**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

FORM 10-Q/A

**AmendmentNo. 2**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**FORTHE QUARTERLY PERIOD ENDED MARCH 31, 2005**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commissionfile number: 000-29391**

----

VIA NET.WORKS, INC.

(Exact name of registrantas specified in its charter)

| **Delaware**                   | **84-1412512**                        |
|--------------------------------|---------------------------------------|
| (State or other  jurisdiction) | (I.R.S. Employer  Identification No.) |

 

**H. Walaardt Sacrestraat 401-4031117 BM SchipholThe Netherlands**

(Address of principalexecutive offices)

Registrant’s telephonenumber, including area code: **+31 20 502 0000**

(Former name or formeraddress, if changed since last report)

----

Indicate by check mark whetherthe registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such report) and (2) has been subject to such filing requirements forthe past 90 days. Yes x  No o

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

Asof May 20, 2005, there were outstanding 56,053,988 shares of theregistrant’s common stock and 5,050,000 shares of the registrant’s non-votingcommon stock.

 

 

----

**EXPLANATORYNOTE**

This Form 10-Q/Afor the quarter ended March 31, 2005 is filed solely for the purpose ofamending Part I Item 2 “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources”, Part IItem 4 “Controls and Procedures” and Part II Item 6 “Exhibits and Reportson Form 8-K” of our Quarterly Report on Form 10-Q for thequarter ended March 31, 2005, filed with the SEC on May 20, 2005 (the“First Quarter 10-Q”) in response to comments received from theSecurities and Exchange Commission. No change is otherwise made to Part Ior Part II of the First Quarter 10-Q. This Form 10-Q/Aspeaks as of the original filing date and has not been otherwise updated toreflect events occurring subsequent to the original filing date.

----

**VIANET.WORKS, INC.**

**TABLE OF CONTENTS**
| PART I. FINANCIAL  INFORMATION | 3                                                                                                               |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------------|
| Item 1.                             | Financial Statements:                                                                                           | 3 |
|                                | Condensed Consolidated  Balance Sheets as of December 31, 2004 and March 31, 2005                     | 3 |
|                                | Condensed Consolidated  Statements of Operations for the three months ended March 31, 2004 and  2005  | 4 |
|                                | Condensed Consolidated  Statements of Cash Flows for the three months ended March 31, 2004 and  2005  | 5 |
|                                | Notes to Condensed Consolidated  Financial Statements                                                           | 6 |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                     | 20 |
| Item 3.                             | Quantitative  and Qualitative Disclosures About Market Risk                                                     | 34 |
| Item 4.                             | Controls  and Procedures                                                                                        | 35 |
| PART II.  OTHER INFORMATION    | 36                                                                                                              |
| Item 1.                             | Legal Proceedings                                                                                               | 36 |
| Item  2.                            | Changes in Securities and Use of  Proceeds                                                                      | 36 |
| Item  3.                            | Defaults Upon Senior Securities                                                                                 | 36 |
| Item  4.                            | Submission of Matters to a  Vote of Security Holders                                                            | 36 |
| Item 5.                             | Other Information                                                                                               | 36 |
| Item  6.                            | Exhibits and Reports on  Form 8-K                                                                          | 36 |
| SIGNATURES                          | 38                                                                                                              |
| EXHIBIT INDEX                  | 39                                                                                                              |
| 302 CERTIFICATIONS                  |                                                                                                            |

 

2

----

**PART I**

**ITEM 1.**                FINANCIALSTATEMENTS

**VIANET.WORKS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars, except share data)**
| ** **                                                                                                            | ** ** | **December 31,  2004** | ** ** | **March 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|
| ** **                                                                                                            | ** ** | ** **                  | ** ** | **(Unaudited)**          | ** ** |
| **ASSETS**                                                                                                            |       |                        |       |                     |       |   |   |   |   |
| Current assets:                                                                                                       |       |                        |       |                     |       |   |   |   |   |
| Cash and cash  equivalents                                                                                            |       |                        | $          | 15,497                   |       |   |   | $ | 7,797 |   |   |
| Restricted cash                                                                                                       |       |                        | 5,100      |                     |       |   | 4,055 |   |   |
| Trade and other  accounts receivable, net of allowance of $2,966 and $3,203 respectively                              |       |                        | 13,909     |                     |       |   | 11,666 |   |   |
| Other current  assets                                                                                                 |       |                        | 6,972      |                     |       |   | 6,596 |   |   |
| Total current assets                                                                                                  |       |                        | 41,478     |                     |       |   | 30,114 |   |   |
| Property and  equipment, net                                                                                          |       |                        | 13,065     |                     |       |   | 11,146 |   |   |
| Goodwill                                                                                                              |       |                        | 42,466     |                     |       |   | 40,594 |   |   |
| Intangible assets,  net                                                                                               |       |                        | 8,695      |                     |       |   | 7,038 |   |   |
| Other non-current  assets                                                                                             |       |                        | 444        |                     |       |   | 503 |   |   |
| Deferred tax asset                                                                                                    |       |                        | 14,305     |                     |       |   | 14,326 |   |   |
| Assets of  businesses held for sale (Note 2)                                                                          |       |                        | —     |                     |       |   | 3,026 |   |   |
| Total assets                                                                                                          |       |                        | $          | 120,453                  |       |   |   | $ | 106,747 |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                         |       |                        |       |                     |       |   |   |   |   |
| Current liabilities:                                                                                                  |       |                        |       |                     |       |   |   |   |   |
| Accounts payable                                                                                                      |       |                        | $          | 16,899                   |       |   |   | $ | 16,556 |   |   |
| VAT and other  taxes payable                                                                                          |       |                        | 1,083      |                     |       |   | 710 |   |   |
| Current portion of  capital lease obligations and long-term payables                                                  |       |                        | 9,325      |                     |       |   | 8,811 |   |   |
| Deferred revenue                                                                                                      |       |                        | 15,591     |                     |       |   | 12,965 |   |   |
| Accrued expenses                                                                                                      |       |                        | 24,451     |                     |       |   | 21,709 |   |   |
| Deferred tax  liability                                                                                               |       |                        | 13,772     |                     |       |   | 14,515 |   |   |
| Other current  liabilities                                                                                            |       |                        | 3,744      |                     |       |   | 3,152 |   |   |
| Total current liabilities                                                                                             |       |                        | 84,865     |                     |       |   | 78,418 |   |   |
| Capital lease  obligations and long-term payables, less current portion                                               |       |                        | 344        |                     |       |   | 256 |   |   |
| Deferred tax  liability                                                                                               |       |                        | 2,639      |                     |       |   | 1,753 |   |   |
| Liabilities of  businesses held for sale (Note 2)                                                                     |       |                        | —     |                     |       |   | 2,803 |   |   |
| Total liabilities                                                                                                     |       |                        | 87,848     |                     |       |   | 83,230 |   |   |
| Commitments and  contingencies (Note 11)                                                                              |       |                        |       |                     |       |   |   |   |   |
| Stockholders’ equity:                                                                                            |       |                        |       |                     |       |   |   |   |   |
| Preferred stock,  $.001 par value; 10,000,000 shares authorized; no shares issued                                     |       |                        | —     |                     |       |   | — |   |   |
| Common stock,  $.001 par value; 132,500,000 shares authorized; 62,624,777 and 62,624,777  shares issued, respectively |       |                        | 63         |                     |       |   | 63 |   |   |
| Additional paid-in  capital                                                                                           |       |                        | 557,907    |                     |       |   | 557,907 |   |   |
| Treasury stock,  1,520,789 shares                                                                                     |       |                        | (1,521     | )                        |       |   | (1,521 | ) |   |
| Accumulated  deficit                                                                                                  |       |                        | (488,880   | )                        |       |   | (500,296 | ) |   |
| Accumulated other  comprehensive loss                                                                                 |       |                        | (34,964    | )                        |       |   | (32,636 | ) |   |
| Total stockholders’ equity                                                                                       |       |                        | 32,605     |                     |       |   | 23,517 |   |   |
| Total liabilities and stockholders’ equity                                                                       |       |                        | $          | 120,453                  |       |   |   | $ | 106,747 |   |   |

 

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

3

----

**VIANET.WORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands of U.S. dollars, except share and per share data)(Unaudited)**
| ** **                                                 | ** ** | **For the three months ended  March 31,**                                                                           | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **           2004           ** | ** ** | **           2005           ** | ** ** |
| Revenue                                                    |       |                                                                                                                                         | $          | 10,396 |   |   |   | $ | 24,089 |   |   |
| Operating costs  and expenses:                             |       |                                                                                                                                         |       |   |   |   |   |   |   |
| Internet services                                          |       |                                                                                                                                         | 5,346      |   |   |   | 12,189 |   |   |
| Selling, general  and administrative                       |       |                                                                                                                                         | 13,264     |   |   |   | 19,460 |   |   |
| Impairment and  restructuring charges                      |       |                                                                                                                                         | 300        |   |   |   | 3,453 |   |   |
| Depreciation and  amortization                             |       |                                                                                                                                         | 1,838      |   |   |   | 2,114 |   |   |
| Total operating costs and expenses                         |       |                                                                                                                                         | 20,748     |   |   |   | 37,216 |   |   |
| Operating loss from continuing operations                  |       |                                                                                                                                         | (10,352    | ) |   |   | (13,127 | ) |   |
| Interest income                                            |       |                                                                                                                                         | 106        |   |   |   | 12 |   |   |
| Interest expense                                           |       |                                                                                                                                         | (18        | ) |   |   | (172 | ) |   |
| Other income, net                                          |       |                                                                                                                                         | 34         |   |   |   | 404 |   |   |
| Foreign currency  losses, net                              |       |                                                                                                                                         | (3,326     | ) |   |   | (1,702 | ) |   |
| Loss from  continuing operations before income taxes       |       |                                                                                                                                         | (13,556    | ) |   |   | (14,585 | ) |   |
| Income tax  benefit (expense)                              |       |                                                                                                                                         | 7          |   |   |   | (30 | ) |   |
| Net loss from continuing operations                        |       |                                                                                                                                         | (13,549    | ) |   |   | (14,615 | ) |   |
| Discontinued  operations:                                  |       |                                                                                                                                         |       |   |   |   |   |   |   |
| Gain (loss) from  discontinued operations                  |       |                                                                                                                                         | 3,732      |   |   |   | (24 | ) |   |
| Gain on disposal  of discontinued operations               |       |                                                                                                                                         | —     |   |   |   | 3,223 |   |   |
| Net loss                                                   |       |                                                                                                                                         | $          | (9,817 | ) |   |   | $ | (11,416 | ) |   |
| Basic and diluted loss  per share:                         |       |                                                                                                                                         |       |   |   |   |   |   |   |
| Continuing  operations                                     |       |                                                                                                                                         | $          | (0.22 | ) |   |   | $ | (0.24 | ) |   |
| Discontinued  operations                                   |       |                                                                                                                                         | 0.06       |   |   |   | 0.05 |   |   |
| Net loss per share—basic and diluted                  |       |                                                                                                                                         | $          | (0.16 | ) |   |   | $ | (0.19 | ) |   |
| Shares used in  computing basic and diluted loss per share |       |                                                                                                                                         | 60,708,602 |   |   |   | 61,103,988 |   |   |

 

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

4

----

**VIANET.WORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of U.S. dollars)(Unaudited)**
| ** **                                                                                              | ** ** | **For the three months ended  March 31,**                           | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                              | ** ** | **       2004       ** | ** ** | **       2005       ** | ** ** |
| Cash flows from  operating activities:                                                                  |       |                                                                                         |       |   |   |   |   |   |   |
| Net loss from  continuing operations                                                                    |       |                                                                                         | $          | (13,549 | ) |   |   | $ | (11,416 | ) |   |
| Adjustments to reconcile  net loss from continuing operations to net cash used in operating activities: |       |                                                                                         |       |   |   |   |   |   |   |
| Depreciation and amortization                                                                           |       |                                                                                         | 1,838      |   |   |   | 2,114 |   |   |
| Impairment charges                                                                                      |       |                                                                                         | —     |   |   |   | 2,367 |   |   |
| Provision for doubtful accounts receivable                                                              |       |                                                                                         | 337        |   |   |   | 572 |   |   |
| Unrealized foreign currency transaction losses                                                          |       |                                                                                         | 2,510      |   |   |   | 1,674 |   |   |
| Deferred tax                                                                                            |       |                                                                                         | 28         |   |   |   | 93 |   |   |
| Stock compensation                                                                                      |       |                                                                                         | 80         |   |   |   | — |   |   |
| Changes in assets and  liabilities, net of acquisitions:                                                |       |                                                                                         |       |   |   |   |   |   |   |
| Trade accounts receivable                                                                               |       |                                                                                         | (517       | ) |   |   | (1,943 | ) |   |
| Other current assets                                                                                    |       |                                                                                         | (398       | ) |   |   | 1,059 |   |   |
| Other non-current assets                                                                                |       |                                                                                         | (2         | ) |   |   | — |   |   |
| Accounts payable                                                                                        |       |                                                                                         | (967       | ) |   |   | 814 |   |   |
| VAT and other taxes payable                                                                             |       |                                                                                         | 605        |   |   |   | (242 | ) |   |
| Accrued expenses                                                                                        |       |                                                                                         | 1,634      |   |   |   | (1,487 | ) |   |
| Other current liabilities                                                                               |       |                                                                                         | 192        |   |   |   | 1,139 |   |   |
| Deferred revenue                                                                                        |       |                                                                                         | 444        |   |   |   | (16 | ) |   |
| Net cash used in operating activities by  discontinued operations                                       |       |                                                                                         | (994       | ) |   |   | (1,759 | ) |   |
| Net cash used in operating activities                                                                   |       |                                                                                         | (8,759     | ) |   |   | (7,031 | ) |   |
| Cash flows from  investing activities:                                                                  |       |                                                                                         |       |   |   |   |   |   |   |
| (Increase)  decrease in restricted cash                                                                 |       |                                                                                         | (51        | ) |   |   | 1,045 |   |   |
| Acquisition of  subsidiaries (net of cash acquired)                                                     |       |                                                                                         | (7,735     | ) |   |   | (1,317 | ) |   |
| Purchases of  property, equipment and other assets                                                      |       |                                                                                         | (1,658     | ) |   |   | (1,044 | ) |   |
| Proceeds from  disposition of subsidiaries                                                              |       |                                                                                         | —     |   |   |   | 1,344 |   |   |
| Net cash used in  investing activities by discontinued operations                                       |       |                                                                                         | (241       | ) |   |   | (19 | ) |   |
| Net cash used in investing activities                                                                   |       |                                                                                         | (9,685     | ) |   |   | 9 |   |   |
| Cash flows from  financing activities:                                                                  |       |                                                                                         |       |   |   |   |   |   |   |
| Repayment of debt  and principal payments on capital lease obligations                                  |       |                                                                                         | (48        | ) |   |   | (541 | ) |   |
| Proceeds from  issuance of common stock, net                                                            |       |                                                                                         | 311        |   |   |   | — |   |   |
| Net cash used in  financing activities by discontinued operations                                       |       |                                                                                         | (2         | ) |   |   | — |   |   |
| Net cash (used in) received from financing  activities                                                  |       |                                                                                         | 261        |   |   |   | (541 | ) |   |
| Effect of  currency exchange rate changes on cash                                                       |       |                                                                                         | (679       | ) |   |   | (137 | ) |   |
| Net decrease in  cash and cash equivalents                                                              |       |                                                                                         | (18,862    | ) |   |   | (7,700 | ) |   |
| Cash and cash  equivalents, beginning of period                                                         |       |                                                                                         | 65,803     |   |   |   | 15,497 |   |   |
| Cash and cash  equivalents, end of period                                                               |       |                                                                                         | $          | 46,941 |   |   |   | $ | 7,797 |   |   |

 

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

5

----

**VIANET.WORKS, INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

**1.   Basis of Presentation**

These condensed consolidated financial statements asof March 31, 2005 and for the three month periods ended March 31,2004 and 2005 and the related footnote information are unaudited and have beenprepared on a basis substantially consistent with the audited consolidatedfinancial statements of VIA NET.WORKS, Inc. (“VIA” or “the Company”) as ofand for the year ended December 31, 2004, included in VIA’s Annual Reporton Form 10-K as filed with the Securities and Exchange Commission (“2004Annual Report”). These condensed consolidated financial statements should beread in conjunction with the audited consolidated financial statements and therelated notes to the financial statements included in the 2004 Annual Report.In the opinion of management, the accompanying unaudited condensed consolidatedfinancial statements contain all adjustments (consisting of normal recurringadjustments) that management considers necessary to present fairly theconsolidated financial position of VIA at March 31, 2005 and the resultsof its operations and its cash flows for the three month periods ended March 31,2004 and 2005. The results of operations for the three-month period ended March 31,2005 may not be indicative of the results expected for any succeeding quarteror for the year ending December 31, 2005. Certain prior period amountshave been reclassified to conform to the current period presentation.Reclassifications have been made to prior period amounts to account fordiscontinued operations.

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires VIA to make estimates and assumptions that affect thereported amounts of assets, liabilities, revenue and expenses, together withamounts disclosed in the related notes to the consolidated financialstatements. Actual results could differ from the recorded estimates.

**Going concern:**

For the three months ended March 31, 2005, theCompany had net losses from continuing operations of $14.6 million and netdecrease of cash and cash equivalents for the period of $7.7 million.

As of March 31, 2005, the Company had$7.8 million in cash and cash equivalents and $4.1 million inrestricted cash.

On March 17, 2005, the Company announced that acombination of factors including unanticipated revenue shortfalls in certain ofits legacy VIA companies and its new VIA Express business would leave theCompany with insufficient cash reserves to continue the operations of the groupparent, VIA NET.WORKS, Inc., in early April 2005, and that it wasworking with its professional advisors to obtain new financing to address theissue. With the support of its advisors, the Company pursued two parallelprocesses to maximize its strategic alternatives and optimize the value that isinherent in the VIA businesses. In the first of the processes, the Companyengaged in discussions with a number of parties with a view to selling all orparts of its businesses. In the second of the two processes, the Company soughtpotential investors to provide funds sufficient to enable the Company tocontinue as a going concern.

On April 1, 2005, the Company announced the saleof two of its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKSServices AG—to former managers and owners of the business, for a purchase priceof CHF 3.5 million ($3.1 million). The net proceeds of the sale provided VIAwith additional liquidity to continue its discussions for refinancing and saletransactions.

6

----

On April 30, 2005, VIA NET.WORKS, Inc.entered into a sale and purchase agreement, or Sale Agreement, with ClaranetGroup Limited (Claranet), a privately-held European Internet services providerbased in the United Kingdom, to sell all of the Company’s remaining businessoperations in Europe and the United States (the Asset Sale). The agreementfollowed on the letter of intent entered into between Claranet and VIA on April 10,2005. The following discussion is a summary of the material provisions of theSale Agreement. This summary is qualified in its entirety by reference to theSale Agreement, a copy of which is attached as Exhibit 99.1 to the CurrentReport on Form 8-K filed by VIA on May 3, 2005 with the Securitiesand Exchange Commission reporting the execution of the sale and purchaseagreement.

The material provisions of the Sale Agreement are asfollows:

Assets to be Sold Pursuant to the Sale Agreement

·        VIA would sell to Claranetall of its business operations in Europe and the U.S, which includes all of oursubsidiary companies other than VIA NET.WORKS NY Corp, VIA NET.WORKS Holdco, Inc.,Surftrade U.S.A. Inc. and our parent company, VIA NET.WORKS, Inc. Theassets to be sold to Claranet consist of substantially all of the Company’sassets, properties and rights. Claranet would acquire certain assets andliabilities pertaining to the Company’s centralized back office financial andtechnical support systems that are owned by the Company’s group parent company,VIA NET.WORKS, Inc. The Company would transfer employment contracts ofcertain headquarters personnel who are responsible for supporting the backoffice and technical support systems to appropriate VIA operating companies orClaranet will offer employment to such persons.

Treatment ofLiabilities

·        Claranetwould assume certain liabilities of our parent company, VIA NET.WORKS, Inc.,including liabilities and obligations relating to the business operations beingsold and employee contracts of certain headquarters personnel. Claranet wouldnot assume other liabilities, such as severance costs for other employees atthe corporate headquarters, lease payments, outstanding liabilities fromprevious acquisitions, vendor bills relating to costs of being a public companyand ongoing operating costs associated with winding down the corporateheadquarters.

·        VIA would retain all otherdebts and liabilities of VIA’s parent company, including but not limited toexpenses relating to the headquarters office lease in Schiphol-Oost, VIA seniorexecutives and all other headquarters staff, corporate vendors and professionaladvisors, and remaining payment obligations to sellers of the PSINet Europegroup and the Amen group.

Purchase Price

·        Underthe agreement, Claranet would pay VIA $26.4 million, less certain adjustments.In particular, the purchase price will be reduced by the amounts advanced tothe Company by the Purchaser under the Euro 5.4 million ($7.0 million) workingcapital facility established by Claranet when the Sale Agreement was signed.Under this agreement VIA is obliged to monitor the level of working capitalduring the period between signing and the closing of the transaction asdescribed below under “Termination of the Sale Agreement”. A schedule foradvances under the facility is described below. The purchase price will also beadjusted for any funds withdrawn from or payments made by the subsidiariesbeing sold by or to our parent company or any other subsidiaries not beingsold.

·        Concurrent with theexecution of the April 10, 2005 letter of intent, Claranet delivered adeposit of $3,000,000 to VIA in order to secure the rights to negotiateexclusively with the Company until April 30, 2005. The deposit waspartially funded by the release of £1.0 million ($1.9 million) from 

7

----

the escrowestablished by Claranet in favor of VIA in connection with the purchase in September 2004by Claranet of the Company’s legacy operations in the United Kingdom. Thedeposit will be forfeited by Claranet if the transaction does not close otherthan for VIA’s default or certain other conditions. Otherwise, the portion ofthe deposit in excess of the £1.0 million ($1.9 million) will be credited tothe purchase price at closing.

Survival of Warranties andOther Claims; Limitations on Liability

·        The Company has madecertain customary warranties in the Sale Agreement that generally survive forthree months following closing, with certain exceptions for matters relating totax and title to properties. VIA would not be liable for any breaches ofwarranties until the aggregate amount of all claims exceeds $1,000,000, and theCompany’s maximum liability for all breaches would be limited to 33% of thepurchase price (approximately $8.8 million).

Closing

·        TheAsset Sale is conditioned upon the approval by the Company’s shareholders. Inaddition, the agreement contains customary pre-closing conditions relating to,among other things, accuracy of warranties and the Company’s compliance withthe provisions of the Sale Agreement, including the conduct of the businesspending the closing.

·        If the Asset Sale isapproved and adopted by VIA’s shareholders, the closing will take place shortlyafter the shareholder meeting. On May 9, 2005, the Company filed itspreliminary proxy statement with the Securities and Exchange Commission, or SEC.On May 18, 2005, the SEC staff informed the Company that it was preparingcomments on the preliminary proxy statement. Although the Company has not yetreceived formal written comments, based on conversations between the Company’smanagement and SEC staff regarding the comments, the Company believes it willbe in a position to file its definitive proxy statement before the end of May 2005.In such case, the Company anticipates that the closing would occur during thefirst week of July, 2005. Otherwise, the Company anticipates that the closingwill take place during the first week of August, 2005.

Competing Offers

·        The Sale Agreementprohibits the Company from approaching or negotiating with any other potentialpurchaser, provided that the Company’s board may negotiate with a third partyregarding an alternative offer if refusing to do so would, in the reasonabledetermination of our board upon advice of counsel, be reasonably likely toconstitute a breach of fiduciary duties to the Company’s shareholders.

Termination of the Sale Agreement

·        Claranetis entitled, prior to the closing, to terminate the Sale Agreement in the eventof

·        claimsagainst VIA or one of the companies being purchased in excess of $50,000, whichhad not been disclosed on or before April 7, 2005, and which exceed$1,000,000 in the aggregate

·        anyincrease in cash outflow of the companies being purchased as a whole, measuredover the period from May 1, 2005 to the end of the most recently completedcalendar month, as compared to the amounts in VIA’s working capital projectionsfor such period of more than $1,250,000

·        lossor cancellation of customers contracts with annualized value in excess of$50,000 in an amount exceeding $1,800,000, net of new customer contract gains

8

----

·        bankruptcyof the parent company or any member of the VIA Group

·        breachof an undertaking in the Sales Agreement or warranty where the losses toClaranet are likely to exceed $1,000,000; or a

·        materialbreach of the working capital facility agreement

Effect ofTermination

·        In the event Claranetterminates the Sale Agreement in connection with any of the items listed aboveor if the Company terminates the Sale Agreement because it accepts a competingoffer, the Company must (a) reimburse the $3.0 million deposit to Claranettogether with accrued interest on the deposit at a rate of 8% per annum, (b) paya break fee of $500,000, (c) reimburse the costs and expenses incurred byClaranet in connection with the transaction up to $250,000, (d) pay backthe amounts drawn against the financing facility, and (e) pay a $400,000finance arrangement fee.

Terms of FinancingAgreement

·        Concurrently with enteringinto the Sale Agreement, the Company entered into a Facility Agreement withClaranet under which it is permitted to borrow up to Euro 5.4 million ($7.0million) for working capital requirements. The facility is stated in Euro fundsand will be made available according to the following schedule, stated in USDequivalent on the basis of a Euro to USD exchange rate of $1.303 per Euro:
| **Date**                                                | ** ** | ** ** | ** ** | **Amount of aggregate funds available,  including prior borrowings:** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| June 10,  2005 to June 23, 2005 (inclusive):  |       |       | $          | 1,200,000                                                                                           |       |   |
| June 24,  2005 to July 9, 2005 (inclusive):   |       |       | 2,500,000  |                                                                                                |       |
| July 10,  2005 to July 23, 2005 (inclusive):  |       |       | 4,200,000  |                                                                                                |       |
| July 24,  2005 to August 9, 2005 (inclusive): |       |       | 5,700,000  |                                                                                                |       |
| August 10, 2005 to  termination (inclusive):       |       |       | 7,000,000  |                                                                                                |       |

 

·        Theamount of funds made available to us and for which we will have to repayClaranet upon a closing may materially differ depending on the currencyexchange rate movements prior to the closing.

·        Aspermitted under the Facility Agreement, the Company has delivered a request toClaranet to accelerate the first draw to June 1, 2005. Funds advancedunder this facility are secured by our pledge of all of our ownership interestin certain of our Dutch, French, Belgian and German subsidiaries. Fundsadvanced bear interest at a rate of 8% per annum, compounded daily. All amountsoutstanding under the facility will be deducted from the purchase price payableby Claranet at the closing.

·        Ifthe closing has not occurred by the earlier of September 9, 2005 or thedate the Sale Agreement is terminated in accordance with its terms, the Companywill be required to pay Claranet an arrangement fee of $400,000. Following atermination of the Sale Agreement, Claranet may immediately cancel the facilityand all amounts there under come due upon 20 or 40 days notice to VIA,depending on the circumstances of the termination.

In the proxy statement the Company intends to deliverto its shareholders, the Company will request approval of, among other things,the Asset Sale and a plan of complete dissolution and liquidation of theCompany. If the Company receives approval from its shareholders, the Companywill seek to close the transaction shortly after the shareholder’s meeting anduse the net proceeds to pay off the remaining liabilities of the Company andshut down its corporate headquarters and terminate the remaining 

9

----

employees. Remaining fundswill then be distributed to the Company’s shareholders in accordance withDelaware law. An estimate of the net remaining funds available for distributionto the Company’s shareholders if the Asset Sale is closed will be includedwithin the proxy statement to be distributed to the Company’s shareholders inconnection with the proposed shareholder meeting. The closing of the Asset Saleis subject to a number of conditions, which might not be satisfied.

The Sale Agreement isconditioned on receiving the approval of the Company’s shareholders. If , forwhatever reason, the Company’s shareholders were to reject the transaction,there can be no assurance that VIA will be able to find alternative solution toits liquidity issue and in that event, would have insufficient funds tocontinue to operate the Company as a going concern.

**2.   Discontinued Operations**

As each of the UnitedKingdom, Brazilian, Portuguese, Cayman Islands and Swiss operations representeda component of an entity as defined by Statement of Financial AccountingStandards No. 144 (“SFAS 144”). *“Accounting for the Impairmentor Disposal of Long-Lived Assets”*, the Company has classified eachoperation as a discontinued operation for all periods presented.

***2004***

*VIA NET.WORKS UK Ltd.*

On September 28, 2004, the Company sold 100% ofthe shares of VIA NET.WORKS UK Limited, which was part of the Solutionssegment, to Claranet Limited, a UK-based Internet service provider. VIANET.WORKS UK Limited results would have been reported in our Solutions segment.Claranet agreed to pay total consideration for the shares of VIA NET.WORKS UKLimited in the aggregate amount of GBP 7.3 million ($13.1 million),subject to certain working capital and other adjustments. The Company receivedGBP 5.3 million ($9.4 million) in cash on completion. The GBP 2.0 million ($3.8million) balance was payable, subject to the working capital and otheradjustments, as follows: GBP 1.0 million ($1.9 million) in cash six monthsafter completion and GBP 1.0 million ($1.9 million) in cash one year aftercompletion.

On March 21, 2005, the Company resolved all contingenciessurrounding the first escrow payment, and received a payment from Claranet ofGBP 0.7 million ($1.3 million) plus accrued interest. The GBP 0.7 million($1.3 million) consideration has been recognized as gain on disposal fromdiscontinued operations in the three months ended March 31, 2005.

The remaining consideration of GBP 1.0 million ($1.9million) was scheduled to be released from escrow, subject to warranty claimsof Claranet against the Company, at the end of September 2005. On April 10,2005, the Company and Claranet entered into a letter of intent for purchase ofthe remaining business operations. Upon execution of the letter of intent,Claranet delivered a deposit of $3.0 million for the rights to negotiate on anexclusive basis definitive agreements toward the sale of the Company’s businessoperations. The deposit was partially paid by the release of the remaining GBP1.0 million ($1.9 million) in escrow. As all material contingencies surroundingthe second escrow payment were resolved as at March 31, 2005, the GBP 1.0million ($1.9 million) consideration has also been recognized as gain ondisposal from discontinued operations in the three months ended March 31,2005.

Revenues related to VIANET.WORKS UK Limited were approximately $5.6 million for the three months endedMarch 31, 2004 and nil million for the three months ended March 31,2005. The gain, excluding accounting for the sale transaction, related to VIANET.WORKS UK Limited was approximately $3.8 million for the three months ended March 31,2004 and nil million for the three months ended March 31, 2005.

10

----

*SURF COMPANIES*

During the year ended December 31,2004, Surftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Caymanwere liquidated. The results of the liquidated companies, which have beenrecorded during the three months ended March 31, 2004 are nil forSurftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Cayman.Surftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Cayman resultswould have been reported in Corporate entity.

***2005***

*VIA NET.WORKSSWITZERLAND*

On April 1, 2005, the Company announced the saleof two of its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKSServices AG—to former managers and owners of the business, for a purchase priceof CHF 3.5 million ($3.1 million). VIA NET.WORKS (Schweiz) AG and VIA NET.WORKSServices AG results would have been reported in our Solutions segment. TheCompany sold the Swiss operations due to working capital shortfalls. The netproceeds of the sale provided VIA with additional liquidity to continue itsoperations, while the Company continued discussions for refinancing and saletransactions.

As of March 31,2005 assets and liabilities held for sale consisted of:
| ** **                     | ** ** | **In thousands of  U.S. dollars** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| Current assets                 |       |                                             | 2,214      |   |   |
| Property, plant  and equipment |       |                                             | 324        |   |   |
| Intangible assets              |       |                                             | 488        |   |   |
| Goodwill  (Solutions segment)  |       |                                             | —     |   |   |
| Total assets                   |       |                                             | 3,026      |   |   |
| Accounts payable               |       |                                             | 608        |   |   |
| Deferred revenue               |       |                                             | 1,557      |   |   |
| Other current  liabilities     |       |                                             | 638        |   |   |
| Total liabilities              |       |                                             | 2,803      |   |   |

 

Revenues related to VIA NET.WORKS (Schweiz) AG and VIANET.WORKS Services AG were approximately $2.3 million for the three monthsended March 31, 2004 and $2.2 million for the three months ended March 31,2005. The loss excluding accounting for the sale transaction, related to VIANET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG was approximately $0.1million for the three months ended March 31, 2004 and $24,000 for thethree months ended March 31, 2005.

The balance sheet for thethree months ended March 31, 2005 has been reclassified to show the assetsand liabilities for VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AGseparately as businesses held for sale. Foreign currency translation adjustmentsof $1.0 million will be reclassified into the statement of operations upondisposal in the three months ending June 30, 2005. The comparative balancesheet as at December 31, 2004 has not been reclassified to show separatelyamounts related to discontinued operations.

11

----

**3.   Impairmentand Restructuring Charges**

*Impairment charges:*
| ** **                          | ** ** | **Three months ended  March 31,**                     | ** ** |
|-------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                          | ** ** | **     2004     ** | ** ** | **     2005     ** | ** ** |
| ** **                          | ** ** | **In thousands of  U.S. dollars**                     | ** ** |
| Fixed assets and  intangible assets |       |                                                                 | $          | — |   |   |   | $ | 1,850 |   |   |
| Goodwill                            |       |                                                                 | —     |   |   |   | 517 |   |   |
| Total impairment  charges           |       |                                                                 | $          | — |   |   |   | $ | 2,367 |   |   |

 

***2004***

There were no impairmentcharges for the three months ended March 31, 2004.

***2005***

At March 31, 2005, upon completion of animpairment analysis, in accordance with SFAS 144, the Company recorded anintangible fixed asset impairment charge of $0.8 million and a tangible fixedasset impairment charge of $1.1million, mainly related to the Solutions andAmen segments. For definitions of the segments, please refer to Note 11 segmentreporting. The fair value of the assets groups, calculated as of March 31,2005 was based on a discounted cash flow model with appropriate market andbusiness risk factored in for the period up until the first week of July, 2005,the estimated date of completion of the Claranet Sale, the estimated saleproceeds of $26.4 million as agreed in the sale and purchase agreement withClaranet and the projected working capital position at June 30, 2005.

The triggering event for the impairment was acombination of factors including unanticipated revenue shortfalls in certain ofour legacy VIA companies and our new Express business in the quarter ended December 31,2004, during which the Company recorded an intangible fixed asset impairmentcharge of $0.1 million and a tangible fixed asset impairment charge of $1.8million, and the quarter ended March 31, 2005, which left the Company withinsufficient cash reserves to continue the operations, and resulted in thesigning of the sale and purchase agreement on April 30, 2005 to sell thebusinesses of VIA NET.WORKS to Claranet. Additionally, the sale and purchaseagreement calls for estimated sale proceeds of $26.4 million, as opposed to$27.0 million utilized in the Company’s calculation as of December 31,2004, based on the letter of intent dated April 10, 2005.

Based on the impairment of tangible and intangiblefixed assets, at March 31, 2005, the Company determined a triggering eventhad occurred which required the Company to perform an impairment test on thecarrying value of goodwill in accordance with SFAS 142. As a result, theCompany recorded an impairment of$0.5 million to the goodwill related to itsAmen segment.

The fair value of the reporting units calculated as ofMarch 31, 2005 was based on a discounted cash flow model with appropriatemarket and business risk factored in for the period until the first week ofJuly, 2005, the estimated date of completion of the transaction with Claranet,in addition to the estimated sale proceeds of $26.4 million as agreed in thesale and purchase agreement with Claranet and the projected working capitalposition at June 30, 2005. Upon completion of the Asset Sale, the Companyexpects to record a loss in the statement of operations for the three monthsending September 30, 2005 relating to amounts previously recorded in accumulatedother comprehensive loss. As of March 31, 2005, the Company has $31.6million of cumulative translation losses recorded in respect of thesebusinesses.

As a part of the process of creating the discountedcash flow model, the Company’s management was required to make estimates andassumptions regarding future revenues, costs and cash flows. In addition, 

12

----

the use of a discountedcash flow model requires management to make estimates and assumptions about thediscount factor, timing of cash flows, terminal values and future growth rates.The assumptions made in calculating the impairment charges represent management’sbest estimates based on currently available information. Changes to any ofthese assumptions can have a material impact on the discounted cash flows andthe outcome of the impairment review.

Management has based theirassessment of fair value on the estimated sale proceeds of the business of$26.4 million and the projected working capital position at June 30, 2005.The closing of the sale is subject to a number of conditions, includingshareholder approval and the non-occurrence of a material adverse change in thebusinesses; and the estimated date of closing is based on an assumption thatthe review of the preliminary proxy statement by the Securities and ExchangeCommission will not cause any material delays in the distribution of thedefinitive proxy statement to the Company’s shareholder. Also, the estimatedfinal sales consideration is based in part on the amount of working capitalthat will be used by VIA during the period prior to closing, and the actualworking capital used may differ significantly from what was forecasted. If oneor more of these risks materialize, the actual impairment may materially differfrom the current calculation.

*Restructuring charges:*
| ** **                          | ** ** | **Balance at  December 31,  2003**         | ** ** | **Additions** | ** ** | **Cash   utilized ** | ** ** | **Foreign  exchange** | ** ** | **Balance at  March 31,  2004** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|---------------|------------|--------------------------------|------------|-----------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **In thousands of U.S. dollars** | ** ** |
| Employee  termination payments      |       |                                                 | 243        |          |       |                           | 151        |                  |       |                                      | (200       | ) |   |   | 1 |   |   |   | 195 |   |   |
| Future operating  lease obligations |       |                                                 | 276        |          |       |                           | —     |                  |       |                                      | (65        | ) |   |   | — |   |   |   | 211 |   |   |
| Other                               |       |                                                 | 121        |          |       |                           | 149        |                  |       |                                      | (114       | ) |   |   | — |   |   |   | 156 |   |   |
| Total  restructuring charges        |       |                                                 | $          | 640           |       |                           |       | $                     | 300        |                                      |       |   | $ | (379 | ) |   |   | $ | 1 |   |   |   | $ | 562 |   |   |
|                                     |            |                                                      |            |               |            |                                |            |                       |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                          | ** ** | **Balance at  December 31,  2004**         | ** ** | **Additions/  Releases** | ** ** | **Cash   utilized ** | ** ** | **Foreign  exchange** | ** ** | **Balance at  March 31,  2005** | ** ** |
|-------------------------------------|------------|------------------------------------------------------|------------|--------------------------|------------|--------------------------------|------------|-----------------------|------------|-------------------------------------------|------------|
| ** **                          | ** ** | **In thousands of U.S. dollars** | ** ** |
| Employee  termination payments      |       |                                                 | 348        |                     |       |                           | 190        |                  |       |                                      | (323       | ) |   |   | (16 | ) |   |   | 199 |   |   |
| Future operating  lease obligations |       |                                                 | 164        |                     |       |                           | 720        |                  |       |                                      | (70        | ) |   |   | (16 | ) |   |   | 798 |   |   |
| Other                               |       |                                                 | 484        |                     |       |                           | 176        |                  |       |                                      | (174       | ) |   |   | (16 | ) |   |   | 470 |   |   |
| Total  restructuring charges        |       |                                                 | $          | 996                      |       |                           |       | $                     | 1,086      |                                      |       |   | $ | (567 | ) |   |   | $ | (48 | ) |   |   | $ | 1,467 |   |   |
|                                     |            |                                                      |            |                          |            |                                |            |                       |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***2004***

The Company recorded restructuring charges of $0.3million during the three months ended March 31, 2004 related to severancepayments at the corporate headquarters and transition implementation costs forback-office and administrative outsourcing initiatives. Cash payments forseverance and benefits of $0.2 million were made in the first quarter of 2004by the European operations ($0.1 million) and Corporate ($0.1 million). Theemployee termination costs of $0.2 million for the three months ended March 31,2004 relate to five employees in finance at the corporate headquarters. Theresulting accrual of $0.2 million at March 31, 2004 relates to fiveemployees in finance at the corporate headquarters.

The accrual for futureoperating lease obligations, relating mainly to the Reston office, has beendrawn down by the monthly payments on the office lease, which continued throughto February 2005, less the income from a sublease of the space.

13

----

***2005***

During the three months ended March 31, 2005, theCompany recorded restructuring charges of $1.1million. The restructuring chargefor the three months ended March 31, 2005 related to severance payments atthe corporate headquarters and at the Netherlands operation, costs for futureoperating lease obligations at our Netherlands operation and transitionimplementation costs for back-office integration initiatives.

The employee termination costs of $0.2 million for thethree months ended March 31, 2005 relate to one employee at the corporateheadquarters and one employee at our Netherlands operation. Cash payments forseverance and benefits of $0.3 million were made in the three months ended March 31,2005 by our European operations. The remaining accrual of $0.2 million at March 31,2005 relates to one employee at the German operation and one employee at thecorporate headquarters. It is not anticipated that any of these terminationswill adversely impact the Company’s ability to generate revenue.

The accrual for future operating lease obligations,relate to the Reston office and future lease obligations in the German andNetherlands operations. The expenses for future operating lease obligations of$0.7 million for the three months ended March 31, 2005 relate to anaddition in future operating lease obligations in the Netherlands operation.The accrual for the future operating lease obligations of the Reston office andthe German operation have been drawn down by the monthly payments on the officelease. $40,000 of the accrual for the future operating lease obligations hasbeen released to the statement of operations for the three months ended March 31,2005 after the Reston operating lease obligation was terminated in February 2005.

Other charges incurred inthe three months ended March 31, 2005, relate to the implementation costsfor back-office integration initiatives. The remaining accrual of $0.5 millionat March 31, 2005 relates to $0.2 million implementation costs forback-office integration initiatives, $0.2 million for the termination of areseller agreement in the French operation and $0.1 million for costsassociated with integrating the PSINet Europe operations and related systemmigration costs.

**4.   Income Tax**

The provision for taxesbased on income for the three months ended March 31, 2004 and 2005 wascomputed in accordance with Interpretation No. 18 of Accounting PrinciplesBoard Opinion No. 28 on reporting taxes for interim periods and was based onmanagement’s expectation of an effective income tax rate of 0% for the yearending December 31, 2005.

**5.   Comprehensive Loss**

Comprehensiveloss for the three months ended March 31, 2004 and 2005 was as follows:
| ** **                                     | ** ** | **Three months ended  March 31,**   | ** ** |
|------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                     | ** ** | **    2004   ** | ** ** | **  2005   ** | ** ** |
| ** **                                     | ** ** | **In thousands of  U.S. dollars**   | ** ** |
| Net loss                                       |       | $                                                  | (9,817     | ) | $ | (11,416 | ) |
| Foreign currency  translation adjustment gains |       | 1,926                                              |       | 2,328 |   |
| Comprehensive  loss                            |       | $                                                  | (7,891     | ) | $ | (9,088 | ) |

 

14

----

**6.   Propertyand Equipment, net**

Propertyand equipment consisted of the following:
| ** **                      | ** ** | **December 31,  2004**                          | ** ** | **March 31,  2005** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|--------------------------|------------|
| ** **                      | ** ** | **In thousands of U.S. dollars** | ** ** |
| Hardware and  other equipment   |       |                                                 | $          | 19,586                   |       |   | $ | 17,061 |   |
| Network and data  center assets |       |                                                 | 8,330      |                     |       | 9,088 |   |
| Software                        |       |                                                 | 17,237     |                     |       | 17,109 |   |
| Furniture and  fixtures         |       |                                                 | 1,186      |                     |       | 916 |   |
|                            |       |                                                 | 46,339     |                     |       | 44,174 |   |
| Accumulated  depreciation       |       |                                                 | (33,274    | )                        |       | (33,028 | ) |
| Property and  equipment, net    |       |                                                 | $          | 13,065                   |       |   | $ | 11,146 |   |

 

Depreciation expense was$1.6 million and $2.0 million for the three months ended March 31,2004 and 2005, respectively. The Company recorded an asset impairment charge of$1.8 million and $1.1 million for the year ended December 31, 2004 and thethree months ended March 31, 2005, respectively. The table above shows thebalances net after the effect of the impairment charges. The fixed assetimpairment charge related to Hardware and other equipment. (See Note 3 forfurther information.)

**7.   Goodwill**

Thechanges in the carrying amount of goodwill during the three months ended March 31,2005, are as follows:
| ** **                                           | ** ** | **Total**                                            | ** ** | **Solutions** | ** ** | **Amen** | ** ** | **Express** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|---------------|------------|----------|------------|-------------|------------|
| ** **                                           | ** ** | **In thousands of U.S. dollars** | ** ** |
| Balance as of  December 31, 2004                |       | $                                                    | 42,466     |          | $          | 30,830   |       | $           | 10,490     |   | $ | 1,146 |   |
| Impairment  charges related to continuing operations |       | (517                                                 | )          | —        |       | (517     | )          | —      |       |
| Foreign exchange  adjustment                         |       | (1,355                                               | )          | (1,607        | )          | 252      |       | —      |       |
| Balance as of  March 31, 2005                   |       | $                                                    | 40,594     |          | $          | 29,223   |       | $           | 10,225     |   | $ | 1,146 |   |

 

Impairments are discussedin greater detail within Note 3 of these consolidated financial statements.

**8.**   IntangibleAssets, net

Intangibleassets consisted of the following:
| ** **               | ** ** | **December 31, 2004**                      | ** ** | **March 31, 2005** | ** ** |
|--------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **In thousands of U.S. dollars** | ** ** |
| Customer lists           |       |                                                 | $          | 6,580                        |       |   |   | $ | 6,229 |   |   |
| Software                 |       |                                                 | 2,183      |                         |       |   | 2,067 |   |   |
| Tradename                |       |                                                 | 1,062      |                         |       |   | 1,004 |   |   |
| Accumulated amortization |       |                                                 | (1,130     | )                            |       |   | (2,262 | ) |   |
| Intangible assets  , net |       |                                                 | $          | 8,695                        |       |   |   | $ | 7,038 |   |   |

 

The amortization expensefor the three-month periods ended March 31, 2004 and 2005 was $0.2 and$0.1 million, respectively. The Company amortizes customer lists, software andtrade names over three to seven years, five years and ten years respectively.The Company recorded an asset impairment charge of $0.1 million and $0.8million for the year ended December 31, 2004 and the three months ended March 31,2005, respectively. The table above shows the balances net after the effect ofthe impairment charges. (See Note 3 for further information.)

15

----

**9.**   Stock-BasedCompensation

SFAS No. 123, “*Accountingfor Stock-Based Compensation*,” encourages, but does not requirecompanies to record compensation cost for stock-based employee compensationplans at fair value. The Company has chosen to account for stock-basedcompensation using the intrinsic value method prescribed in AccountingPrinciples Board Opinion (“APB”) No. 25, “*Accountingfor Stock Issued to Employees*,” and related Interpretations.Accordingly, compensation cost for stock options is measured as the excess, ifany, of the estimated fair value of the Company’s stock at the date of thegrant over the amount an employee must pay to acquire the stock.

TheCompany has adopted the “disclosure only” alternative described in SFAS No. 123,which requires pro forma disclosures of net income and earnings per share as ifthe fair value method of accounting has been applied. The following tableillustrates the effect on net income and earnings per share as if the Companyhad applied the fair value recognition provisions of SFAS No. 123 tostock-based employee compensation:
| ** **                                                                                                                     | ** ** | **For the three months ended  March 31,**                           | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                     | ** ** | **       2004       ** | ** ** | **       2005       ** | ** ** |
| ** **                                                                                                                     | ** ** | **In thousands of U.S. dollars**                                         | ** ** |
| Net loss (as  reported)                                                                                                        |       |                                                                                         | $          | (9,817 | ) |   |   | $ | (11,416 | ) |   |
| Add back: Total  stock-based employee compensation expense determined under intrinsic value  method                            |       |                                                                                         | 80         |   |   |   | — |   |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method, net of related tax effects |       |                                                                                         | (609       | ) |   |   | (317 | ) |   |
| Pro Forma net  loss                                                                                                            |       |                                                                                         | $          | (10,346 | ) |   |   | $ | (11,733 | ) |   |
| Net loss per share, basic and diluted (as reported)                                                                            |       |                                                                                         | $          | (0.16 | ) |   |   | $ | (0.19 | ) |   |
| Net loss per share,  basic and diluted (Pro Forma)                                                                             |       |                                                                                         | $          | (0.17 | ) |   |   | $ | (0.19 | ) |   |

 

During the three monthsended March 31, 2004, a total of 37,500 shares of the Company’s commonstock were issued to two directors pursuant to the Company’s directorcompensation program. The market value of the stock as issued on the date ofgrant was $2.13 per share. This cost to the Company has been expensed in thecondensed consolidated statement of operations for the three months ended March 31,2004.

**10.   Contingencies**

*Legal Proceedings*

On November 5, 2001, the Company was named as adefendant in a class action lawsuit in the District Court for the SouthernDistrict of New York against VIA NET.WORKS, Inc., certain of theunderwriters who supported our initial public offering (“IPO”) and certain ofour officers, under the title O’Leary v. Via Net.works [sic] et al [01-CV-9720](the “Complaint”). An amended complaint was filed in April 2002. TheComplaint alleges that the prospectus we filed with our registration statementin connection with our IPO was materially false and misleading because itfailed to disclose, among other things, that: (i) the named underwritershad solicited and received excessive and undisclosed commissions from certaininvestors in exchange for the right to purchase large blocks of VIA IPO shares;and (ii) the named Underwriters had entered into agreements with certainof their customers to allocate VIA IPO shares in exchange for which thecustomers agreed to purchase additional VIA shares in the aftermarket atpre-determined prices (“Tie-in Arrangements”), thereby artificiallyinflating the Company’s stock price. The Complaint further alleges violationsof Sections 11, 12 (a)(2) and 15 of the Securities Act of 1933 and Section 10(b) ofthe Securities Exchange Act of 1934 and Rule 10b-5 promulgated there underarising out of the alleged failure 

16

----

to disclose and thealleged materially misleading disclosures made with respect to the commissionsand the Tie-in Arrangements in the prospectus. The plaintiffs in this actionseek monetary damages in an unspecified amount. Approximately 300 other issuersand their underwriters have had similar suits filed against them, all of whichare included in a single coordinated proceeding in the Southern District of NewYork (the “IPO Litigation”). On June 30, 2003, the special litigationcommittee of the board of directors of the Company conditionally approved theglobal settlement between all plaintiffs and issuers in the IPO Litigations. Thespecial litigation committee agreed to approve the settlement subject to anumber of conditions, including the participation of a substantial number ofother defendants in the proposed settlement, the consent of the Company’sinsurers to the settlement, and the completion of acceptable final settlementdocumentation. The settlement would provide, among other things, a release ofthe Company and of the individual defendants for the conduct alleged in theaction to be wrongful by the plaintiffs. Under the proposed settlement, theCompany would agree to undertake other responsibilities under the partialsettlement, including agreeing to assign away, not assert, or release certainpotential claims the Company may have against its underwriters. In June 2004,a motion for preliminary approval of the settlement was filed with the Court.The underwriters filed a memorandum with the Court opposing preliminaryapproval of the settlement. The court granted the preliminary approval on February 15,2005, subject to certain modifications. If the parties are able to agree uponthe required modifications, and such modifications are acceptable to the court,notice will be given to all class members of the settlement, a “fairness”hearing will be held and if the Court determines that the settlement is fair tothe class members, the settlement will be approved. Any direct financial impactof the proposed settlement is expected to be borne by our insurers.

PSINet Belgium, anindirect wholly-owned subsidiary of the Company, is a defendant in a lawsuitfiled by Perceval Technologies N.V. regarding a commercial agreement enteredinto for the provision by Perceval of a DSL network in Belgium, Luxembourg andFrance. The agreement of 15 March 2004, entered into prior to VIA’sacquisition of PSINet Belgium, was for the benefit of a customer of PSINetBelgium, and provided for a three-year term upon completion of a test phase.The customer was not satisfied with the results of the project and decided tostop the project, whereupon PSINet Belgium terminated the agreement withPerceval Technologies. On February 28, 2005, Perceval brought a civilaction before the commercial court of Brussels for the early termination of thecontract and claims damage in the amount of €1.4 million plus €250,000 moraldamages, plus interests, costs and attorneys’ fees. The Company believes PSINetBelgium was entitled to terminate the agreement under the circumstances andthat the allegations are without merit and have engaged counsel to defend theaction. If PSINet Belgium is determined to be liable or if the Companyconcludes that a settlement is in its best interests, that subsidiary may incursubstantial costs.

*Guarantees*

From time to time, theCompany enters into indemnification agreements with certain contractual partiesin the ordinary course of business, including agreements with lenders, lessors,service providers and certain vendors. All such indemnification agreements areentered into in the context of the particular agreements and are provided in anattempt to properly allocate risk of loss in connection with the consummationof the underlying contractual arrangements. Although the maximum amount offuture payments that the Company could be required to make under theseindemnification agreements is unlimited, management believes that historically,costs incurred to settle claims related to these indemnifications have not beenmaterial to the Company’s financial position, results of operations or cashflows and that this is the expectation for the future. Additionally, the fairvalue of the indemnifications that the Company issued during the year ended December 31,2004 and the three months ended March 31, 2005, respectively, were notmaterial to the Company’s financial position, results of operations or cashflows.

17

----

*Other*

The Company is subject toclaims and legal proceedings that arise in the ordinary course of its businessoperations. Each of these matters is subject to various uncertainties, and itis possible that some of these matters may be decided unfavorably to theCompany. The Company does not believe that any of these matters will have amaterial adverse affect on its business, assets or operations.

**11.**   SegmentReporting

VIA offers a variety of Internet access, managedbandwidth, web-hosting, Internet security and related services to businessesand consumers in Europe and the Americas. As of March 31, 2005, theCompany served primary markets in nine countries. These country operationsgenerate Internet-related revenues from leased lines, dial-up Internet access,web-hosting and design, Internet security and consulting services, and sale ofthird-party hardware and software.

In prior reporting periods, the Company’s internalmanagement reporting structure was based on country operations and thereforethe Company had provided segment information based on geographic regions.

Within the last quarter of 2004, managementre-evaluated and amended its internal reporting structure and therefore changedits reportable segments and grouped all of the VIA legacy operating companies,except the US operation, and the newly acquired PSINet Europe operatingcompanies into one operating segment—“Solutions”. The Company grouped itsstart-up VIA Express channel operations together with the legacy VIA USoperations into one operating segment—“Express”. The Company grouped all of theAmen operating companies into one operating segment—“Amen”. The Company and itsChief Operating Decision Maker (“CODM”) evaluates the performance of itssegments based on revenue and EBITDA before restructuring (“Adjusted EBITDA”).The Company’s CODM have been the Chief Executive Officer and the ChiefFinancial Officer throughout the year. Corporate expenses, which also includethe regional companies holding Indefeasible Rights of Use (“IRU’s), are shownto reconcile to the total consolidated figures. Prior period amounts have beenreclassified to conform to the current period presentation.

The table below presentsinformation about the reported revenue, adjusted EBITDA, impairment andrestructuring charges and assets from continuing operations of the Company’soperating segments for the three months ended March 31, 2004 and March 31,2005. Total segment assets, as presented in the table below, are total assetsnet of intercompany funding amounts.
| ** **                                 | ** ** | **Solutions**                                        | ** ** | **Express** | ** ** | **Amen** | ** ** | ** Corporate ** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------|------------|-------------|------------|----------|------------|---------------------------|------------|-----------|------------|
| ** **                                 | ** ** | **In thousands of U.S. dollars** | ** ** |
| Total assets as  of December 31, 2004 |       | $                                                    | 67,145     |        | $          | 3,711    |       | $                         | 21,808     |      |       | $ | 27,789 |   |   | 120,453 |   |
| Total assets as  of March 31, 2005    |       | 60,556                                               |       | 3,519       |       | 19,158   |       |                      | 23,514     |      |       | 106,747 |   |
| Three months  ended March 31, 2004:   |       |                                                 |       |        |       |     |       |                      |       |      |       |   |   |
| Revenue                                    |       | 7,998                                                |       | 915         |       | 1,483    |       |                      | —     |      |       | 10,396 |   |
| Adjusted EBITDA                            |       | (1,769                                               | )          | (265        | )          | 411      |       |                      | (6,591     | )         |       | (8,214 | ) |
| Impairment and restructuring charges       |       | —                                               |       | —      |       | —   |       |                      | (300       | )         |       | (300 | ) |
| Three months  ended March 31, 2005:   |       |                                                 |       |        |       |     |       |                      |       |      |       |   |   |
| Revenue                                    |       | 20,009                                               |       | 1,124       |       | 2,934    |       |                      | 22         |      |       | 24,089 |   |
| Adjusted EBITDA                            |       | (1,945                                               | )          | (401        | )          | 442      |       |                      | (5,656     | )         |       | (7,560 | ) |
| Impairment and  restructuring charges      |       | (1,588                                               | )          | —      |       | (1,180   | )          |                      | (685       | )         |       | (3,453 | ) |
|                                            |            |                                                      |            |             |            |          |            |                           |            |           |            |  |  |  |  |  |  |

 

Total assets include assets relating to VIA NET.WORKS(Schweiz) AG and VIA NET.WORKS Services AG which have been classified asbusinesses held for sale as of March 31, 2005. Total assets relating tothese entities, $1.8 million, have been included within the Solutions segmentabove.

18

----

Thereconciliation between Adjusted EBITDA to net loss for continuing operations isas follows:
| **Three months ended  March 31, 2004** |   |    |   |
|---------------------------------------------|--------|---------|--------|
| Adjusted EBITDA                             |   | (8,214  | )      |
| Impairment and  restructuring charges       |   | (300    | )      |
| Depreciation and  amortization              |   | (1,838  | )      |
| Interest income                             |   | 106     |   |
| Interest expense                            |   | (18     | )      |
| Other income, net                           |   | 34      |   |
| Foreign currency losses,  net               |   | (3,326  | )      |
| Income tax benefit                          |   | 7       |   |
| Net loss from continuing  operations        |   | (13,549 | )      |
| **Three  months ended March 31, 2005** |   |    |   |
| Adjusted EBITDA                             |   | (7,560  | )      |
| Impairment and  restructuring charges       |   | (3,453  | )      |
| Depreciation and  amortization              |   | (2,114  | )      |
| Interest income                             |   | 12      |   |
| Interest expense                            |   | (172    | )      |
| Other income, net                           |   | 404     |   |
| Foreign currency losses,  net               |   | (1,702  | )      |
| Income tax expense                          |   | (30     | )      |
| Net loss from continuing operations         |   | (14,615 | )      |

 

**12.   Subsequentevents**

On April 1, 2005, theCompany sold its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKSServices AG—to former managers and owners of the business, for a purchase priceof CHF 3.5 million (approximately $3.1million).

On April 10, 2005,VIA NET.WORKS, Inc. entered into a letter of intent with Claranet GroupLimited, a privately-held European Internet services provider based in theUnited Kingdom, to sell all of the Company’s remaining business operations inEurope and the United States.

On April 11, 2005,the Company announced the Claranet Sale offer. In reaction to the announcement,a number of managers and employees of the Company’s Amen group formed a strikeagainst Amen, seeking employment security guarantees from Claranet, amongstother things. The Company has obtained the support of staff from other membersof the VIA group to fill in for the striking workers to ensure the continuationof technical and customer support. We believe that we will be able to resolvethe matter satisfactorily without undue cost or impairment to the Amenbusiness.

On April 30, 2005,VIA NET.WORKS, Inc. entered into a sale and purchase agreement, or SaleAgreement, with Claranet Group Limited (Claranet), a privately-held EuropeanInternet services provider based in the United Kingdom, to sell all of theCompany’sremaining business operations in Europe and the United States (theAsset Sale). The agreement followed on the letter of intent entered intobetween Claranet and VIA on April 10, 2005. The key terms of the proposedtransaction, or the Claranet Sale, are disclosed within Note 1 of theseconsolidated financial statements.

On May 9, 2005, theCompany filed a preliminary proxy statement with the Securities and ExchangeCommission in respect of the Claranet Sale Agreement and the Asset Sale, a planof complete dissolution and liquidation, a proposal for amendments to theCertificate of Incorporation to effect a reverse stock split, and the electionof directors. On May 18, 2005, the SEC staff informed the Company that itwas preparing comments on the preliminary proxy statement. Although the Companyhas not yet received formal written comments, based on conversations betweenthe Company’s management and SEC staff regarding the comments, the Companybelieves it will be in a position to file its definitive proxy statement beforethe end of May 2005. In such case, the Company anticipates that theClosing will occur during the first week of July 2005. Otherwise, theCompany anticipates that the Closing will take place during the first week of August 2005.

19

----

**ITEM. 2.**             MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussionand analysis should be read in conjunction with the condensed consolidatedfinancial statements and related notes included in Item 1 of this Form 10-Q.This discussion and the discussion in Item 1, Note 1, containforward-looking statements, or statements that relate to future events or ourfuture performance. These statements include, but are not limited to thoserelating to but are not limited to those relating to the agreement entered intoby the Company to sell all of its businesses to Claranet Group Limited, thetiming of that potential transaction and the anticipated net proceeds toshareholders arising out of that potential transaction.. These statements areonly predictions 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 in Exhibit 99.1on this Form 10-Q, as well as those described in the “Risk Factors”section of VIA’s 2004 Annual Report. You are urged to carefully considerthese factors, as well as other information contained in this Form 10-Qand in our other periodic reports and documents filed with the Securities andExchange Commission.

**Overview**

VIA NET.WORKS, Inc.is a leading provider of business communication solutions to small- andmedium-sized enterprises, or SMEs, in Europe and the United States. Through ourthree brands, VIA NET.WORKS, AMEN and PSINet Europe, we offer a comprehensiveportfolio of business communications services, including web hosting, security,connectivity, networks, voice and professional services. Our headquarters arein Amsterdam and we have operations in Belgium, France, Germany, Italy, theNetherlands, Portugal, Spain, Switzerland, the United Kingdom and the UnitedStates.

**ProposedSale of the Businesses; Interim Funding Arrangements**

On April 30, 2005, VIA NET.WORKS, Inc.entered into a sale and purchase agreement, or Sale Agreement, with ClaranetGroup Limited (Claranet), a privately-held European Internet services providerbased in the United Kingdom, to sell all of our business operations in Europeand the United States (the Asset Sale). The agreement followed on the letter ofintent entered into between Claranet and VIA on April 10, 2005. Thefollowing discussion is a summary of the material provisions of the SaleAgreement. This summary is qualified in its entirety by reference to the SaleAgreement, a copy of which is attached as Exhibit 99.1 to the CurrentReport on Form 8-K filed by VIA on May 3, 2005 with the Securitiesand Exchange Commission reporting the execution of the sale and purchaseagreement.

The material provisions of the Sale Agreement are asfollows:

**Assets to be Sold Pursuant to theSale Agreement**

·       VIA would sell to Claranetall of our business operations in Europe and the U.S, which includes all of oursubsidiary companies other than VIA NET.WORKS NY Corp, VIA NET.WORKS Holdco, Inc.,Surftrade U.S.A. Inc. and our parent company, VIA NET.WORKS, Inc. Theassets to be sold to Claranet consist of substantially all of our assets,properties and rights. Claranet would acquire certain assets and liabilitiespertaining to our centralized back office financial and technical supportsystems that are owned by our group parent company, VIA NET.WORKS, Inc. Wewould transfer employment contracts of certain headquarters personnel who areresponsible for supporting the back office and technical support systems toappropriate VIA operating companies or Claranet will offer employment to suchpersons.

20

----

**Treatment of Liabilities**

·       Claranetwould assume certain liabilities of our parent company, VIA NET.WORKS, Inc.,including liabilities and obligations relating to the business operations beingsold and employee contracts of certain headquarters personnel. Claranet wouldnot assume other liabilities, such as severance costs for other employees atthe corporate headquarters, lease payments, outstanding liabilities fromprevious acquisitions, vendor bills relating to costs of being a public companyand ongoing operating costs associated with winding down the corporateheadquarters.

·       VIA would retain all otherdebts and liabilities of the group parent company, including but not limited toexpenses relating to the headquarters office lease in Schiphol-Oost, VIA seniorexecutives and all other headquarters staff, corporate vendors and professionaladvisors, and remaining payment obligations to sellers of the PSINet Europegroup and the Amen group.

**Purchase Price**

·       Underthe agreement, Claranet would pay VIA $26.4 million, less certain adjustments.In particular, the purchase price will be reduced by the amounts advanced to usby the Purchaser under the Euro 5.4 million ($7.0 million) working capitalfacility established by Claranet when the Sale Agreement was signed. Under thisagreement we are obliged to monitor the level of working capital during theperiod between signing and the closing of the transaction as described belowunder “Termination of the Sale Agreement”. A schedule for advances underthe facility is described below. The purchase price will also be adjusted forany funds withdrawn from or payments made by the subsidiaries being sold by orto our parent company or any subsidiaries not being sold.

·       Concurrent with theexecution of the April 10, 2005 letter of intent, Claranet delivered adeposit of $3,000,000 to VIA in order to secure the rights to negotiateexclusively with us until April 30, 2005. The deposit was partially fundedby the release of £1.0 million ($1.9 million) from the escrow established byClaranet in favor of VIA in connection with the purchase in September 2004by Claranet of our legacy operations in the United Kingdom. The deposit will beforfeited by Claranet if the transaction does not close other than for ourdefault or certain other conditions. Otherwise, the portion of the deposit inexcess of the £1.0 million ($1.9 million) will be credited to the purchaseprice at closing.

**Survival of Warranties and OtherClaims; Limitations on Liability**

·       We have made certaincustomary warranties in the Sale Agreement that generally survive for threemonths following closing, with certain exceptions for matters relating to taxand title to properties. VIA would not be liable for any breaches of warrantiesuntil the aggregate amount of all claims exceeds $1,000,000, and our maximumliability for all breaches would be limited to 33% of the purchase price(approximately $8.8 million).

**Closing**

·       TheAsset Sale is conditioned upon the approval by our shareholders. In addition,the agreement contains customary pre-closing conditions relating to, amongother things, accuracy of warranties and our compliance with the provisions ofthe Sale Agreement, including the conduct of the business pending the closing.

·       If the Asset Sale isapproved and adopted by our shareholders, the closing will take place shortlyafter the shareholder meeting. On May 9, 2005, we have filed ourpreliminary proxy statement with the Securities and Exchange Commission, or SEC.On May 18, 2005, the SEC staff informed the Company that it was preparingcomments on the preliminary proxy statement. Although we have 

21

----

not yet receivedformal written comments, based on conversations between the our management andSEC staff regarding the comments we believe we will be in a position to fileour definitive proxy statement before the end of May 2005. In such case,we anticipate that the closing would occur during the first week of July, 2005.Otherwise, we would anticipate that the closing would take place during thefirst week of August, 2005.

**Competing Offers**

·       The Sale Agreementprohibits us from approaching or negotiating with any other potentialpurchaser, provided that our board may negotiate with a third party regardingan alternative offer if refusing to do so would, in the reasonabledetermination of our board upon advice of counsel, be reasonably likely toconstitute a breach of fiduciary duties to our shareholders.

**Termination of the Sale Agreement**

·       Claranetis entitled, prior to the closing, to terminate the Sale Agreement in the eventof

·        claimsagainst VIA or a one of the companies being purchased in excess of $50,000,which had not been disclosed on or before April 7, 2005, and which exceed$1,000,000 in the aggregate

·        anyincrease in cash outflow of the companies being purchased as a whole, measuredover the period from May 1, 2005 to the end of the most recently completedcalendar month, as compared to the amounts in VIA’s working capital projectionsfor such period of more than $1,250,000

·        lossor cancellation of customers contracts with annualized value in excess of$50,000 in an amount exceeding $1,800,000, net of new customer contract gains

·        bankruptcyof the parent company or any member of the VIA group

·        breachof an undertaking in the Sales Agreement or warranty where the losses to Claranetare likely to exceed $1,000,000; or a

·        material breach of theworking capital facility agreement

**Effect of Termination**

·       In the event Claranetterminates the Sales Agreement in connection with any of the items listed aboveor if we terminate the Sales Agreement because we accept a competing offer, wemust (a) reimburse the $3.0 million deposit to Claranet together withaccrued interest on the deposit at a rate of 8% per annum, (b) pay a breakfee of $500,000, (c) reimburse the costs and expenses incurred by Claranetin connection with the transaction up to $250,000, (d) pay back theamounts drawn against the financing facility, and (e) pay a $400,000finance arrangement fee.

22

----

**Terms of Financing Agreement**

·       Concurrently with enteringinto the Sale Agreement, we entered into a Facility Agreement with Claranetunder which it is permitted to borrow up to Euro 5.4 million ($7.0 million) forworking capital requirements. The facility is stated in Euro funds and will bemade available according to the following schedule, stated in USD equivalent onthe basis of a Euro to USD exchange rate of $1.303 per Euro:
| **Date**                                                | ** ** | ** ** | ** ** | **Amount of aggregate funds available,  including prior borrowings:** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| June 10,  2005 to June 23, 2005 (inclusive):  |       |       | $          | 1,200,000                                                                                           |       |   |
| June 24,  2005 to July 9, 2005 (inclusive):   |       |       | 2,500,000  |                                                                                                |       |
| July 10,  2005 to July 23, 2005 (inclusive):  |       |       | 4,200,000  |                                                                                                |       |
| July 24,  2005 to August 9, 2005 (inclusive): |       |       | 5,700,000  |                                                                                                |       |
| August 10, 2005 to  termination (inclusive):       |       |       | 7,000,000  |                                                                                                |       |

 

·       Theamount of funds made available to us and for which we will have to repayClaranet upon a closing may materially differ depending on the currencyexchange rate movements prior to the closing.

Aspermitted under the Facility Agreement, we have delivered a request to Claranetto accelerate the first draw to June 1, 2005. Funds advanced under thisfacility are secured by our pledge of all of our ownership interest in certainof our Dutch, French, Belgian and German subsidiaries. Funds advanced bearinterest at a rate of 8% per annum, compounded daily. All amounts outstandingunder the facility will be deducted from the purchase price payable by Claranetat the closing.

·       Ifthe closing has not occurred by the earlier of September 9, 2005 or thedate the Sale Agreement is terminated in accordance with its terms, we will berequired to pay Claranet an arrangement fee of $400,000. Following atermination of the Sale Agreement, Claranet may immediately cancel the facilityand all amounts there under come due upon 20 or 40 days notice to VIA,depending on the circumstances of the termination.

In the proxy statement we intend to deliver to ourshareholders, we will request approval of, among other things, the Asset Saleand a plan of complete dissolution and liquidation of the Company. If we receiveapproval from our shareholders, we will seek to close the transaction shortlyafter the shareholder’s meeting and use the net proceeds to pay off theremaining liabilities of the Company and shut down our corporate headquartersand terminate the remaining employees. Remaining funds will then be distributedto our shareholders. An analysis of the estimated net remaining funds availablefor distribution to our shareholders if the Asset Sale is closed will beincluded in the proxy statement to be distributed to our shareholders inconnection with the proposed shareholder meeting. The closing of the Asset Saleis subject to a number of conditions, which might not be satisfied. Please seethe risk factors noted in the attached Exhibit 99.1 to this Form 10-Qfor a discussion of possible outcomes if the Asset Sale does not occur.

During and subsequent to the end of the quarter ended March 31,2005, we have engaged in discussions with the former owners of the PSINetEurope companies with a view toward renegotiating the Euro 6.0 million zerocoupon convertible note obligation we entered into in connection with ouracquisition of the five PSINet Europe companies on August 20, 2004. Theunsecured zero coupon convertible note of Euro 6.0 million ($7.8 million) is duein full November 20, 2005, subject to offset for any claims we might haveat that date for any breach of warranties or for any indemnificationobligations the sellers have undertaken in connection with the saletransaction. Taking into account VIA’s current financial position, among otherthings, the sellers have agreed in principal to compromise the payment to bedue under the note. Under the proposed settlement, VIA would make a cashpayment of approximately $2.0 million and issue 6,713,980 of common sharesto the holder of the note at or immediately after the 

23

----

closing of the Asset Sale;the cash payment and share issuance would be in full satisfaction of the note. Inexchange for the compromise of the note obligation, VIA would release thesellers of all present and future claims we now or in the future may have underthe purchase agreement under which we acquired the PSINet Europe companies,including any warranty or indemnification claims. All current and future thirdparty claims that would have been subject to such indemnification or warrantyprotection would then be for our account. This settlement and release has notyet been set forth in a binding agreement and may not occur on the expectedterms or at all.

Upon completion of the Asset Sale, we expect to recorda loss in the statement of operations for the three months ending September 30,2005 of $31.6 million, relating to amounts previously recorded in accumulatedother comprehensive loss. As of March 31, 2005, we have $31.6 million ofcumulative translation losses recorded in respect of these businesses.

On April 1, 2005, the Company sold its Swisscompanies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG—to formermanagers and owners of the business, for a purchase price of CHF3.5 million(approximately $3.1million). Upon completion of the VIA NET.WORKS (Schweiz) AGand VIA NET.WORKS Services AG sale, we expect to record a loss in the statementof operations for the three months ending June 30, 2005, relating toamounts previously recorded in accumulated other comprehensive loss.

In reaction to the April 11,2005 announcement of the proposed Asset Sale, a number of managers andemployees of VIA’s Amen group formed a strike against Amen, seeking employmentsecurity guarantees from Claranet, among other things. VIA has obtained thesupport of staff from other members of the VIA group to fill in for thestriking workers to ensure the continuation of technical and customer support. Asof May 20, 2005, the strike has continued. We believe that we will be ableto resolve the matter satisfactorily without undue cost or impairment to theAmen business.

**RecentChanges in Our Operations**

In the third quarter of2004, we sold VIA NET.WORKS UK Ltd. and during the year ended December 31,2004, we liquidated Surftrade Ltda., Surftrade Portugal and VIA NET.WORKSHolding Cayman. On April 1, 2005, we announced the sale of two of ourSwiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG—toformer managers and owners of the business. These operations are accounted foras discontinued operations and have been excluded from the financial resultsfrom continuing operations, as well as the financial results for thecomparative prior period. We acquired Amen in January 2004 which hasoperations in France, the United Kingdom, Spain, and Italy. In addition, in August 2004we acquired certain PSINet Europe operations, in Belgium, Germany, theNetherlands, Switzerland and France. The following table shows the revenuecontribution from each of our continuing operations in the Company’s countriesof domicile (origin). As of March 31, 2005 we owned 100% of all ouroperations.

24

----

**Revenues by Countryof Origin**
| **Country**     | ** ** | ** ** | ** ** | **Percentages of  Total Revenue from  continuing operations  for the Three  Months Ended  March 31, 2004** | ** ** | **Percentages of  Total Revenue from  continuing operations  for the Three  Months Ended  March 31, 2005** | ** ** |
|-----------------|------------|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| France          |       |       | 28         | %                                                                                                                                                       |       |                                                                                                                                                    | 19         | % |   |
| Germany         |       |       | 19         | %                                                                                                                                                       |       |                                                                                                                                                    | 25         | % |   |
| The Netherlands |       |       | 22         | %                                                                                                                                                       |       |                                                                                                                                                    | 25         | % |   |
| Portugal        |       |       | 15         | %                                                                                                                                                       |       |                                                                                                                                                    | 8          | % |   |
| Spain           |       |       | 5          | %                                                                                                                                                       |       |                                                                                                                                                    | 3          | % |   |
| Switzerland     |       |       | 0          | %                                                                                                                                                       |       |                                                                                                                                                    | 9          | % |   |
| United Kingdom  |       |       | 2          | %                                                                                                                                                       |       |                                                                                                                                                    | 1          | % |   |
| United States   |       |       | 9          | %                                                                                                                                                       |       |                                                                                                                                                    | 4          | % |   |
| Belgium         |       |       | 0          | %                                                                                                                                                       |       |                                                                                                                                                    | 6          | % |   |

 

**RESULTS OF OPERATIONS**

**Threemonths ended March 31, 2004 compared with the three months ended March 31,2005**

*Foreign Currency Impact*

Foreignexchange rates can vary significantly and impact our results of operations,which are reported in U.S. dollars. As a percentage of consolidated revenues,we had continuing operations conducting business in the following underlyingcurrencies:
| ** **     | ** ** | **Three months ended** | ** ** |
|----------------|------------|----------------------------------|------------|
| ** **     | ** ** | **March 31,  2004**         | ** ** | **March 31,  2005** | ** ** |
| Euro           |       |                             | 89         | % |   |   | 86 | % |   |
| British pounds |       |                             | 2          | % |   |   | 1 | % |   |
| Swiss Francs   |       |                             | 0          | % |   |   | 9 | % |   |
| U.S. Dollars   |       |                             | 9          | % |   |   | 4 | % |   |
|           |       |                             | 100        | % |   |   | 100 | % |   |

 

The Euro varied byapproximately 7% in relation to the U.S. dollar in the three months ended March 31,2005 and by approximately 7% in the three months ended March 31, 2004. TheSwiss Franc varied by approximately 9% in relation to the U.S. dollar in thethree months ended March 31, 2005 and by approximately 8% in the threemonths ended March 31, 2004. The British pound varied by approximately 5%in relation to the U.S. dollar in the three months ended March 31, 2005and by approximately 8% in the three months ended March 31, 2004. Theseexchange rate fluctuations have a significant impact on our reported results ofoperations, including revenue, expenses and net loss.

The average Euro-to-U.S. dollar foreign exchange ratefor the three months ended March 31, 2005 was 5% higher than the averageEuro-to-U.S. dollar foreign exchange rate for three months ended March 31,2004. The average Swiss Franc-to-U.S. dollar foreign exchange rate for thethree months ended March 31, 2005 was 6% higher than the average SwissFranc-to-U.S. dollar foreign exchange rate for three months ended March 31,2004. The average British pound-to-U.S. dollar foreign exchange rate for thethree months ended March 31, 2005 was 3% higher than the average Britishpound-to-U.S. dollar foreign exchange rate for the three months ended March 31,2004. The effect of the weakening of the U.S. dollar is that revenues,operating costs and expenses and operating profits and losses in operationswith a functional currency other than U.S. dollars translate into larger U.S.dollar amounts than would have been the case had foreign exchange ratesremained unchanged.

25

----

*Revenue:*
| ** ** | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** ** | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** ** | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Revenue    |       |                                               | 10,396     |                     |       |   | 24,089 |   |   |   | 132 | % |   |
|            |            |                                                    |            |                          |            |  |  |  |  |  |  |  |  |

 

We derive our revenue from the sale ofInternet-related goods and services, specifically third party hardware andsoftware and Internet connectivity services, other Internet value-addedservices, such as hosting, security and IP VPN, and voice services.

Revenue for the three months ended March 31, 2005was $24.1 million as compared to $10.4 million for the three monthsended March 31, 2004. The increase in revenues quarter over quarter ismostly attributable to the revenues we recorded in the first quarter of 2005that are attributable to the PSINet Europe business, which we acquired in August 2004(impact of $11.2 million). In addition, the average Euro to U.S. dollar foreignexchange rate and Swiss Franc to U.S. dollar foreign exchange rate for thethree months ended March 31, 2005 have strengthened by approximately 5%and 6% respectively when compared to the same period last year positivelyimpacting revenues during the first quarter of 2005 by approximately $0.6million. The remainder of the increase in revenues is explained by the increaseof underlying revenues for the three months ended March 31, 2005 ascompared to the three months ended March 31, 2004, notably in the Amenbusiness, which we acquired at the end of January 2004, and from increasesin revenues in Portugal and the Netherlands, offset by decreases in underlyingrevenues in Germany and France.

Amen revenues, excluding the impact of foreignexchange, increased by $1.6 million in the three months ended March 31,2005 compared to the three months ended March 31, 2004. $0.9 million ofthe increase of the Amen revenue is explained by the three months of revenueswhich we recorded during the quarter ended March 31, 2005 as compared totwo months of revenues which we recorded during the quarter ended March 31,2004. The remainder of the increase of the Amen revenues of $0.7 million isexplained by the growth of customer total and the broadening of its productoffering. Portugal revenues, excluding the impact of foreign exchange,increased by 15%, or $0.3 million in the three months ended March 31, 2005compared to the three months ended March 31, 2004, due to an increase ofthe sale of internet subscriptions, web hosting products and leased lines.Netherlands revenues, excluding the impact of foreign exchange, increased by12%, or $0.3 million in the three months ended March 31, 2005 compared tothe three months ended March 31, 2004, due to the results of marketingcampaigns and reduced levels of credit notes issued as a result of processimprovements.

German revenues, excludingthe impact of foreign exchange, decreased by 4%, or $0.1 million in thethree months ended March 31, 2005 compared to the three months ended March 31,2004. This revenue reduction is due to customer cancellations and priceerosion. French revenues, excluding the impact of foreign exchange and theacquisition of Amen’s French business, decreased by 11%, or $0.2 million in thethree months ended March 31, 2005 compared to the three months ended March 31,2004, due to customer churn and fewer hardware and software sales.

26

----

*OPERATING COSTS ANDEXPENSES:*

*Internet services:*
| ** **         | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|--------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **         | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **         | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Internet services  |       |                                               | 5,346      |                     |       |   | 12,189 |   |   |   | 128 | % |   |
| % of Total Revenue |       |                                               | 51         | %                        |       |   | 51 | % |   |   |   |   |   |

 

Our Internet services operating costs are the costs weincur to carry customer traffic to and over the Internet. We lease lines thatconnect our PoPs, either to our own network or to other network providers. Wepay other network providers for transit, which allows us to transmit ourcustomers’ information to or from the Internet over their networks. We also payother recurring telecommunications costs and personnel costs, including thecost of the local telephone lines our customers use to reach our PoPs andaccess our services, and costs related to customer support and care.

Our Internet servicescosts were $12.2 million or 51% of revenues for the three months ended March 31,2005 as compared to $5.3 million or 51% of Internet service costs for thethree months ended March 31, 2004. The increase in Internet services costsis mostly attributable to the Internet services costs of the PSINet Europebusiness acquired in August 2004 (impact of $5.6 million) and also to thetranslation impact of foreign currency movements. Excluding PSINet Europe’sInternet services costs and the adverse impact of the strengthening Euro andSwiss Franc to U.S. dollar foreign currency exchange rates of $0.3 million,Internet services costs have increased for the three months ended March 31,2005 from the three months ended March 31, 2004 primarily due to AmenInternet service costs, which, excluding the impact of foreign exchange,increased by $0.7 million in the three months ended March 31, 2005compared to the three months ended March 31, 2004. $0.3 million of theincrease of the Amen Internet service costs increase is explained by the threemonths of Internet service costs which we recorded during the quarter ended March 31,2005 as compared to two months of Internet service costs which we recordedduring the quarter ended March 31, 2004. In addition, the remainder of theincrease of Internet service costs is explained by higher customer networkusage in our Portugal and Netherlands operations.

*Selling, general and administrative:*
| ** **                                  | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|---------------------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **                                  | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                                  | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Selling,  general & administrative |       |                                               | 13,264     |                     |       |   | 19,460 |   |   |   | 47 | % |   |
| % of Total Revenue                          |       |                                               | 128        | %                        |       |   | 81 | % |   |   |   |   |   |

 

Our largest selling, general and administrative(SG&A) expenses are compensation costs, the costs associated with marketingour products and services, and professional fees paid to outside consultants.Compensation costs include salaries and related benefits, commissions, bonusesand costs associated with staff reductions in the normal course of business. Inmany of our markets, we are required to make significant mandatory payments forgovernment-sponsored social welfare programs and we have little control overthese costs. Our marketing expenses include the costs of direct mail and othermass marketing programs, advertising, customer communications, trade showparticipation, web site management and other promotional costs. Other SG&Aexpenses include the costs of travel, rent, utilities, insurance and bad debtexpense.

27

----

We incurred SG&A expenses of $19.5 millionfor the three months ended March 31, 2005, a 47% increase from the$13.3 million we incurred for the three months ended March 31, 2004.The increase in SG&A expenses quarter over quarter is mostly attributableto the expenses associated with the PSINet Europe business that we acquired in August 2004(impact of $7.3 million) and partly due to the strengthening of the Euro andBritish pound to U.S. dollar foreign currency exchange rates of approximately$0.2 million. The balance of the difference, quarter over quarter, isattributable to a decrease in compensation and marketing expenses, partiallyoffset by an increase in professional fees.

Compensation expense, which accounted forapproximately 54% and 48% of total SG&A costs, or $10.5 million and $6.4million, for the three months ended March 31, 2005 and 2004, respectively,increased by approximately 64% due to the PSINet Europe acquisition, anincrease of Amen compensation expenses, explained by the three months ofcompensation expense which we recorded during the quarter ended March 31,2005 as compared to two months of compensation expense which we recorded duringthe quarter ended March 31, 2004 and the strengthening of the Euro andBritish pound to U.S. dollar foreign currency exchange rates. Excluding thesefactors, compensation expense has decreased by approximately 17% primarily dueto head count reductions. Headcount (excluding PSINet Europe and thediscontinued VIA Switzerland operations) decreased by approximately 18% from March 31,2004 to March 31, 2005. Compensation expense did not reduce by the samepercentage due to higher one-off severance payments made in the three monthsended March 31, 2005.

Professional fees, related to legal, audit,outsourcing and other consulting fees, accounted for approximately 18% of totalSG&A for the three months ended March 31, 2005 and for approximately13% of total SG&A for the three months ended March 31, 2004. Theincrease in professional fees of 96% for the three months ended March 31,2005, compared to the three months ended March 31, 2004 relates toprofessional fees of $0.5 million associated with the PSINet Europe business,the strengthening of the Euro and British pound to U.S. dollar foreign currencyexchange rates of $0.1 million and consulting fees of $1.0 million at thecorporate headquarters in relation to obtain new financing to address an urgentliquidity problem.

In the three months ended March 31,2005, marketing expenses, excluding PSINet Europe marketing expenses of $0.1million, decreased by approximately $0.4 million, or 42%, from the three monthsended March 31, 2004, due to the decreased number of marketing campaignsduring the three months ended March 31, 2005.

*Impairment and restructuring charges:*
| ** **                            | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **                            | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                            | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Impairment and  restructuring charges |       |                                               | 300        |                     |       |   | 3,453 |   |   |   | 1,051 | % |   |
| % of Total Revenue                    |       |                                               | 3          | %                        |       |   | 14 | % |   |   |   |   |   |

 

During the three months ended March 31, 2005, werecorded restructuring and impairment charges of $3.5 million. Restructuringcharges of $1.1 million for the three months ended March 31, 2005, relatedto severance payments at our corporate headquarters and our Netherlandsoperation, costs for future operating lease obligations in or Netherlandsoperation and transition implementation costs for back-office initiatives.During the first quarter of 2005, management concluded that an impairment hadoccurred in our Solutions and Amen operating units. As a result, we recorded animpairment charge of $0.5 million related to the goodwill in the Amen operatingunit and an intangible fixed asset impairment charge of $0.8 million and atangible fixed asset impairment charge of $1.1 million. $0.3 million of theintangible fixed asset impairment charge and $0.9 million of the tangible fixedasset impairment charge relate to the 

28

----

Solutions channel and $0.5million of the intangible fixed asset impairment charge and $0.2 million of thetangible fixed asset impairment charge relate to the Amen Channel.

During the three monthsended March 31, 2004, we recorded restructuring charges of $0.3 million,relating to severance payments at corporate headquarters and transitionimplementation costs for back-office integration initiatives.

*Depreciation and amortization:*
| ** **                     | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|--------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **                     | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                     | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Depreciation and  amortization |       |                                               | 1,838      |                     |       |   | 2,114 |   |   |   | 15 | % |   |
| % of Total Revenue             |       |                                               | 18         | %                        |       |   | 9 | % |   |   |   |   |   |

 

We recognize depreciation expense primarily related totelecommunications equipment, computers and network infrastructure. Wedepreciate telecommunications equipment and computers over their useful lives,ranging from three to five years. The cost of network infrastructure, net ofimpairment charges, purchased under indefeasible right of use agreements, orIRUs, is being amortized over the lesser of the estimated useful life or termof the agreement, 1 to 25 years. We amortize customer lists, software andtrade names over seven years, five years and ten years respectively.

Our depreciation andamortization expense was $2.1 million for the three months ended March 31,2005, up from $1.8 million for the three months ended March 31, 2004. Forthe three months ended March 31, 2005, $2.0 million related to thedepreciation of fixed assets and $0.1 million related to the amortizationof intangible assets. For the three months ended March 31, 2004,$1.6 million related to the depreciation of fixed assets and$0.2 million related to the amortization of intangible assets. Theincrease in total depreciation and amortization expense is primarily due to theacquisition of PSINet Europe, resulting in amortization of identifiedintangible assets and depreciation of tangible fixed assets totaling $0.7million. Excluding PSINet and Amen, the depreciation and amortization expensedecreased during the three months ended March 31, 2005 compared to thethree months ended March 31, 2004 due to a lower asset base.

*Interest income (expense), net:*
| ** **                      | ** ** | **Three months ended**                   | ** ** | ** **                   | ** ** |
|---------------------------------|------------|----------------------------------------------------|------------|------------------------------|------------|
| ** **                      | ** ** | **March 31,  2004**                           | ** ** | **March 31,**

**2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                      | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **                   | ** ** |
| Interest income  (expense), net |       |                                               | 88         |                         |       |   | (160 | ) |   |   | (281 | )% |   |
| % of Total Revenue              |       |                                               | 1          | %                            |       |   | (1 | )% |   |   |   |   |   |

 

For the three months endedMarch 31, 2005, we earned $12,000 in interest income, compared tointerest income of $0.1 million for the three months ended March 31,2004. Interest income was generated from investing funds received from ourinitial public offering in February 2000, until those funds were used foracquisitions, operating expenses or capital expenditures. Net proceeds from thepublic offering were $333.0 million. The decrease in interest income isthe result of the decrease in the available cash for investing. We alsoincurred $0.2 million of interest expense for the three months ended March 31,2005, as compared to $18,000 of interest expense incurred in the three monthsended March 31, 2004. Interest expense of $0.1 million incurred in thethree months ended March 31, 2005 relates primarily to the imputedinterest of 5.27% associated with the Euro 6 million zero coupon convertiblenote issued in 

29

----

connectionwith the acquisition of the PSINet Europe companies. In addition, $0.1 millionof interest expense relates to the imputed interest of 7.38% associated with along term IRU obligation.

*Other income, net:*
| ** **         | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|--------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **         | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **         | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Other income, net  |       |                                               | 34         |                     |       |   | 404 |   |   |   | 1,088 | % |   |
| % of Total Revenue |       |                                               | 0          | %                        |       |   | 2 | % |   |   |   |   |   |

 

For the three months endedMarch 31, 2005, we earned other income, net in the amount of $0.4million related to the proceeds from the sale of a customer list of $0.2million in our Portugal operation and a number of smaller amounts in our otheroperations. For the three months ended March 31, 2004, we earned otherincome, net of $34,000.

*Foreign currency losses, net:*
| ** **                    | ** ** | **Three months ended**                   | ** ** | ** **               | ** ** |
|-------------------------------|------------|----------------------------------------------------|------------|--------------------------|------------|
| ** **                    | ** ** | **March 31,  2004**                           | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                    | ** ** | **(in thousands of  U.S. dollars)** | ** ** | ** **               | ** ** |
| Foreign currency  losses, net |       |                                               | (3,326     | )                        |       |   | (1,702 | ) |   |   | (49 | )% |   |
| % of Total Revenue            |       |                                               | (32        | )%                       |       |   | (7 | )% |   |   |   |   |   |

 

We recognized a $1.7 million foreign currencyloss for the three months ended March 31, 2005, as compared to a loss of$3.3 million for the three months ended March 31, 2004. The changefrom period to period was primarily due to the fluctuation in the exchange rateof the Euro and Swiss Franc as compared to the U.S. dollar and its impact onthe revaluation of our Euro and Swiss Franc denominated intercompany balancesheld by the parent company and on our Euro denominated cash accounts. See ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK *Foreign Currency Exchange Risks* for moreinformation.

We established the Eurodenominated cash accounts in connection with our initial public offering in February 2000,in which we sold shares of our common stock for both U.S. dollars and Euros. AtMarch 31, 2005, the parent company maintained a Euro cash reserve of Euro0.2 million ($0.3 million).

*Income tax benefit:*
| ** **                    | ** ** | **Three months ended**                       | ** ** |
|-------------------------------|------------|--------------------------------------------------------|------------|
| ** **                    | ** ** | **March 31,  2004**                               | ** ** | **March 31,  2005** | ** ** | **% Increase/  (Decrease)** | ** ** |
| ** **                    | ** ** | **(in thousands of U.S. dollars)** | ** ** |
| Income tax  benefit (expense) |       |                                                   | 7          |   |   |   | (30 | ) |   |   | (530 | )% |   |
| % of Total Revenue            |       |                                                   | 0          | % |   |   | 0 | % |   |   |   |   |   |

 

During the three monthsended March 31, 2005, we incurred $30,000 of tax expense, as comparedto $7,000 of income tax benefits during the three months ended March 31,2004. The effective tax rate for the Company is 0%. This is primarily caused bynet operating losses for the current year and prior years arising in the U.S.and international subsidiaries.

30

----

*Liquidity andCapital Resources*

*Liquidity*

**Negative Total Cash Flow, Urgent Liquidity Needs,Proposed Sale.  **VIA began 2005 with $15.5 millionin cash and cash equivalents and $5.1 million in restricted cash. We had anet decrease in cash and cash equivalents over the three months ended March 31,2005 of $7.7 million, comprised primarily of $7.0 million of net cash usedin operating activities, leaving us with $7.8 million in cash and cashequivalents and $4.1 million in restricted cash at March 31, 2005. Ofthe $7.8 million in cash and cash equivalents, $1.8 million was held at thegroup parent company. This compares to a net decrease in cash and cashequivalents over the three months ended March 31, 2004 of$18.9 million, comprised primarily of $8.8 million of net cash used inoperating activities and $9.7 million of net cash used in investing activities.

Restricted cash of $4.1 million and $5.1 million at March 31,2005 and March 31, 2004 respectively represents amounts held on depositwith banking institutions as security for operating leases, leased properties,key suppliers and a bank guarantee for the earn-out payments to the formershareholders of Amen.

During 2004, we stated our expectations that we wouldreach the point of positive cash flows by mid-2005, conditioned on theachievement of new and incremental revenues, which we anticipated generatingfrom our new sales and product strategy, and further reductions in expenses. However,as VIA’s cash reserves began to run out, we did not have the ability toimplement the additional sales and marketing efforts we had planned or theexpected restructuring that would reduce expenses. Accordingly, VIA has notbeen able to make progress towards positive cash flow that had beenanticipated.

We announced on March 17, 2005, a combination offactors including unanticipated revenue shortfalls in certain of our legacy VIAcompanies and our new VIA Express business would leave the Company withinsufficient cash reserves in early April 2005 to fund our ongoingexpenditures and continue the Company as a going concern. We also announcedthat we were working with our professional advisors to obtain new financing toaddress the issue. See ITEM 1, Note 1 to the condensed consolidated financialstatements and ITEM****2, MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

On April 1, 2005, the Company announced the saleof two of its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKSServices AG—to former managers and owners of the business, for a purchase priceof CHF 3.5 million ($3.1 million). The net proceeds of the sale provided VIAwith additional liquidity to continue its discussions for refinancing and saletransactions.

On April 30, 2005, VIA NET.WORKS, Inc.entered into a sale and purchase agreement, or Sale Agreement, with ClaranetGroup Limited (Claranet), a privately-held European Internet services providerbased in the United Kingdom, to sell all of our business operations in Europeand the United States (the Asset Sale). The agreement followed on the letter ofintent entered into between Claranet and VIA on April 10, 2005. See ITEM****2, MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS for the key terms of the Claranet Sale.Concurrent with the execution of the April 10, 2005 letter of intent,Claranet delivered a deposit of $3,000,000 to VIA in order to secure the rightsto negotiate exclusively with us until April 30, 2005. The deposit waspartially funded by the release of £1.0 million ($1.9 million) from the escrowestablished by Claranet in favor of VIA in connection with the purchase in September 2004by Claranet of our legacy operations in the United Kingdom. The deposit will beforfeited by Claranet if the transaction does not close other than for ourdefault or certain other conditions. Otherwise, the portion of the deposit inexcess of the £1.0 million ($1.9 million) will be credited to the purchaseprice at closing.

31

----

The purchase price under the Claranet agreement is$26.4 million, less certain adjustments. In particular, the purchase price willbe reduced by the amounts advanced to us by the Purchaser under the $7.0million working capital facility established by Claranet when the SaleAgreement was signed. All or a substantial portion of the deposit and workingcapital facility may be utilized to maintain day to day operations of theCompany through the closing of the transaction, depending upon the timing ofclosing. We expect to begin drawing funds under the working capital facility inearly June.

The Asset Sale is conditional upon approval by ourshareholders. If the Asset Sale is approved and adopted by our shareholders,the closing will take place shortly after the shareholder meeting. On May 9,2005, we have filed our preliminary proxy statement with the Securities andExchange Commission, or SEC. On May 23, 2005, the Company receivedcomments on the preliminary proxy statement from the SEC. We believe we will bein a position to file our definitive proxy statement around the end of May 2005.In such case, we anticipate that the closing would occur during the first weekof July, 2005. Otherwise, we would anticipate that the closing would take placeduring the first week of August, 2005. If we received approval from our shareholders, we would close thetransaction and use the net proceeds to pay off the remaining liabilities ofthe Company and shut down our corporate headquarters and terminate theremaining employees. Remaining funds would then be distributed to ourshareholders in accordance with Delaware law. A more detailed explanation ofthe process of liquidation and dissolution of the Company will be provided inthe definitive proxy statement to be distributed to the shareholders of theCompany.

If the Claranet Sale does not receive approval of ourshareholders, we would look to other alternative solutions to our liquidityissues, including seeking a new buyer of all or some of our businesses or theCompany as a whole or new financing to enable the Company to reach the point ofgenerating positive cash flows and self-sustainability. In order for us toachieve consolidated positive cash flow, and in light of reduced expectationsin revenue generation from our VIA Express channel, we would be required tosubstantially reduce our operating expenses through a further elimination ofheadcount in certain operations and in our headquarters staff. However,reduction of staff would require VIA to make employment termination payments ofmaterial amounts and we currently do not have the cash resources to implementthis cost savings plan. We would seek to raise new equity or debt financing ina short period of time, which may not be available to us. Without new capitalin the short term, we would not be able to continue to operate as a goingconcern.

During and subsequent to the end of the quarter ended March 31,2005, we have engaged in discussions with the former owners of the PSINetEurope companies with a view toward renegotiating the Euro 6.0 million ($7.8million) zero coupon convertible note obligation. Taking into account VIA’scurrent financial position, among other things, the sellers have agreed inprincipal to compromise the payment to be due under the note. Under theproposed settlement, VIA would make a cash payment of approximately$2.0 million and issue 6,713,980 of common shares to the holder of thenote at or immediately after the closing of the Asset Sale; the cash paymentand share issuance would be in full satisfaction of the note. In exchange forthe compromise of the note obligation, VIA would release the sellers of allpresent and future claims we now or in the may have future have under thepurchase agreement under which we acquired the PSINet Europe companies,including any warranty or indemnification claims. If the note renegotiation iscompleted as currently proposed, the contractual indemnifications andwarranties provided by the sellers of the PSINet Europe companies under thepurchase agreement would be waived and released and any third party claims thatwould have been subject to such indemnification or warranty protection wouldthen be for our account.

**Uses and Sources of Cash.  **Cashused in operating activities was $7.0 million for the three months ended March 31,2005 and $8.8 million for the three months ended March 31, 2004. Cashflows from operating activities can vary significantly from period to perioddepending on the timing of operating cash receipts and payments and otherworking capital changes, especially accounts receivable, other current assets,accounts payable, accrued expenses and other current liabilities. In bothperiods, our net losses 

32

----

were the primary componentof cash used in operating activities, these losses include some significant non-cashitems such as depreciation, amortization, provision for doubtful accountsreceivable, impairment and unrealized foreign currency transaction gains.

Cash used in investing activities was $9,000 for thethree months ended March 31, 2005 and $9.7 million for the threemonths ended March 31, 2004. For the three months ended March 31,2005, we used $1.3 million of cash in relation to the finalization of theworking capital balance for the acquisition of PSINet Europe during 2004, usedcash of $1.0 million to purchase tangible fixed assets and received cash of$1.3 million from the sale of VIA NET.WORKS, Inc. after resolution of aworking capital contingency. For the three months ended March 31, 2004, weused cash of $7.7 million to acquire 100% of the issued and outstanding sharesof the Amen Group and used cash of $1.7 million to purchase tangible fixedassets.

We used cash from financing activities of$0.5 million for the three months ended March 31, 2005. We receivedcash in financing activities of $0.3 million for the three months ended March 31,2004. For the three months ended March 31, 2005, $0.5 million was used forrepayments of debt and capital lease obligations. In the three months ended March 31,2004, cash was received primarily from the issuance of common stock.

We anticipate that our current monthly net use of cashof approximately $2.0 million will continue through the closing of the AssetSale to Claranet, which is expected to occur either at the beginning of July orin August 2005 depending upon the timing of shareholder approval for thetransaction. The projected net use of cash would be funded from the cashbalances available to us, the $3.1 million proceeds of the April 1, 2005sale of the VIA legacy businesses in Switzerland and the $3.0 million depositpaid by Claranet in connection with the letter of intent signed on April 10,2005. From June 1, 2005 through the closing of the Asset Sale, we will beable to draw upon the €5.3 million ($7.0 million) working capital facilityextended by Claranet in connection with the Asset Sale. Based on our cash flowprojections, we believe that we will have sufficient cash resources to continueto operate the company as a going concern through the closing of the AssetSale.

At the closing, we anticipate that we will receivesale proceeds from Claranet of $26.4 million reduced by (a) $1.1 million(representing the total $3.0 million deposit less the $1.9 million releasedfrom the escrow relating to the September 2004 sale of VIA NET.WORKS UKLimited to Claranet) and (b) the total of all amounts drawn down under theworking capital facility up to the maximum amount of $7.0 million. Webelieve that the net proceeds available to VIA at closing will be sufficient topay all outstanding obligations of the Company and ongoing expenses of theCompany through the period during which we dissolve and liquidate the Company.

The Company has entered into a number of informal andformal arrangements with vendors or other trade creditors to either continue toprovide services or to refrain from legal actions and to accept payment of allcurrent and overdue amounts at or shortly after closing. Some of these vendorshave agreed to payment plans for the period leading up to closing. Thesevendors or other creditors have had an ongoing relationship with the Companyand the amounts due under payment plans have been included in the Company’scash flow forecast. As a result, the Company believes (although there can be noassurance) that claims from these vendors or other creditors will not precludethe Company from having sufficient cash resources to continue to operate thecompany as a going concern through the closing of the Asset Sale.

The foregoing statementsregarding our liquidity and possible need for additional capital resources areforward-looking statements based on our current expectations, which involvecertain risks and uncertainties. Actual results and the timing of these eventscould differ materially from these forward-looking statements dependingupon certain factors that we cannot predict, including the nature, size andtiming of future acquisitions and dispositions, if any, our future net incomeand our success in executing our Strategic Plan as well as other factorsdiscussed in “Risk Factors” described in Exhibit 99-1 on this Form 10-Q,as well as those described in the “Risk Factors” section of our 2004Annual Report.

33

----

**ITEM 3.**                QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussionrelates to any changes in our exposure to market risk, related to changes ininterest rates and changes in foreign exchange rates from that disclosed in our2004 Annual Report. This discussion contains forward-looking statements that aresubject to risks and uncertainties. Actual results could differ materially dueto a number of factors, as set forth in the “Risk Factors” included as Exhibit 99.1on this Form 10-Q and included in the “Risk Factors” section ofour 2004 Annual Report.

***Foreign Currency Exchange Risks***

*Transaction risks*

The parent company’s cash balances consist of Euros,Swiss Francs, British Pounds and U.S. dollars. The Euro, Swiss Franc bankaccount is revalued each month and the resultant gain or loss is reflected inthe condensed consolidated statements of operations as “Foreign currencygains/(losses), net.” This exposes the Company to foreign currency exchangerate risk in the Statement of Operations. For example, as of March 31,2005, a 10% increase or decrease in the level of the Euro exchange rate againstthe U.S. dollar with all other variables held constant would result in arealized gain or loss of approximately $6.6 million. The change inexposure from period to period is related to the change in the balance of theEuro cash and intercompany accounts. At March 31, 2005, the Company heldapproximately Euro 7.0 million in the Euro cash account, CHF 1.8million in the Swiss Franc cash account and GBP 0.7 million in the GBP cashaccount and remains exposed to changes in the foreign currency rate. However,such rate fluctuations should have a smaller impact in future as the balanceshave continued to reduce.

The fluctuation in theexchange rates resulted in foreign currency losses reflected in theconsolidated statements of operations as “Foreign currency gains losses, net”of $3.3 million and $1.7 million for the three months ended March 31,2004 and 2005 respectively.

*Translation risks*

The financial statements of the Company’s localoperating subsidiaries with a functional currency other than U.S. dollars aretranslated into U.S. dollars using the current rate method. Accordingly, assetsand liabilities are translated at period-end exchange rates while revenue andexpenses are translated at the period’s average exchange rates. Adjustmentsresulting from these translations are accumulated and reported as a componentof accumulated other comprehensive loss in stockholders’ equity. Foreigncurrency translation adjustments are reclassified into the statement ofoperations when the underlying investment is sold or substantially liquidated.Upon completion of the VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AGsale, we expect to record a loss in the statement of operations for the threemonths ending June 30, 2005, relating to amounts previously recorded inaccumulated other comprehensive loss. Similarly, in the three months ending September 30,2005, we anticipate a loss of $31.6 million upon completion of the Claranetsale.

The fluctuation in the exchange rates resulted inforeign currency translation gains reflected as a component of accumulatedother comprehensive gain in stockholders’ equity, net of $1.9 million and$ 2.3 million for the three months ended March 31, 2004 and 2005respectively.

Exchange rates can varysignificantly. The Euro high and low rates varied by approximately 7% inrelation to the U.S. dollar during the three months ended March 31, 2005.The Swiss Franc high and low rates varied by approximately 9% in relation tothe U.S. dollar during the three months ended March 31, 2005. Thisvariation affects the average exchange rates used to translate the incomestatements of our operating companies whose functional currency is not U.S.dollars. At March 31, 2005, the Euro to U.S. dollar exchange rate wasapproximately 6% above where it was at March 31, 2004 and the Swiss Francto U.S. dollar exchange rate was approximately 7% above where it was at March 31,2004. This variation 

34

----

affectsthe ending exchange rates used to translate amounts on the balance sheet of ouroperating companies whose functional currency is not U.S. dollars. Futurechanges in the value of the Euro and Swiss Franc could have a material impacton our financial position and results of operations. We also experiencedfluctuations in other exchange rates.

*Hedging againstforeign exchange risks*

For the three months ended March 31, 2005 we didnot actively manage our exposure to foreign currency translation risks thataffect our reported results, which result in no cash impact unless the operationis sold. We have in the past considered insurance and financial risk productsto manage this risk, but determined such products to be prohibitivelyexpensive. We currently have no hedging arrangements or derivatives in place toaddress this form of translation risk.

The parent companymaintains an Euro cash balance, a Swiss Franc cash balance and a British Poundbalance to meet the working capital requirements of the operating subsidiarieswith a Euro, Swiss Franc or British Pound functional currency. The parentcompany maintains its remaining cash resources in U.S. dollars.

**ITEM 4.**                CONTROLS ANDPROCEDURES

Our management and the Audit Committee of the board ofdirectors has engaged in regular evaluations of our internal controls, as wellas the processes we maintain to ensure that all material information relatingto us and our subsidiaries is recorded, processed, summarized, evaluated andreported within the time periods specified by rules established by theSecurities and Exchange Commission. These latter processes are known asDisclosure Controls and Procedures. Disclosure Controls and Procedures are alsodesigned to ensure that all such information is communicated to our management,including our CEO and CFO, in such a manner as to allow timely decisions to bemade regarding required disclosures.

We have evaluated, with the oversight of our CEO andCFO, the effectiveness of our Disclosure Controls and Procedures as of March 31,2005. In designing and evaluating the Disclosure Controls and Procedures, ourmanagement necessarily was required to apply its judgment in evaluating thecosts and benefits of possible controls and procedures. In addition, werecognize that Disclosure Controls and Procedures by their nature can provideonly reasonable assurance that our information flow objectives are met. As of March 31,2005 our CEO and CFO have concluded that our Disclosure Controls and Proceduresare effective at the reasonable assurance level.

During the year ended December 31, 2004, weacquired the Amen group of companies and the operations of PSINet Europe inSwitzerland, Germany, The Netherlands, Belgium and France, and we have disposedof our subsidiary VIA NET.WORKS (UK) Ltd. Post acquisition, we have conductedan initial assessment of the internal control environments and DisclosureControls and Procedures of both the Amen group and the acquired PSINetbusinesses.

We have completed the back-office systemsimplementation for our newly acquired PSINet businesses during the three monthsended March 31, 2005. The remaining VIA legacy business in Switzerland wassubsequently sold on April 1, 2005 back to the former owners and istherefore now outside the scope of the back office systems migration project.

During the three-month period ended March 31,2005, no changes were made in our internal control over financial reportingthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

We believe that our current controls and proceduresenable us to present our financial results fairly in all material respects, asrequired by U.S. generally accepted accounting principles.

35

----

**PART II**

**Item 1.**                        LegalProceedings

There have been nosignificant developments regarding legal proceedings since the filing of VIA’s Form 10-Kon April 26, 2005. See note 11 to the condensed consolidated financialstatements for further information.

**Item2.**                        Changesin Securities and Use of Proceeds

*Changes inSecurities:*

None.

*Use of InitialPublic Offering Proceeds:*

On February 11, 2000, we completed our initialpublic offering of shares of common stock, par value $.001 per share. Ourinitial public offering was made pursuant to a prospectus dated February 11,2000, which was filed with the SEC as part of a registration statement, file No. 333-91615,that was declared effective by the SEC on February 10, 2000.

The net offering proceedsafter deducting the expenses and underwriting discounts and commissions wasapproximately $333.0 million. From the effective date of the initialpublic offering through March 31, 2005, we have used $110.7 millionfor acquisitions of other businesses, including the repayment of debt foracquisitions we made in 1999, increases in our investment in various partiallyowned subsidiaries, $60.7 million for capital expenditures andapproximately $167.8 million to fund operating losses.

**Item3.**                        DefaultsUpon Senior Securities

None.

**Item4.**                        Submissionof Matters to a Vote of Security Holders

None.

**Item 5.**                        OtherInformation

None.

**Item6.**                        Exhibitsand Reports on Form 8-K

**a)   Exhibits**
| Exhibits          | ** ** | ** **                                                                                                                                                           | ** ** | ** ** |
|-------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| Exhibit 2.1  |       | Agreement dated  September 28, 2004, between Via Net.Works Europe Holding B.V.,  Claranet Limited, Clara.Net Holdings Limited and Via Net.Works, Inc. |
| Exhibit 31.1 |       | Section 302  Certification—Chief Executive Officer                                                                                                         |
| Exhibit 31.2 |       | Section 302  Certification—Interim Chief Financial Officer                                                                                                 |
| Exhibit 32   |       | Written Statement  of Chief Executive Officer and Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                            |
| Exhibit 99.1 |       | Risk Factors                                                                                                                                                         |

 

36

----

**b)   Reports onForm 8-K**

We filed four reports on Form 8-K duringthe three months ended March 31, 2005. On January 31, 2005, we fileda Form 8-K announcing that our Board of Directors appointed RaymondWalsh as Chief Executive Officer of the Company. On February 3, 2005, wefiled a Form 8-K announcing that Erik M. Torgersonsubmitted his resignation and stepped down from the Board of Directors of theCompany. On March 15, 2005, we filed a Form 8-K announcing thatthe Company entered into an employment agreement with Raymond Walsh. On March 18,2005, we filed a Form 8-K announcing that the Company issued a pressrelease to announce that it is working with its professional advisors to obtainnew financing to address an urgent liquidity problem and that it also isconsidering the sale of part or all of its business, among other alternatives.

37

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, VIA NET.WORKS, Inc.has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized
|                     | VIA NET.WORKS, INC. |
|--------------------------|---------------------|
| Date: June 2,  2005 | By:                 | /s/  RAY WALSH |
| * *                 | * *            | *Chief  Executive Officer  (Principal Executive Officer)* |
| Date: June 2,  2005 | By:                 | /s/  PIET BOERSMA |
| * *                 | * *            | *(Principal  financial officer)* |

 

38

----

**EXHIBIT INDEX**
| Exhibit | ** ** | ** **                                                                                                                                                      | ** ** | ** ** |
|---------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 2.1     |       | Agreement dated  September 28, 2004, between Via Net.Works Europe Holding B.V., Claranet  Limited, Clara.Net Holdings Limited and Via Net.Works, Inc. |
| 31.1    |       | Section 302 Certification—Chief Executive Officer                                                                                                     |
| 31.2    |       | Section 302 Certification—Chief Financial  Officer                                                                                                    |
| 32      |       | Written Statement  of Chief Executive Officer and Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                       |
| 99.1    |       | Risk Factors                                                                                                                                                    |

 

39

----