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VIA NET.WORKS, INC. TABLE OF CONTENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

Commission file number: 000-29391

VIA NET.WORKS, INC.
(Exact name of registrant as specified in its charter)

12100 Sunset Hills Road, Suite 110
Reston, Virginia 20190
(Address of principal executive offices)

Registrant's telephone number, including area code:    (703) 464-0300

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

        As of August 1, 2002, there were outstanding 55,794,900 shares of the registrant's common stock and 5,050,000 shares of the registrant's non-voting common stock.

VIA NET.WORKS, INC.

TABLE OF CONTENTS

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PART I

Item 1. Financial Statements

VIA NET.WORKS, INC.

CONSOLIDATED BALANCE SHEETS

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

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

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VIA NET.WORKS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

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

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VIA NET.WORKS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

(Unaudited)

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

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VIA NET.WORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    Basis of Presentation, Restatement, Overview and Recent Pronouncements

        These consolidated financial statements as of June 30, 2002 and for the three and six month periods ended June 30, 2001 and 2002 and the related footnote information are unaudited and have been prepared on a basis substantially consistent with the audited consolidated financial statements of VIA NET.WORKS, Inc. ("VIA" or "the Company") as of and for the year ended December 31, 2001, included in VIA's Annual Report on Form 10-K as filed with the Securities and Exchange Commission (2001 Annual Report). These financial statements should be read in conjunction with the audited consolidated financial statements and the related notes to the financial statements included in the 2001 Annual Report. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) which management considers necessary to present fairly the consolidated financial position of VIA at June 30, 2002 and the results of its operations and its cash flows for the six month periods ended June 30, 2001 and 2002. The results of operations for the three and six month periods ended June 30, 2002 may not be indicative of the results expected for any succeeding quarter or for the year ending December 31, 2002. Certain prior period amounts have been reclassified to conform to the current period presentation.

        Simultaneously with the filing of this Form 10-Q, VIA is revising its previously reported results for the three month period ending March 31, 2002 by filing Form 10-Q/A for that period. The principal effects of the revision are noted in Note 1 to the consolidated financial statements in the Form 10-Q/A. In this Form 10-Q, references or comparisons to results in the first quarter 2002 are to the restated results.

        To ensure its long-term viability, VIA has taken and will continue to take steps to reduce its negative cash flow and preserve capital. As part of its overall turnaround plan, VIA continues to carefully review the financial performance of its operations, its market opportunities, product offerings and cost structure in order to best position the Company in its markets and to ensure that it reaches positive cash flow with sufficient cash reserves remaining. Since January 2002, VIA has taken the following actions, among others: completed the sale of Argentina, Austria, Brazil and Ireland operations, continued evaluations of dispositions of additional operations, suspended the development and deployment of its planned enterprise-wide integrated provisioning, billing and customer care platform, eliminated its regional management structure and staff, initiated steps to relocate certain key headquarter positions to Europe and reduced its operations and headquarters staff. VIA has incurred and anticipates that it may incur in the future substantial costs to implement one or more of these restructuring actions and similar actions that it may take in the future. As of June 30, 2002, the Company had $113.1 million in cash and cash equivalents and $1.2 million in restricted cash. VIA believes that its available cash will be sufficient to fund its operating losses, working capital and capital expenditure requirements for at least the next twelve months. However, unless the capital markets improve, there is no assurance that VIA will be able to obtain further financing if it is unsuccessful in reaching a steady cash flow position before its cash reserves are depleted.

        As a part of its turnaround plan, VIA is also addressing internal control and systems issues that the Company has experienced as a result of its rapid growth through acquisitions and its integration efforts in its largest operations. VIA's original business plan involved acquiring, integrating and growing multiple independent Internet services providers throughout Europe and Latin America. VIA grew rapidly from its inception in 1997 through the end of 2000, acquiring 26 foreign companies during that period.

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        In mid-2000 the Company began a series of projects to integrate a number of its acquired companies to achieve economies of scale and improve business processes. An element of each integration project involved combining data from the billing, provisioning and customer care legacy systems of each operation into a single integrated system as well as making changes to the organization structures of these companies. Poor execution of these integration efforts affected sales, billing and customer care functions of certain of the operations, particularly in Germany and the United Kingdom. The Company also planned the development and deployment of an enterprise-wide integrated provisioning, billing and customer care system that would address some of the technical issues arising from legacy systems. This system was intended to improve the ability of corporate and regional management teams to oversee the financial reporting of local operations. However, because of a downturn in the market, an emphasis on cost cutting, and technical issues that arose during the development and deployment of this system, further funding for this project was suspended in the first quarter of 2002, and the Company chose to pursue a series of improvements of the legacy systems at the local operations level.

        Over the past three quarters management has specifically focused on systems and process issues in the United Kingdom and German operations, two of the Company's largest operations. The Company has implemented procedures designed to alleviate issues arising from the legacy billing system and internal control problems. These procedures include significantly expanded monthly and quarter-end financial close processes in these operations and additional manual checks and reconciliation procedures to compensate for known systemic limitations. VIA also engaged a team of internal staff and external advisors to initiate system remediation and data validation projects, which are ongoing.

        Management believes that these procedures will enable VIA to present its financial results fairly in all material respects, as required by accounting principles generally accepted in the United States of America. When the system remediation and data validation projects have progressed sufficiently, some or all of these additional procedures may become unnecessary. The preparation of financial statements in conformity with generally accepted accounting principles requires VIA to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the consolidated financial statements. Actual results could differ from the recorded estimates.

        In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses accounting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This statement is effective for exit disposal activities that are initiated after December 31, 2002, with early adoption encouraged. VIA is currently assessing the impact of SFAS 146 on its financial position and results of operations.

2.    Discontinued Operations

        As part of its turnaround plan and its focus on substantially reducing its negative cash flow, VIA has concluded that it should cease funding certain country operations that will not materially contribute to its financial strength in the long term and explore the optimal method to withdraw from these countries. Consistent with this conclusion, VIA completed the sale of its operations in Argentina and Austria during the three months ended June 30, 2002. The operation in Argentina, which was included in the Americas region for segment reporting, was sold on June 11, 2002 to an unrelated third party purchaser. The Austrian operation, which was included in the European region for segment reporting, was sold to the then-current management team on May 29, 2002. These operations were sold for nominal consideration and VIA recognized a gain on the disposal of the two operations in the aggregate amount of $2.4 million, which was entirely due to the reclassification of the accumulated foreign currency translation adjustment to the statement of operations. Upon the sale of the operations

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in Argentina and Austria, VIA realized the total foreign currency translation gain of $2.4 million reported as part of the gain on disposal of discontinued operations in the consolidated statement of operations for the three and six months ended June 30, 2002. The Company's measurement date for the discontinued operations was the same as the closing date of the transactions. Accordingly, loss of discontinued operations reported in VIA's statements of operations does not include results of disposed subsidiaries subsequent to the disposition date.

        Effective January 1, 2002, VIA adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As each of the Argentine and Austrian operations disposed of in the second quarter of 2002 represents a component of an entity as defined by SFAS 144, VIA has classified each operation as a discontinued operation for all periods presented. Revenues related to discontinued operations through the date of sale were approximately $377,000 and $1.0 million for the three and six months ended June 30, 2002. The revenues related to these operations for the three and six months ended June 30, 2001 were approximately $878,000 and $1.9 million, respectively. The pre-tax loss, excluding accounting for the sale transaction, related to discontinued operations was approximately $43,000 and $730,000 for the three and six months ended June 30, 2002, respectively. For the three and six months ended June 30, 2001, the pre-tax loss related to the discontinued operations was $1.6 million and $2.8 million, respectively.

3.    Business Transferred Under Contractual Arrangement

        In May 2002, VIA closed a transaction for the sale of its Brazilian operation to the then-current management team, which included Antonio Tavares, a former executive officer of VIA. Under this transaction, VIA sold all of its shares of VIA NET.WORKS Brasil S.A. ("VIA Brasil") for $428,000, of which $30,000 was paid in cash at closing and the balance by delivery of a promissory note payable over 18 months. The note is secured by a pledge of 93% of the outstanding shares in VIA Brasil. The collateralization of the outstanding shares enables VIA to reacquire a controlling interest in VIA Brasil if the purchasers default on the obligations under the promissory note. Consistent with the accounting treatment prescribed under Staff Accounting Bulletin (SAB) Topic 5E, VIA will neither treat the Brazilian operation as a discontinued operation nor consolidate any future results of this Brazilian operation. However, when the sale qualifies as an accounting disposition under SAB Topic 5E, VIA will recognize a $2.6 million loss related to the accumulated translation adjustment in the statement of operations. The total assets and liabilities related to the Brazilian operation are shown on the consolidated balance sheet under the captions assets and liabilities of business transferred under contractual arrangement. The results of VIA Brasil through the date of sale are included within the results from continuing operations for the three and six months ended June 30, 2001 and 2002. Likewise, the cash flows for VIA Brasil for these periods are included in VIA's consolidated cash flows from continuing operations.

4.    Impairment Charges

        The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) as of January 1, 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. SFAS 142 requires that goodwill be tested for impairment in interim periods if certain events occur indicating that the carrying value of goodwill may not be recoverable. In August 2002, the Company closed a transaction for the sale of its Irish operation. Under the transaction, the purchasers paid nominal consideration for the shares of VIA NET.WORKS Ireland Limited and approximately $120,000 for assignment of VIA's loans to the Irish operation. In connection with its decision to divest itself of its Irish subsidiary, the Company conducted an impairment review of that operation's goodwill in accordance with the provisions of SFAS 142. Based upon this review, the Company recorded an impairment charge in the second quarter of 2002 of $488,000 to eliminate the remaining goodwill of the Irish operation.

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        On January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. During the three months ended June 30, 2002, in light of the significant underperformance of the Italian operation during the first half of the year, the Company initiated an impairment analysis of its long-lived assets for this operation. Based on this analysis, the Company determined that the carrying amounts of certain of its Italian operation's long-lived assets exceeded the future undiscounted cash flows as of June 30, 2002. As a result of the impairment review, the Company determined that the operation's long-lived assets were impaired and recorded an impairment charge of $625,000. Additionally, the Company tested the operation's goodwill for impairment in accordance with SFAS 142. As a result of this analysis, the Company recorded a goodwill impairment charge of $315,000.

        The composition of impairment charges recorded in the three months ended June 30, 2002 was as follows (in thousands of U.S. dollars):

        The assumptions made in calculating the impairment charges, including estimates of cash flows, discount rates, revenue streams and comparable market transactions, represent management's best estimates.

        Management has no other current plans that would affect the carrying value of VIA's assets or liabilities. However, as discussed in Note 1, certain of the actions VIA might take as part of its turnaround plan may lead to additional impairment or restructuring charges in future periods and such amounts may be material.

5.    Comprehensive Loss

        Comprehensive loss for the three and six months ended June 30, 2001 and 2002 was as follows (in thousands of U.S. dollars):

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6.    Property and Equipment

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

        Depreciation expense was $3.1 million and $2.7 million for the three months ended June 30, 2001 and 2002, respectively. Depreciation expense was $6.3 million and $5.4 million for the six months ended June 30, 2001 and 2002, respectively.

        The Company has a 25-year Indefeasible Right of Use, or IRU, from Global Crossing and its wholly owned affiliates that expires June 2024. In January 2002, Global Crossing and certain other affiliated subsidiaries filed for U.S. bankruptcy protection. In August 2002, the bankruptcy court approved the sale of a majority interest in Global Crossing to two investors. Global Crossing has continued to maintain service on the trans-Atlantic rings on which the Company has acquired IRU capacity and has publicly stated its intention to continue most or all of its network services upon reorganization. If service on our trans-Atlantic IRU is interrupted or terminated because of the financial difficulties or decisions made in the course of the bankruptcy proceedings of Global Crossing, peering and transit relationships the Company has in place from our pan-European backbone network will provide contingency and quality backup capabilities for its Internet traffic to reach U.S. destinations. However, if the Company is required to rely on these peering and transit relationships for all its trans-Atlantic traffic, the Company may incur additional costs and experience a lesser quality of service in reaching non-European destinations. There can be no assurances that Global Crossing or the purchasers of its business will continue to provide service on the cable on which the Company has acquired trans-Atlantic capacity. If this service becomes unavailable to the Company, and if the Company does not successfully acquire alternative service of materially similar capacity and quality, its ability to provide quality levels of IP service will be adversely impacted.

        During the three months ended June 30, 2002, the Company recorded a fixed asset impairment charge of $625,000. The table above shows the balances as of June 30, 2002 after the effect of the impairment charges. See Note 4. The following table shows the composition of the fixed asset impairment charges (in thousands of U.S. dollars):

7.    Goodwill and Acquired Intangible Assets

        VIA adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142) as of January 1, 2002. SFAS 142 addresses financial accounting and

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reporting for acquired goodwill and other intangible assets. In accordance with the requirements of SFAS 142, the Company reclassified $850,000 of acquired workforce as goodwill and ceased amortization of goodwill as of January 1, 2002. During the three months ended March 31, 2002, the Company completed SFAS 142 transitional impairment test and determined that its goodwill was not impaired as of January 1, 2002, the date of SFAS 142 adoption. The Company will complete its annual goodwill impairment analysis as of October 1, 2002.

        SFAS 142 requires that goodwill be tested for impairment at least annually at the reporting unit level. Additionally, SFAS 142 requires that goodwill be tested for impairment on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. During the second quarter 2002, the Company recorded an impairment charge of $803,000 related to its goodwill and other acquired intangible assets at its Irish and Italian operations. See Note 4.

        The reconciliation of reported net loss from continuing operations to adjusted net loss from continuing operations and adjusted net loss-per-share from continuing operations is as follows (in thousands of U.S. dollars):

        The Company's intangible assets, consisting of acquired customer lists and acquired workforce, are as follows (in thousands of U.S. dollars):