as of March 31, 2003 and for thethree month periods ended March 31, 2002 and 2003 and the related footnoteinformation are unaudited and have been prepared on a basis substantiallyconsistent with the audited consolidated financial statements of VIANET.WORKS, Inc. (“VIA” or “the Company”) as of and for the year endedDecember 31, 2002, included in VIA’s Annual Report on Form 10-K asfiled with the Securities and Exchange Commission (“2002 Annual Report”). Thesefinancial statements should be read in conjunction with the audited consolidatedfinancial statements and the related notes to the financial statements includedin the 2002 Annual Report. In the opinion of management, the accompanyingunaudited consolidated financial statements contain all adjustments (consistingof normal recurring adjustments) which management considers necessary topresent fairly the consolidated financial position of VIA at March 31, 2003 andthe results of its operations and its cash flows for the three month periodsended March 31, 2002 and 2003. The results of operations for the three-monthperiod ended March 31, 2003 may not be indicative of the results expected forany succeeding quarter or for the year ending December 31, 2003. Certainprior period amounts have been reclassified to conform to the current period presentation.

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires VIA to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenue and expenses,together with amounts disclosed in the related notes to the consolidatedfinancial statements. Actual results could differ from the recorded estimates.

 

In January 2003, the FASB issued FIN 46,*“Consolidation of Variable Interest Entities—an interpretation of ARBNo. 51”.* FIN 46 clarifies the application of AccountingResearch Bulletin No. 51, *“ConsolidatedFinancial Statements”,* to certain entities in which equity investorsdo not have the characteristics of a controlling financial interest or do nothave sufficient equity at risk for the entity to finance its activities withoutadditional subordinated financial support from other parties. FIN 46 explainshow to identify variable interests entities and how an enterprise assesses itsinterests in a variable interest entity to decide whether to consolidate thatentity. It requires existing unconsolidated variable interest entities to beconsolidated by their primary beneficiaries if the entities do not effectivelydisperse risks among parties involved. It also requires certain disclosures bythe primary beneficiary of a variable interest entity and by an enterprise thatholds significant variable interests in a variable interest entity where theenterprise is not the primary beneficiary. FIN 46 is effective immediately tovariable interest entities created after January 31, 2003 and to variableinterest entities in which an enterprise obtains an interest after that date,and effective for the first fiscal year or interim period beginning afterJune 15, 2003 to variable interest entities in which an enterprise holds avariable interest that it acquired before February 1, 2003. The Companydoes not currently believe that there are any additional entities that willneed to be consolidated following its adoption of FIN 46.

 

In April 2003 the Financial Accounting Standards Board (FASB) issuedStatement No. 149 (SFAS No. 149), *Amendmentof SFAS No. 133 on Derivative Instruments and Hedging Activities.*The Statement amends and clarifies accounting for derivative instruments,including certain derivative instruments embedded in other contracts, and forhedging activities under SFAS No. 133. In particular, it clarifies under whatcircumstances a contract with an initial net investment meets thecharacteristic of a derivative as discussed in SFAS No. 133. In addition, itclarifies when a derivative contains a financing component that warrantsspecial reporting in the statement of cash flows. SFAS No. 149 also amendscertain other existing pronouncements. SFAS No. 149 is effective for contractsentered into or modified after June 30, 2003, except as stated below and forhedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 that relate to SFAS No. 133Implementation Issues that have been effective for fiscal quarters that beganprior to June 15, 2003, should continue to be applied in accordance with theirrespective effective dates. In addition, certain provisions relating to forwardpurchases or sales of when-issued securities or other securities that do notyet exist, should be applied to existing contracts as well as new contractsentered into after June 30, 2003. SFAS No. 149 should be appliedprospectively. The Company will adopt the provisions of SFAS No. 149 on July 1,2003. However, it does not expect that the adoption of this Statement will havea material impact on its results of operations and financial position.

 

**2.             Discontinued Operations**

 

As part of itsturnaround plan and its focus on substantially reducing its negative cash flow,VIA determined to cease funding certain country operations deemed to notmaterially contribute to its financial strength in the long term. Consistentwith this conclusion, VIA completed the sale of its operations in Argentina,Austria and Ireland during 2002. The operation in Argentina, which had beenincluded in the Americas region for segment reporting, was sold onJune 11, 2002 to an unrelated third party purchaser. The Austrianoperation, which had been included in the European region for segmentreporting, was sold to the then-current management team on May 29, 2002.The Irish operation, which had been included in the European region for segmentreporting, was sold on August 12, 2002 to

 

5

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a former shareholder and managing director of the Irish operation.

 

Effective January 1, 2002, VIA adopted Statement of FinancialAccounting Standard (“SFAS”) No. 144, *“Accountingfor the Impairment or Disposal of Long-Lived Assets.”* As each of theArgentine, Austrian and Irish operations disposed of during 2002 represent acomponent of an entity as defined by SFAS 144, we have classified eachoperation as a discontinued operation for the period ended March 31, 2002.Revenues related to the discontinued operations were approximately $1.0 millionand $0 million for the three months ended March 31, 2002 and 2003,respectively. The pre-tax loss, excluding accounting for the sale transaction,related to discontinued operations was approximately $1.1 million and$0 million for the three months ended March 31, 2002 and 2003,respectively.

 

**3.             Businesses Transferred UnderContractual Arrangements**

 

In May 2002, VIA closed a transaction for the sale of its Brazilianoperation to the then-current management team, which included Antonio Tavares,a former executive officer of VIA. Under this transaction, VIA sold 100% of theoutstanding capital stock of VIA NET.WORKS Brasil S.A. (“VIA Brasil”) for $428,of which $30 was paid in cash at closing and the balance by delivery of apromissory note payable over 18 months. The note is secured by a pledge of93% of the outstanding shares in VIA Brasil, subject to reduction on a pro-ratabasis for payments made under the note. The collateralization of theoutstanding shares enables VIA to reacquire, at its option, a controllinginterest in VIA Brasil if the purchasers default on the obligations under thepromissory note.

 

VIA expects the funds for payment of the note to come from theindividual buyers. Because VIA does not have reasonable assurances that thenote will be paid in full, the Company fully reserved against the notereceivable at June 30, 2002. Furthermore, management does not consider theshares held as collateral to have significant value. As of March 31, 2003 thepurchasers were in default on their payment obligations under the note. VIA hasdeclared the note in default and is seeking immediate payment of the entirebalance, including accrued and unpaid interest. No amounts have been reflectedin either period for accrued interest.

 

Consistent with the accounting treatment prescribed under StaffAccounting Bulletin (SAB) Topic 5E, VIA will neither treat the Brazilianoperation as a discontinued operation nor consolidate any future results ofthis Brazilian operation. However, once the sale qualifies as an accountingdisposition under SAB Topic 5E, VIA will recognize a $2.6 million lossrelated to the accumulated translation adjustment in the statement ofoperations. The total assets and liabilities related to the Brazilian operationare shown on the consolidated balance sheet under the captions assets andliabilities of businesses transferred under contractual arrangement. Theresults of VIA Brasil are included within the results from continuingoperations for the period ended March 31, 2002. Likewise, the cash flows forVIA Brasil for this period are included in VIA’s consolidated cash flows fromcontinuing operations.

 

In September 2002, VIA closed a transaction for the sale of 100% ofthe outstanding capital stock of its subsidiary, VIA NET.WORKS México S.A. deC.V. (“VIA Mexico”) to a group of buyers led by the then-current management ofVIA Mexico. This operation was sold for nominal consideration. As a part of thesale transaction, the parties also entered into a convertible credit agreementunder which VIA agreed to loan VIA Mexico a sum of $2.2 million throughthree cash draws to be made on or about the closing date of September 4,2002, September 30, 2002 and October 30, 2002. These three draws weremade according to the time schedule. Under the convertible credit agreement,all outstanding loan amounts together with accrued interest become due andpayable on September 4, 2004. This convertible credit agreement providesthat upon a change of control of VIA Mexico (which is defined to include a changeof greater than 33% of the current equity holding of the company), VIA mayelect to convert the outstanding loan amounts into a 19% equity interest of VIAMexico or accept a cash payment of $600 as payment in full. If VIA acceptsconversion of the loan amounts into equity, VIA will be protected from equitydilution, but only with respect to any initial capital increase that causes achange of control event.

 

VIA expects the funds for repayment of the loan to come exclusively fromfuture operations of VIA Mexico. Management believes that VIA Mexico’s historyof past operating losses combined with the difficult economic conditions in thetelecommunications industry in the region makes recovery of the loan uncertain.Accordingly, VIA fully provided against the whole amounts under the loan in itsresults of operations during the third quarter of 2002.

 

Consistent with the accounting treatment prescribed under StaffAccounting Bulletin (SAB) Topic 5E, VIA will neither treat the Mexicanoperation as a discontinued operation nor consolidate any future results ofthis Mexican operation. However, once the sale qualifies as an accountingdisposition under SAB Topic 5E, VIA will recognize a $2.3 million gainrelated to the accumulated translation adjustment in the statement ofoperations. The total assets and liabilities related to the Mexican operationare shown on the consolidated balance sheet under the captions assets andliabilities of businesses transferred under contractual arrangement. Theresults of VIA Mexico are included within the results from continuingoperations for the period ended March 31, 2002. Likewise, the cash flows forVIA Mexico for this period are included in VIA’s consolidated cash flows fromcontinuing operations.

 

**4.             Restructuring and Impairment Charges**

 

During the firstquarter of 2003, the Company recorded restructuring charges of $733 and fixedasset impairment charges of

 

6

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$134.  The restructuring chargerelated to severance payments at four of its operations and an adjustment tothe future lease obligations for the closure of the Reston, Virginiaoffice.  There were no restructuringcharges in the first quarter 2002. Changes in the restructuring provision in the three months ended March31, 2003 were as follows (in thousands of U.S. dollars):

 
|                            |   | **Future operating  lease obligations** |   | **Employee  termination  payments** |   | **Other** |   | **Total** |   |
|---------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|-----------|--------|-----------|--------|
| Balance as of December 31, 2002 |   | 526                                     |   | 607                                 |   | 133       |   | 1,266     |   |
| Costs incurred                  |   | 57                                      |   | 676                                 |   | —    |   | 733       |   |
| Amounts paid                    |   | (107                                    | )      | (736                                | )      | (38       | )      | (881      | )      |
| Balance as of March 31, 2003    |   | 476                                     |   | 547                                 |   | 95        |   | 1,118     |   |

 

The futureoperating lease obligations figure is comprised of $440 related to the Restonoffice and $36 related to the Italian office. The accruals have been drawn downby the monthly payments on the office leases for the remainder of the terms,which continue through February 2005 and March 2005 respectively and relatedlegal fees less anticipated income from a sublease of the space. The costsincurred have been adjusted for the current value of the sublease opportunity.The Company has received an offer to sublease the Reston office space andexpects to have subleased the office by the end of the second quarter 2003.

 

The employeetermination costs incurred in the quarter of $676 relate to the severance andbenefits for employees at four European operations and these specificterminations will be completed by July 31, 2003.  Cash payments of $736 were made in the quarter ($438 by Europeanoperations and $298 by Corporate).

 

The other expenseof $95 is comprised of fees to cancel consulting contracts andtelecommunications contracts at the Italian operation that will not have anyfuture benefit to VIA.

 

As a result of theclosure of the Reston office the Company recorded an impairment charge of $134in the period for fixed asset fixtures and fittings that were written down tonet realisable value.

 

Management has noother commitments that would affect the carrying value of VIA’s assets orliabilities. However, certain of the actions VIA might take as part of itsstrategic plan may lead to additional impairment or restructuring charges infuture periods and such amounts may be material.

 

**5.             Income Tax**

 

The provision fortaxes based on income for the 2003 and 2002 interim periods was computed inaccordance with Interpretation No 18 of Accounting Principles Board OpinionNo.28 on reporting taxes for interim periods and was based on managementsexpectations of tax expense for the year being $0.

 

**6.             Comprehensive Loss**

 

Comprehensive loss for the three months ended March 31, 2002 and2003 was as follows (in thousands of U.S. dollars):

 
|                                                   |   | **Three months ended  March 31,** |   |
|--------------------------------------------------------|--------|----------------------------------------|--------|
|                                                   |   | **2002**                               |   | **2003** |   |
| Net loss                                               |   | (19,556                                | )      | (5,475 | ) |
| Foreign currency translation adjustment gains (losses) |   | 1,988                                  |   | (1,786 | ) |
| Comprehensive loss                                     |   | (17,568                                | )      | (7,261 | ) |

 

7

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**7.             Property and Equipment**

 

Property and equipment consisted of the following (in thousands of U.S.dollars):

 
|                           |   | **December 31, 2002** |   | **March 31, 2003** |   |
|--------------------------------|--------|-----------------------|--------|--------------------|--------|
| Hardware and other equipment   |   | $                     | 17,266 |               | $      | 17,366 |   |
| Network and data center assets |   | 13,810                |   | 14,106             |   |
| Software                       |   | 11,843                |   | 11,747             |   |
| Furniture and fixtures         |   | 2,041                 |   | 1,907              |   |
|                           |   | 44,960                |   | 45,126             |   |
| Accumulated depreciation       |   | (31,264               | )      | (32,995            | )      |
| Property and equipment, net    |   | $                     | 13,696 |               | $      | 12,131 |   |

 

Depreciation expense was $2.6 million and $2.0 million for thethree months ended March 31, 2002 and 2003, respectively.

 

**8.             Goodwill and Acquired IntangibleAssets**

 

The changes in the carrying amount of goodwill during the three monthsended March 31, 2003 are as follows (in thousands of U.S. dollars):

 
|                            |   | **Total** |   | **Europe** |   | **Americas** |   |
|---------------------------------|--------|-----------|--------|------------|--------|--------------|--------|
| Balance as of December 31, 2002 |   | $         | 9,189  |       | $      | 7,027        |   | $ | 2,162 |   |
| Foreign exchange adjustment     |   | 47        |   | 47         |   | —       |   |
| Balance as of March 31, 2003    |   | $         | 9,236  |       | $      | 7,074        |   | $ | 2,162 |   |

 

The Company’s acquired intangible assets of $2,582, consisting ofacquired customer lists, were fully amortized at December 31, 2002 and March31, 2003.

 

The acquiredintangible asset amortization expense for the three month periods ended March31, 2002 and 2003 was $242 and $0, respectively.

 

**9.             Stock-BasedCompensation**

 

SFAS No. 123, *“Accounting forStock-Based Compensation,”* encourages, but does not requirecompanies to record compensation cost for stock-based employeecompensation plans at fair value. The Company has chosen to account forstock-based compensation using the intrinsic value method prescribed inAccounting Principles Board Opinion (“APB”) No. 25, *“Accounting for Stock Issued to Employees,”*and related Interpretations. Accordingly, compensation cost for stock optionsis measured as the excess, if any, of the estimated fair value of the Company’sstock at the date of the grant over the amount an employee must pay to acquirethe stock. During 2000, prior to the initial public offering, the Companydetermined that the fair value of the underlying common stock exceeded theexercise price of certain stock option grants by $588. Such amounts, net offorfeitures, were being amortized over the vesting period. During the threemonths ended March 31, 2002, VIA recorded stock option forfeitures of$1.8 million, which reduced the deferred compensation balance to zero withthe corresponding adjustment to additional paid-in capital. The Companyrecognized an expense of $527 in the three months ended March 31, 2002.

 

The Company has adopted the “disclosure only” alternative described inSFAS No. 123, which requires pro forma disclosures of net income andearnings per share as if the fair value method of accounting has been applied.

 

The followingtable illustrates the effect on net income and earnings per share as if theCompany had applied the fair value recognition provisions of SFAS No. 123to stock-based employee compensation.

 

8

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|                                                                                                                          |   | **For the three months ended  March 31,** |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|
|                                                                                                                          |   | **2002**                                  |    | **2003** |   |
|                                                                                                                          |   |                                      |    |   |   |
| Net loss (as reported)                                                                                                        |   | $                                         | (19,556 | ) | $ | (5,475 | ) |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method, net of related tax effects |   | (2,382                                    | )       | (1,184 | ) |
| Add back: Total stock-based employee compensation expense determined  under APB 25                                            |   | 527                                       |    | — |   |
| Proforma net loss                                                                                                             |   | $                                         | (21,411 | ) | $ | (6,659 | ) |
|                                                                                                                          |   |                                      |    |   |   |
| Net loss per share, basic and diluted (as reported)                                                                           |   | $                                         | (0.33   | ) | $ | (0.09 | ) |
| Net loss per share, basic and diluted (proforma)                                                                              |   | $                                         | (0.36   | ) | $ | (0.11 | ) |

 

**10.          Contingencies**

 

OnNovember 5, 2001 a class action lawsuit was filed in the District Courtfor the Southern District of New York against VIA NET.WORKS, Inc., certainof the underwriters who supported its initial public offering (“IPO”) andcertain of its officers, under the title O’Leary v. Via Net.works [sic], et al[01-CV-9720] (the “Complaint”). An amended complaint was filed inApril 2002. The Complaint alleges that the prospectus the Company filedwith its registration statement in connection with its IPO was materially falseand misleading because it failed to disclose, among other things, that:(i) the named underwriters had solicited and received excessive andundisclosed commissions from certain investors in exchange for the right topurchase large blocks of VIA IPO shares; and (ii) the named Underwritershad entered into agreements with certain of their customers to allocate VIA IPOshares in exchange for which the customers agreed to purchase additional VIAshares in the aftermarket at pre-determined prices (“Tie-in Arrangements”),thereby artificially inflating the Company’s stock price. The Complaint furtheralleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of1933 and Section 10(b) of the Securities Exchange Act of 1934 andRule 10b-5 promulgated thereunder arising out of the alleged failure todisclose and the alleged materially misleading disclosures made with respect tothe commissions and the Tie-in Arrangements in the prospectus. The plaintiffsin this action seek monetary damages in an unspecified amount. This Complaintis one of over 300 similar suits filed to date against underwriters, issuersand their officers alleging similar activities, known as “laddering,” all ofwhich are included in a single coordinated proceeding in the Southern Districtof New York, or the IPO Litigation.

 

On July 1,2002, the underwriter defendants in the consolidated actions moved to dismissall of the IPO Litigations, including the action involving the Company. OnJuly 15, 2002 the Company, along with other non-underwriter defendants inthe coordinated cases also moved to dismiss the litigation. OnFebruary 19, 2003, the court ruled on the motions. The Court granted theCompany’s motion to dismiss the claims against it under Rule 10b-5 forlack of the required specificity, yet granted plaintiffs leave to replead theirRule 10b-5 claims. Plaintiffs have informed our counsel of their intent toreplead these claims against the Company. The motions to dismiss the claimsunder Section 11 of the Securities Act were denied as to virtually all ofthe defendants in the consolidated cases, including the Company. The individualdefendants in the IPO Litigation signed a tolling agreement and were dismissedfrom the action without prejudice on October 9, 2002. The Companycontinues to believe the court will find no wrongdoing on the part of VIA orits former officers. The Company will continue to vigorously defend againstthese allegations.

 

The Company is subject to claims and legal proceedings that arise in theordinary course of its business operations. Each of these matters is subject tovarious uncertainties, and it is possible that some of these matters may bedecided unfavorably to the Company. The Company does not believe that any ofthese matters will have a material adverse affect on its business, assets oroperations.

 

**11.          Segment Reporting**

 

VIA offers avariety of Internet access, managed bandwidth, web hosting, ecommerce, Internetsecurity and related services to businesses and consumers in Europe and theAmericas. As of March 31, 2003, VIA served primary markets in ninecountries. These country operations generate Internet-related revenues fromleased lines, dial-up Internet access, web hosting and design, Internet securityand consulting services, and sale of third-party hardware and software.

 

The Company evaluates the performance of its operating segments based onrevenue and net income/loss from continuing operations. The Company previouslyused adjusted EBITDA amongst other measures to measure the performance of itsoperating segments; however there has been a shift of emphasis to relying moreon operating loss from continuing operations since this is a recognized US GAAPmeasure and is net of depreciation and amortisation charges and thereforereflects our cost of maintaining the fixed asset base.   In the table below Corporate, which alsoincludes the cost of the regional backbone network, is shown to reconcile tothe total consolidated figures. Total segment assets, as presented in the tablebelow, are total assets net of intercompany funding amounts. Because

 

9

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of the limitations the Company has experienced with its legacy billingplatforms and its ongoing projects to address these limitations, the Company isnot currently able to provide an accurate breakdown of revenue by product. TheCompany anticipates that when it has completed its various systems and processremediation efforts, it will again report revenue by certain productcategories.

 

The table below presents information about the reported revenue, netloss from continuing operations and assets from continuing operations of theCompany’s segments for three-month periods ended March 31, 2002 and 2003(in thousands of U.S. dollars).

 
|                                      |   | **Europe** |   | **Americas** |   | **Corporate** |   | **Total** |   |
|-------------------------------------------|--------|------------|--------|--------------|--------|---------------|--------|-----------|--------|
| Total assets as of March 31, 2002         |   | 46,274     |   | 6,691        |   | 126,238       |   | 179,203   |   |
| Total assets as of March 31, 2003         |   | 35,775     |   | 6,096        |   | 94,786        |   | 136,657   |   |
| Three months ended March 31, 2002:        |   |       |   |         |   |          |   |      |   |
| Revenue                                   |   | 13,736     |   | 4,549        |   | —        |   | 18,285    |   |
| Operating loss from continuing operations |   | 7,428      |   | 1,963        |   | 7,035         |   | 16,426    |   |
| Three months ended March 31, 2003:        |   |       |   |         |   |          |   |      |   |
| Revenue                                   |   | 17,113     |   | 967          |   | —        |   | 18,080    |   |
| Operating loss from continuing operations |   | 2,117      |   | 155          |   | 6,099         |   | 8,371     |   |

 

At March 31, 2003, goodwill for Europe and the Americas was$7,074 and $2,162, respectively. During the second quarter of 2002, VIAsold its operations in Argentina, Austria and Brazil. During the third quarterof 2002, VIA sold its operations in Ireland and Mexico. Our operations inArgentina, Austria and Ireland are considered discontinued operations. TheArgentine operation was previously reported in the Americas region and theAustrian and Irish operations were previously reported in the Europe region.See Notes 2 and 3.

 

**Item. 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

The following discussion and analysis should be read in conjunction withthe consolidated financial statements and related notes included in Item 1 ofthis Form 10-Q. This discussion and the discussion in Item 1, Note 1,contain forward-looking statements, or statements that relate to future eventsor our future performance. These statements include but are not limited to thoserelating to the Company’s strategic plan, projections regarding financialimpacts from planned organizational re-alignment, outsourcing projects, newproduct roll-out and cost reductions in general. These statements are onlypredictions or planned actions that are subject to a number of risks,uncertainties and other factors. Actual events or results may differmaterially. Information regarding the risks, uncertainties and other factorsthat could cause actual results to differ from the results in theseforward-looking statements are discussed in the “Risk Factors” described inExhibit 99.1 on this Form 10-Q, as well as those described in the“Risk Factors” section of VIA’s 2002 Annual Report. You are urged to carefullyconsider these factors, as well as other information contained in thisForm 10-Q and in our other periodic reports and documents filed with theSecurities and Exchange Commission.

 

***Overview***

 

VIA is a single source provider of managed Internet services to smalland medium sized businesses. VIA is headquartered in Europe and has operationsin France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland, theUnited Kingdom and the United States. We are currently implementing a strategicplan that aims to take VIA to a position of profitability and to further berecognized by our customers and the market as an expert provider of businesscommunications solutions.

 

From 1997 throughour initial public offering in February 2000, we focused on raisingcapital to fund our acquisition strategy. We raised approximately$540 million in equity capital, in the aggregate, which enabled us toacquire 26 separate Internet service providers in 14 countries by the end of2000. Following our initial public offering, while we continued to build-outour targeted geographic footprint through acquisitions, we also sought toestablish a strong regional management structure and sophisticated back-officesystems. From 2000 to the end of 2001 our financial results and operatingperformance were severely impacted by the economic downturn in the globaleconomy as well as a number of internal challenges, including poor execution ofthe in-country integration of our acquired operations, several restatements ofour financial results and an unacceptable level of negative cash flow caused bycontinuing operating losses and capital expenditures for systems build-outprojects. All of these factors led to the resignation of several of our seniorexecutives in early 2002. In January 2002, our board of directors appointedan experienced turnaround executive to drive a reduction in cash used, improveinternal controls and return the Company to a path towards profitability.

 

The turnaround plan that was adopted by VIA led to the sale of ouroperations in Argentina, Austria, Brazil, Ireland and Mexico, the closure ofour office in Belgium, the suspension of our multi-vendor integratedprovisioning, billing and customer care platforms, tightened controls onexpenditures and an overall reduction of headcount from 973 at December 31,2001 to 546 by March 31, 2003. These and other actions led to improvements inour cash flow and our net loss.  Forfurther details please see the discussion in the section entitled Overview inour 2002 Annual Report under Part I, Item I Business.

 

10

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In November 2002, we appointed a new Chief Executive Officer, RhettWilliams, who together with a new executive team has developed and isimplementing a Strategic Plan to lead the next phase of VIA’s turnaround andintensify the focus on improving our operational performance and achievingprofitable revenue growth.

 

Under this plan, VIA is transforming its operations from nine largelyindependent local organizations to a single internationally oriented, sales-focusedand functionally-based organization. As part of this transformation, VIA willoutsource systems and processes associated with certain network management, IT,finance and administrative functions. These projects are intended to enablefurther cost cutting through headcount reductions, improve information flowsfrom, and processes and internal controls in our operations.

 

As an intrinsic further component of our Strategic Plan, we are seekingto improve the quality of our sales force by recruiting new salesprofessionals, establishing robust sales management processes and introducinghighly leveraged compensation plans. We will improve sales productivity bymanaging low-value customers through telesales or indirect channels. We havealso begun a comprehensive rationalization of our product portfolio and plan onintroducing new products designed specifically for larger SMEs in clearlyidentified vertical industry segments. This plan and our ability to execute onthis plan is subject to certain risks and dependencies, as well as other risksthat pertain generally to our business are described above under “Risk Factors”included on this Form 10-Q as Exhibit 99.1, as well as thosedescribed in the “Risk Factors” section of VIA’s 2002 Annual Report.

 

***OurStrategy***

 

VIA is implementing its Strategic Plan for 2003-2005. The goal of thisStrategic Plan is to build a sustainably profitable business through focusingon improving our operational performance and growing our revenues profitably.Under this Plan we expect our net cashflow (defined as change in cash and cashequivalents) to reach the break-even point during the course of 2004.

 

We have already taken several initiatives in connection with theStrategic Plan. These include:

 

•                                          Appointing an experienced and professionalmanagement team who, together with our country managers and functional experts,have developed the Strategic Plan and are actively implementing it.

 

•                                          Reorganizing our operations along functional lineswith a view towards optimizing the talent and best practices we have acrossVIA, realizing synergies, improving our operational efficiency and establishinga common focus and culture; and

 

•                                          Negotiatingfor the outsourcing of systems and processes related to certain networkmanagement, finance and administration and back-office functions in order tosave costs and improve the flow of information.

 

These initiatives noted above have already enabled VIA to reducesubstantially its headcount from 584 in December 2002 to 546 at March 31,2003.  We anticipate that theseinitiatives will enable us to make further reductions over the course of 2003,at the end of which we will have reduced our headcount to less than 400.  These reductions are expected to generate meaningfulannualized savings even after taking into consideration the additional expensesto be incurred from the outsourcing of certain functions.  The restructuring charge related to theseheadcount reductions will impact our financial results over the remainder of2003 and the first quarter of 2004.

 

We have also made progress in growing our revenues profitably throughadditional aggressive actions:

 

•        Wehave recruited new sales professionals in our key markets;

 

•        Wehave implemented a web-based sales management tool;

 

•        Wehave introduced a company wide compensation and benefits plan;

 

•        Wehave rolled out new training and development programs;

 

•        Weintroduced a customer retention program, supported by our new compensationplan;

 

•        Werecruited partners to shift commoditised product sales to indirect channels;and

 

•      We introduced a resale voice product in the United Kingdom with plans toexpand the offering to our other key markets.

 

Our operations andgrowth initiatives are described in more detail in the sections that followbelow. We recognize that our ability to execute successfully on our StrategicPlan to improve operational performance and generate meaningful and profitablerevenue growth is subject to a number of risks and dependencies, which are notinsignificant. These risks and dependencies are discussed in the “Risk Factors”described in Exhibit 99.1 on this Form 10-Q, as well as thosedescribed in the “Risk Factors” section of VIA’s 2002 Annual Report.

 

11

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***OurOperations***

 

During 2002, we sold our operations in Argentina, Austria, Brazil,Ireland and Mexico. The operations in Argentina, Austria and Ireland areaccounted for as discontinued operations and have been excluded from therevenues from continuing operations. Due to the structure of the salesagreements for Brazil and Mexico, these operations have not met therequirements to be accounted for as a discontinued operation. Therefore, theresults of operations for Brazil and Mexico are included in the continuingoperations of VIA. (See Note 3 to the Consolidated Financial Statements.) Thefollowing table summarizes our continuing operations in Europe and the Americasby country and revenue contribution from continuing operations. As ofMarch 31, 2003 we owned 100% of all our operations.

 

**VIA Operations**

 
| **Country**     |   | **Percentages of  Total Revenue from  continuing operations for  the three months ended  March 31, 2002** |   | **Percentages of  Total Revenue from  continuing operations for  the three months ended  March 31, 2003** |   |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|
|            |   |                                                                                                           |   |                                                                                                           |   |
| United Kingdom  |   | 29                                                                                                             | %      | 35                                                                                                             | %      |
| Switzerland     |   | 5                                                                                                              | %      | 13                                                                                                             | %      |
| Germany         |   | 13                                                                                                             | %      | 12                                                                                                             | %      |
| The Netherlands |   | 7                                                                                                              | %      | 12                                                                                                             | %      |
| France          |   | 12                                                                                                             | %      | 11                                                                                                             | %      |
| Portugal        |   | 5                                                                                                              | %      | 7                                                                                                              | %      |
| United States   |   | 5                                                                                                              | %      | 5                                                                                                              | %      |
| Spain           |   | 2                                                                                                              | %      | 3                                                                                                              | %      |
| Italy           |   | 2                                                                                                              | %      | 2                                                                                                              | %      |
| Brazil          |   | 4                                                                                                              | %      | 0                                                                                                              | %      |
| Mexico          |   | 16                                                                                                             | %      | 0                                                                                                              | %      |

 

**RESULTS OFOPERATIONS**

 

VIA sold its operations in Brazil and Mexico during the second and thirdquarters of 2002 respectively. These dispositions were structured in such a waythat they were not accounted for as discontinued operations and therefore theirpartial year results continue to be reported in our consolidated results ofoperations for 2002.

 

As VIA will not consolidate any future results from the Brazilian andMexican operations, management believes it is more meaningful to analyze trendson the results after excluding the results of Brazil and Mexico as detailed inthe table below. All references in the subsequent discussion that refer to“adjusted continuing operations” exclude the results of the Brazilian andMexican operations.

 
| **Three months ended March 31** |   | **Total Continuing  Operations** |   | **Brazil Results of  Operations** |   | **Mexico Results of  Operations** |   | **Adjusted Continuing  Operations** |   |
|---------------------------------|--------|----------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|-------------------------------------|--------|
|                            |   |                             |   |                              |   |                              |   |                                |   |
| 2002 Revenue                    |   | 18,285                           |   | 816                               |   | 2,849                             |   | 14,620                              |   |
| 2003 Revenue                    |   | 18,080                           |   | —                            |   | —                            |   | 18,080                              |   |
| 2002 Internet services          |   | 11,157                           |   | 333                               |   | 2,116                             |   | 8,708                               |   |
| 2003 Internet services          |   | 8,623                            |   | —                            |   | —                            |   | 8,623                               |   |
| 2002 SG & A costs           |   | 20,732                           |   | 610                               |   | 2,199                             |   | 17,923                              |   |
| 2003 SG & A costs           |   | 14,913                           |   | —                            |   | —                            |   | 14,913                              |   |

 

12

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***Threemonths ended March 31, 2003 compared with the three months ended March 31,2002***

 

*Revenue:*

 
|    |   | **Three months ended**             |   |                |   |
|---------|--------|------------------------------------|--------|---------------------|--------|
|    |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|    |   | **(in thousands of U.S. dollars)** |   |                |   |
| Revenue |   | 18,285                             |   | 18,080              |   | (1 | )% |

 

We derive our revenue from the sale of Internet goods and services,specifically Internet access and other Internet value added services, such asmanaged bandwidth, web and applications hosting.

 

For revenue transactions we apply the provisions of SAB No. 101 *“Revenue Recognition.”.* We recognize revenue from the sale ofInternet goods and services when persuasive evidence of an arrangement exists,delivery has occurred or services have been rendered, the fee is fixed ordeterminable and collection of the resulting receivable is reasonably assured.We assess collectibility based on a number of factors, including pasttransaction history with the customer and the credit-worthiness of thecustomer. We generally do not perform credit checks on potential customersbefore providing services. If we determine that collection of a fee is notreasonably assured, the revenue is generally recognized upon the receipt ofcash, provided other revenue recognition criteria have been satisfied.

 

Our practices regarding the evidence of an arrangement vary from countryto country. Generally, for sales, other than those completed over the Internet,we use either a purchase order or a customer agreement as evidence of anarrangement. For sales over the Internet, we generally use a credit cardauthorization as evidence of an arrangement.

 

All of our access revenue is recognized as it is earned over the periodthe services are provided. Revenues from the sale of value added Internetservices are also recognized over the period in which the services areprovided. Revenue from hardware and third-party software sales is recognizedupon delivery or installation of the products, depending on the terms of thearrangement, provided other revenue recognition criteria have been satisfied.

 

Revenue for the three months ended March 31, 2003 was $18.1 millionas compared to $18.3 million for total continuing operations for the threemonths ended March 31, 2002, which includes the results of our Brazilian andMexican operations, and $14.6 million for adjusted continuing operations in thesame period, which excludes the results of our Brazilian and Mexicanoperations.  Revenue at our Switzerlandoperation during the first quarter of 2003 showed a significant increase overrevenues at this operation during the first quarter of 2002 as a result of thepurchase of a customer list. Revenue at our Netherlands, UK and Portugueseoperations also increased when compared to revenue generated in the firstquarter of 2002 primarily due to increased volumes. In our other operationsrevenue levels were consistent with those of the first quarter of 2002.

 

In prior reporting periods, we have provided information on categoriesof revenues that we generate. Because of the systemic errors and limitations wehave experienced in and with our legacy billing platforms and our ongoing projectsto address these and process issues, we are not currently able to provide anaccurate breakdown of our revenues. We anticipate that when we have completedour various systems and process remediation efforts, we will begin again toreport revenue categories.

 

*OPERATING COSTSAND EXPENSES:*

 

*Internetservices:*

 
|               |   | **Three months ended**             |   |                |   |
|--------------------|--------|------------------------------------|--------|---------------------|--------|
|               |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|               |   | **(in thousands of U.S. dollars)** |   |                |   |
| Internet services  |   | 11,157                             |   | 8,623               |   | (23 | )% |
| % of Total Revenue |   | 61                                 | %      | 48                  | %      |   |   |

 

Our Internet services operating costs are the costs we incur to carrycustomer traffic to and over the Internet. We lease lines that connect ourpoints of presence, or PoPs, either to our own network or to other networkproviders. We pay other network providers for transit, which allows us totransmit our customers’ information to or from the Internet over theirnetworks. We also pay other recurring telecommunications costs and personnelcosts, including the cost of the local telephone lines our customers use toreach our PoPs and access our services, and costs related to customer supportand care.

 

13

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Our Internetservices operating costs were $8.6 million for the three months endedMarch 31, 2003 as compared to $11.2 million for total continuingoperations for the three months ended March 31, 2002 and $8.7 million foradjusted continuing operations in the same period.  As a percentage of revenue Internet services costs from adjustedcontinuing operations have fallen significantly from 61% in the first quarterof 2002 to 48% of revenue in the same period in 2003 primarily due to therenegotiation of network access costs.

 

*Selling,general and administrative:*

 
|                                  |   | **Three months ended**             |   |                |   |
|---------------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                                  |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|                                  |   | **(in thousands of U.S. dollars)** |   |                |   |
| Selling, general & administrative |   | 20,732                             |   | 14,913              |   | (28 | )% |
| % of Total Revenue                    |   | 113                                | %      | 82                  | %      |   |   |

 

Our largest selling, general and administrative (SG&A) expenses arecompensation costs, the costs associated with marketing our products andservices, and professional fees paid to outside consultants. Compensation costsinclude salaries and related benefits, commissions, bonuses and costsassociated with staff reductions. In many of our markets, we are required tomake significant mandatory payments for government-sponsored social welfareprograms and we have little control over these costs. Our marketing expensesinclude the costs of direct mail and other mass marketing programs, advertising,customer communications, trade show participation, web site management andother promotional costs. Other SG&A expenses include the costs of travel,rent, utilities, insurance and bad debt expense.

 

We incurred SG&A expenses of $14.9 million for the three monthsended March 31, 2003, a 28% decrease from the $20.7 million we incurred for thethree months ended March 31, 2002 for total continuing operations and a 17%decrease from $17.9 million for adjusted continuing operations in the sameperiod.The decrease in SG&A foradjusted continuing operations from the first quarter of 2002 as compared tothe first quarter of 2003 is tied directly to our cost cutting measures, whichhave included meaningful headcount reductions, substantial marketing and advertisingbudget reductions and tighter controls on costs across VIA.

 

Compensation expense for the three month period ended March 31, 2003,including restructuring costs $0.7 million, was $10.1 million as comparedto the three month period ended March 31, 2002 of $11.9 million for totalcontinuing operations and $10.2 million for adjusted continuing operations inthe same period. There were no restructuring costs in the first quarter of2002.  We anticipate that we will incursubstantial restructuring costs throughout the remainder of 2003 and into 2004as we continue our headcount reductions.

 

Principally as a result of the issues arising from the legacy billingsystems and business processes substantial reserves were previously recordedagainst the carrying value of receivables. The billing system and processimprovements made during 2002, combined with our intensified focus on cashcollection, resulted in the collection of accounts receivable previouslyprovided against. Therefore, the bad debt expense in the three months endedMarch 31, 2003, was a charge of $0.2 million, compared to a benefit of $0.8million in the three-month period ended March 31, 2002.

 

Our SG&A expenses include the amortization of deferred compensation.In March 2002, we recorded forfeitures of unvested stock options in theamount of $1.8 million, which reduced the deferred compensation balance tozero with a corresponding adjustment to additional paid in capital. As aresult, we did not record any deferred compensation expense in the firstquarter of 2003. The deferred compensation amortization for the three monthsended March 31, 2002 was $0.5 million.

 

*Depreciationand amortization:*

 
|                          |   | **Three months ended**             |   |                |   |
|-------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                          |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|                          |   | **(in thousands of U.S. dollars)** |   |                |   |
| Depreciation and amortization |   | 2,822                              |   | 2,048               |   | (27 | )% |
| % of Total Revenue            |   | 15                                 | %      | 11                  | %      |   |   |

 

We recognize depreciation expense primarily related totelecommunications equipment, computers and network infrastructure. Wedepreciate telecommunications equipment and computers over their useful lives,generally ranging from three to five years. The cost of network infrastructure,net of impairment charges, purchased under indefeasible right of useagreements, or IRU, is being amortized over

 

14

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the lesser of the estimated useful life or term of the agreement,generally 20 to 25 years.

 

Our depreciation and amortization expense was $2.0 million for the threemonths ended March 31, 2003. The depreciation and amortization expense for thethree months ended March 31, 2002 was $2.8 million. In the first quarterof 2002 $0.2 million of the charge related to amortization of intangibleassets. The decrease is primarily due to a lower depreciable base due to assetimpairments in 2002 and the first quarter of 2003.

 

*Restructuringand impairment charges:*

 
|                                 |   | **Three months ended**             |   |                |   |
|--------------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                                 |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|                                 |   | **(in thousands of U.S. dollars)** |   |                |   |
| Restructuring and Impairment charges |   | —                             |   | 867                 |   | 100 | % |
| % of Total Revenue                   |   | —                             |   | 5                   | %      |   |   |

 

During the firstquarter of 2003, the Company recorded restructuring and impairment charges of$0.9 million.  This charge related toseverance payments at four of its operations, an adjustment to the future leaseobligations and an impairment charge for fixtures and fittings both relating tothe closure of the Reston, Virginia office. There were no restructuring and impairment charges in the first quarter2002. For further information see Note 4 to the Consolidated FinancialStatements.

 

We anticipate thatwe will incur further restructuring charges during the balance of 2003 and thefirst quarter of 2004 as we execute on our Strategic Plan, specifically for thecosts of headcount reductions that will result from our organizationalfunctional realignment and from our outsourcing projects.

 

*Interestincome, net:*

 
|                 |   | **Three months ended**             |   |                |   |
|----------------------|--------|------------------------------------|--------|---------------------|--------|
|                 |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|                 |   | **(in thousands of U.S. dollars)** |   |                |   |
| Interest income, net |   | 645                                |   | 413                 |   | (36 | )% |
| % of Total Revenue   |   | 4                                  | %      | 2                   | %      |   |   |

 

For the three months ended March 31, 2003, we earned $422 in interestincome, a 38% decrease over the $686 we earned for the three months endedMarch 31, 2002. Interest income was generated from investing funds receivedfrom our initial public offering in February 2000, until those funds wereused for acquisitions, operating expenses or capital expenditures. Net proceedsfrom the public offering were $333.0 million. The decrease in the interestincome is the combined result of the decrease in the available cash forinvesting and the decrease in the interest rates. We also incurred $9 ofinterest expense for the three months ended March 31, 2003, as compared to $41of interest expense incurred in the same period in 2002. Interest expenserelates to the debt arising from the notes payable to the former owners ofbusinesses acquired and vendor financing at both the subsidiary and corporatelevels.

 

*Other expense,net:*

 
|               |   | **Three months ended**             |   |                |   |
|--------------------|--------|------------------------------------|--------|---------------------|--------|
|               |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|               |   | **(in thousands of U.S. dollars)** |   |                |   |
| Other expense, net |   | 209                                |   | 64                  |   | (69 | )% |
| % of Total Revenue |   | 1                                  | %      | <1               | %      |   |   |

 

For the three months ended March 31, 2003, we incurred other expense of$64, as compared to $209 for the same period in 2002.

 

 

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*Foreigncurrency gains (losses), net:*

 
|                                 |   | **Three months ended**             |   |                |   |
|--------------------------------------|--------|------------------------------------|--------|---------------------|--------|
|                                 |   | **March 31,  2002**                |   | **March 31,  2003** |   | **% Increase/  (Decrease)** |   |
|                                 |   | **(in thousands of U.S. dollars)** |   |                |   |
| Foreign currency gains (losses), net |   | (2,491                             | )      | 2,547               |   | >100 | % |
| % of Total Revenue                   |   | 14                                 | %      | 14                  | %      |   |   |

 

We recognized a $2.5 million foreign currency gain for the threemonths ended March 31, 2003, as compared to a $2.5 million foreigncurrency loss for the same period in the prior year. The change from period toperiod was primarily due to the fluctuation in the exchange rate of the Euro ascompared to the U.S. dollar and its impact on our Euro denominated cashaccounts as well as the revaluation of our intercompany balances. We establishedthe Euro denominated cash accounts in connection with our initial publicoffering in February 2000, in which we sold shares of our common stock forboth U.S. dollars and Euros. To minimize the Company’s exposure to foreigncurrency exchange rate risk in 2003, VIA purchased €15.0 million worth ofU.S. dollars on March 10, 2003, thus substantially reducing the balance inthe Euro cash account. At March 31, 2003, VIA maintained a cash reserve of€10 million.

 

*Liquidity andCapital Resources*

 

VIA began 2003with $97.8 million in cash and cash equivalents and $895,000 in restrictedcash. We had negative cash flow of $6.7 million during the first three monthsof 2003, leaving us with $91.1 million in cash and cash equivalents and$912,000 in restricted cash at March 31, 2003. Unlike many companies in ourindustry, VIA has avoided incurring any significant debt and to date maintainsa strong balance sheet.

 

The execution ofour Strategic Plan will significantly increase our capital expenditures from2002 levels, and result in cash expenditures for restructuring and othernon-recurring costs associated with the Strategic Plan. We believe that thecash expenditures associated with execution of the Strategic Plan are necessaryto accelerate our path toward profitability. Under the Strategic Plan we willbe increasing our expenditures of cash in the short term, but we anticipatethat these up-front expenditures will result in less cash being spent to fundoperating losses as we approach a positive net cash flow position.

 

In addition, inApril 2003, VIA announced the restarting of its previously authorised stockrepurchase plan to acquire up $10,000,000 worth of VIA stock. During April2003, VIA restarted the program by purchasing 58,000 shares of its commonstock.  VIA has also recentlyestablished an automated trading program under SEC Rule 10b5-1 to effectongoing repurchases of its stock.  Thisprogram will permit repurchases to continue independently even when the tradingwindow under our insider trading policy is closed and when there is materialinformation about the company that has not yet been made public.  We anticipate that our cash usage willincrease over the next several months as a result of these repurchases. Thisplan, including the automatic trading program, can be suspended by VIA at anytime.

 

We believe thatour available cash will be sufficient to fund our expenditures under theStrategic Plan and our working capital and capital expenditure requirementsuntil we achieve positive net cash flow at which time we believe we will stillhave substantial cash reserves remaining. However, in the event that, contraryto management’s expectations, we need additional cash, we may not be able toobtain further financing unless the capital markets improve in the interim.

 

Since inception, we have financed our operations primarily through thesale of equity securities. We raised approximately $181.0 million inaggregate through three private preferred stock offerings betweenAugust 1997 and April 1999. Through our initial public offering ofcommon stock in February 2000, we raised approximately$333.0 million, net of underwriting discounts and commissions. AtMarch 31, 2003, we had cash and cash equivalents of $91.1 million andrestricted cash of $912,000.

 

Cash used in operating activities was $6.2 million for the threemonths ended March 31, 2003 and $12.6 million for the three monthsended March 31, 2002. Cash flows from operating activities can varysignificantly from period to period depending on the timing of operating cashreceipts and payments and other working capital changes, especially accountsreceivable, other current assets, accounts payable, accrued expenses and othercurrent liabilities. In both periods, our net losses were the primary componentof cash used in operating activities, offset by significant non-cashdepreciation, amortization, provision for doubtful accounts receivable andunrealized foreign currency transaction gains and losses.

 

Cash used in investing activities was $0.6 million for the threemonths ended March 31, 2003 and $2.0 million for the same period in2002. In 2003, we used cash to primarily purchase property and equipment.

 

Cash used in financing activities was $30 for the three months endedMarch 31, 2003 and $440 for the three months ended March 31,2002. In 2003 and 2002, cash was used primarily to repay debt.

 

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The foregoingstatements regarding our liquidity and possible need for additional capitalresources are forward-looking statements based on our currentexpectations, which involve certain risks and uncertainties. Actual results andthe timing of these events could differ materially from these forward-lookingstatements depending upon certain factors that we cannot predict, including thenature, size and timing of future acquisitions and dispositions, if any, ourfuture net income and our success in executing our Strategic Plan as well asother factors discussed in “Risk Factors” included on this Form 10-Q asExhibit 99.1, as well as those described in the “Risk Factors” section ofVIA’s 2002 Annual Report.

 

*ForeignCurrency Exchange Risks*

 

In 2002 and prior to the sale of our operations in Argentina, Austria,Brazil, Ireland and Mexico, we conducted business in seven differentcurrencies, including the Euro and the U.S. dollar. The value of foreigncurrencies fluctuates in relation to the U.S. dollar. At the end of eachreporting period, the revenues and expenses of our operating companies aretranslated into U.S. dollars using the average exchange rate for that period,and their assets and liabilities are translated into U.S. dollars using theexchange rate in effect at the end of that period. Fluctuations in theseexchange rates impact our financial condition, revenues and results ofoperations, as reported in U.S. dollars.

 

Exchange rates can vary significantly. The Euro high and low ratesvaried by approximately 7% in relation to the U.S. dollar during the threemonths ended March 31, 2003. This variation affects the average exchangerates used to translate amounts on the income statement. At March 31,2003, the Euro exchange rate was approximately 3% below where it was at thebeginning of the year. This variation affects the ending exchange rates used totranslate amounts on the balance sheet. This fluctuation in the exchange rateresulted in a foreign currency loss of $1.8 million for the three monthsended March 31, 2003. These gains and losses are primarily due to thefluctuation in the exchange rate of the Euro as compared to the U.S. dollar andits impact on the revaluation of subsidiaries with a Euro functional currency.Future changes in the value of the Euro could have a material impact on ourfinancial position and results of operations. We also experienced fluctuationsin other exchange rates.

 

Our local operations transact business in their local currencies. Theydo not have significant assets, liabilities or other accounts denominated incurrencies other than their local currency, and therefore are not subject toexchange rate risk with respect to their normal operations. On a consolidatedbasis, we are subject to exchange rate risks because we translate our localoperations’ financial data into U.S. dollars.

 

As of January 1, 2002, the Euro became the sole legal currency for12 of the 15 European Union member countries. This includes nine of our thenoperating markets. As a result, during 2002 and 2003, we conducted business inonly four currencies.

 

**Item 3. Quantitative and Qualitative Disclosures About MarketRisk**

 

The following discussion relates to our exposure to market risk, relatedto changes in interest rates and changes in foreign exchange rates. Thisdiscussion contains forward-looking statements that are subject to risks anduncertainties. Actual results could differ materially due to a number offactors, as set forth in the “Risk Factors” included as Exhibit 99.1 on thisForm 10-Q and included in the “Risk Factors” section of VIA’s 2002 AnnualReport.

 

VIA has exposure to financial market risks, including changes ininterest rates and foreign exchange rates. At March 31, 2003 VIA’sfinancial instruments consisted of short-term investments and fixed rate debtrelated to acquisitions and network purchases. Our investments are generallyfixed rate short-term investment grade and government securities denominated inU.S. dollars. At March 31, 2003 all of our investments were due to maturewithin three months and the carrying value of such investments approximatesfair value. The majority of our debt obligations had fixed rates of interestand were due within one year of the balance sheet date.

 

As mentionedpreviously in the “Foreign Currency Exchange Risks” section, VIA has Eurodenominated cash accounts held by subsidiaries with a functional currency of USdollars. Therefore, this exposes the Company to foreign currency exchange raterisk in the Statement of Operations. At March 31, 2003 a 10 percentincrease or decrease in the level of the Euro exchange rate against the dollarwith all other variables held constant would have resulted in a realized gainor loss of $1.0 million. . To minimize the Company’s exposure to foreigncurrency exchange rate risk in 2003, VIA purchased €15.0 million worth ofU.S. dollars on March 10, 2003, thus substantially reducing the balance inthe Euro cash account. At March 31, 2003, VIA maintained a cash reserve of€10 million.

 

Additionally, VIA is exposed to foreign exchange rate risk related toits obligations denominated in foreign currencies. These obligations are aresult of acquiring operating companies in various European countries. VIA isalso subject to risk from changes in foreign exchange rates for itsinternational operations, which use a foreign currency as their functionalcurrency and are translated into U.S. dollars. These risks have not beenreduced through hedging arrangements.

 

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**Item 4. Controls and Procedures**

 

In the past we encountered significant customer billing and processissues, and financial reporting difficulties in our United Kingdom and Germanoperations arising out of poorly executed integration efforts. This led to ourformer independent accountants advising that the legacy billing systems andpractices in the United Kingdom and German operations constituted materialweaknesses in our internal control structure.

 

Internal controls are procedures and processes designed to providereasonable assurance that we have maintained accurate books and recordsrelating to our transactions, that our transactions are properly authorized andthat our assets are safeguarded against improper use, all of which enable us toprepare, report and fairly present our financial results and financialcondition in accordance with generally accepted accounting principles. A “materialweakness” is a reportable condition in which the design or operation of one ormore of the internal control components does not reduce to a relatively lowlevel the risk that misstatements caused by error or fraud in amounts thatwould be material in relation to the financial statements being audited mayoccur and not be detected within a timely period by employees in the normalcourse of performing their assigned functions.

 

To address those weaknesses and mitigate the related risks, we initiateda comprehensive review of VIA’s operations and took the following actions:

 

•                       In all country operations, we expanded our monthly and quarterlyfinancial reporting close and analytical procedures. These ongoing efforts haveled to tangible improvements in the operations and financial reportingcapabilities of all our operations, specifically our German and United Kingdomoperations. Nonetheless, many of the improvements in both operations resultfrom significantly expanded manual processes, analysis and validationprocedures. System automation and technology-enabled improvements arebeing assessed and are expected to be implemented throughout 2003 as westandardize processes and outsource back office functions.

 

•                       Regular conferences have been initiated between the finance staff atheadquarters and the finance staff at our local operations to review financialstatements, with an emphasis on revenue, accounts receivable, deferred revenueand provisions for doubtful accounts.

 

•                       In Germany and the United Kingdom specifically we have taken a number ofsteps to address these issues beginning in the fourth quarter 2001 andcontinuing through the present. The Company has implemented a number of checksand procedures designed to provide for the timely detection of errors that mayarise from the legacy billing system and previously noted internal controlproblems and to mitigate the risk of a material misstatement in the financialresults of the operating companies. This includes significant expansion of themonth and quarter-end financial close processes in these operations andadditional manual checks and reconciliation procedures to compensate for knownsystemic limitations.

 

•                       Drawing upon lessons learned in our German and United Kingdomoperations, we have initiated similar checks and procedures in our othercountry operations to mitigate the risk of material weaknesses in our internalcontrol environment.

 

•                       In addition, we are currently evaluating the outsourcing of certainsystems and processes associated with general ledger accounting, accountspayable and accounts receivable, provisioning and billing administration,credit and collections, and customer operations with final selection and aphased implementation expected to begin in the second quarter of 2003.

 

•                       Management has increased the frequency and breadth of its inquiry in itsevaluation of the internal control structure and underlying processes andprocedures, in concert with the audit committee’s increased monitoring ofCompany’s executive team’s efforts in this focus area.

 

The Company and the audit committee of the board of directors hasengaged in regular evaluations of our internal controls, as well as theprocesses we maintain to ensure that all material information relating to VIAand its subsidiaries is recorded, processed, summarized, evaluated and reportedwithin the time periods specified by rules established by the Securities andExchange Commission. These latter processes are known as Disclosure Controlsand Procedures. Disclosure Controls and Procedures are also designed to ensurethat all such information is communicated to VIA’s management, including ourCEO and CFO, in such a manner as to allow timely decisions to be made regardingrequired disclosures.

 

Within the 90 days prior to the date of filing of this report, weengaged in an evaluation, with the oversight of our CEO and CFO, of theeffectiveness of our Disclosure Controls and Procedures. In designing andevaluating the Disclosure Controls and Procedures, our management necessarilywas required to apply its judgment in evaluating the costs and benefits ofpossible controls and procedures. In addition, we recognize that DisclosureControls and Procedures by their nature can provide only reasonable assurancethat our information flow objectives are met. Upon the completion of thatevaluation, our CEO and CFO concluded that our Disclosure Controls and

 

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Procedures, which included the additional or enhanced processes,procedures and controls noted above, were effective in all material respects.

 

Since the date of the evaluation, there have been no significant changesin our internal controls or in other factors that could significantly affectinternal controls. We continue to work to improve our internal controls andDisclosure Controls and Procedures. However, we recognize that many of ouradditional or enhanced processes, procedures and controls discussed above, inparticular to the extent they require increased manual processes, are not long-termsolutions.

 

We believe that these procedures enable us to present our financialresults fairly in all material respects, as required by U.S. generally acceptedaccounting principles. When the system remediation and data validation projectshave progressed sufficiently, some or all of these additional procedures maybecome unnecessary. The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets, liabilities,revenue and expenses, together with amounts disclosed in the related notes tothe consolidated financial statements. The current systems and process issuesthat are being addressed in our largest operations make it more difficult formanagement to arrive at estimates. Actual results could differ from therecorded estimates.

 

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**PART II**

 

**Item 1. Legal Proceedings**

 

There have been nomaterial developments relating to VIA's outstanding legal proceedings since thefiling of VIA’s Form 10-K on March 26, 2003. See note 10 to the consolidatedfinancial statements for further information.

 

**Item 2. Changesin Securities and Use of Proceeds**

 

None.

 

**Use of InitialPublic Offering Proceeds**

 

On February 16, 2000, VIA completed its initial public offering ofshares of common stock, par value $.001 per share. VIA’s initial publicoffering was made pursuant to a prospectus dated February 11, 2000, whichwas filed with the SEC as part of a registration statement, fileNo. 333-91615, that was declared effective by the SEC on February 10,2000.

 

The net offering proceeds to VIA after deducting the expenses andunderwriting discounts and commissions was approximately $333.0 million.From the effective date of the initial public offering through March 31,2003, VIA has used $86.9 million for acquisitions of other businesses,including the repayment of debt for 1999 acquisitions and increases in VIA’sinvestment in various partially owned subsidiaries, $47.2 million forcapital expenditures and approximately $113.7 million to fund operatinglosses.

 

**Item 3. DefaultsUpon Senior Securities**

 

None.

 

**Item 4.Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item 5. Other Information**

 

None.

 

**Item 6. Exhibitsand Reports on Form 8-K**

 

**a) Exhibits**

 
| **Exhibits** |   |                                                                                                                                      |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| Exhibit 99.1 |   | Risk Factors                                                                                                                              |
| Exhibit 99.2 |   | Written Statement of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 |

 

**b) Reports on Form 8-K**

 

VIA filed four reports on Form 8-K during the three months endedMarch 31, 2003. On January 13, 2003, VIA filed a report on Form 8-Kto announce the appointment of Fraser Park as the new Chief Financial Officer.On February 28, 2003, VIA filed a report on Form 8-K to announcing changesto the executive management team. On March 14, 2003, VIA filed a report onForm 8-K to announce a conference call for its fourth quarter and fullyear results for 2002. On March 20, 2003, VIA filed a report on Form 8-K toannounce its fourth quarter and full year 2002 results.

 

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**SIGNATURES**

 

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

 
|               | VIA  NET.WORKS, Inc. |
|--------------------|----------------------|
|               |                 |
|               |                 |
|               | By:                  | /s/  Rhett S. Williams |
|               |                 | *Chief Executive Officer (Principal Executive Officer)  and Director* |
| Date: May 12, 2003 |                 |   |
|               |                 |   |
|               | By:                  | /s/  Fraser R. Park |
| Date: May 12, 2003 |                 | *Vice President, Chief Financial Officer and Treasurer  (Principal Financial and Accounting Officer)* |

 

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**SECTION 302 CERTIFICATION**

 

I, Rhett S. Williams, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-Q of VIA NET.WORKS, Inc.;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officer and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a)                                      designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularlyduring the period in which this quarterly report is being prepared;

 

b)                                     evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                                      all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                                     any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                       The registrant’s other certifying officer and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: May 12, 2003      |
|-------------------------|
| /s/ Rhett S. Williams   |   |
| Rhett S. Williams       |
| Chief Executive Officer |

 

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**SECTION 302 CERTIFICATION**

 

I, Fraser R. Park, certify that:

 

1.                                       I have reviewed this quarterly report onForm 10-K of VIA NET.WORKS, Inc.;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officer and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and have:

 

a)                                      designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)                                     evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior tothe filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officer and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                                      all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                                     any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal controls; and

 

6.                                       The registrant’s other certifying officer and Ihave indicated in this annual report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date: May 12, 2003      |   |
|-------------------------|--------|
| /s/ Fraser R. Park      |   |
| Fraser R. Park          |   |
| Chief Financial Officer |   |

 

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**EXHIBIT INDEX**

 
| **Exhibit** |   |                                                                                                                                      |
|-------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| 99.1        |   | Risk Factors                                                                                                                              |
| 99.2        |   | Written Statement of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002 |

 

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