SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 

Commission file number: 000-29391

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

 

H. Walaardt Sacrestraat 401-403
1117 BM Schiphol
The Netherlands
(Address of principal executive offices)

Registrant’s telephone number, including area code: +31 20 502 0000

(Former name or former address, if changed since last report)

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 x  No o

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

As of August 11, 2004, there were outstanding 65,284,651 shares of the registrant’s common stock.

VIA NET.WORKS, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements:		3
		Condensed Consolidated Balance Sheets as of December 31, 2004 and June 30, 2005		3
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2005		4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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		23
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.		Controls and Procedures		36
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings		37
Item 2.		Changes in Securities and Use of Proceeds		37
Item 3.		Defaults Upon Senior Securities		37
Item 4.		Submission of Matters to a Vote of Security Holders		37
Item 5.		Other Information		38
Item 6.		Exhibits		38
SIGNATURES				39
EXHIBIT INDEX				40

 

PART I

ITEM 1.                FINANCIAL STATEMENTS

VIA NET.WORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)

		December 31, 2004					June 30, 2005
							(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	15,497				$	3,140
Restricted cash			5,100					2,457
Trade and other accounts receivable, net of allowance of $2,966 and $1,516 respectively			13,909					4,827
Other current assets			6,972					3,701
Assets of businesses held for sale (Note 2)			—					19,843
Total current assets			41,478					33,968
Property and equipment, net			13,065					6,222
Goodwill			42,466					18,834
Intangible assets, net			8,695					3,052
Other non-current assets			444					792
Deferred tax asset			14,305					13,771
Total assets			$	120,453				$	76,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	16,899				$	9,912
VAT and other taxes payable			1,083					507
Current portion of capital lease obligations and long-term payables			9,325					7,483
Deferred revenue			15,591					2,151
Accrued expenses			24,451					20,831
Deferred tax liability			13,772					14,034
Other current liabilities			3,744					1,918
Liabilities of businesses held for sale (Note 2)			—					19,598
Total current liabilities			84,865					76,434
Capital lease obligations and long-term payables, less current portion			344					142
Deferred tax liability			2,639					937
Total liabilities			87,848					77,513
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 66,805,440 shares issued, respectively			63					67
Additional paid-in capital			557,907					558,478
Treasury stock, 1,520,789 shares			(1,521		)			(1,521		)
Accumulated deficit			(488,880		)			(535,232		)
Accumulated other comprehensive loss			(34,964		)			(22,666		)
Total stockholders’ equity			32,605					(874		)
Total liabilities and stockholders’ equity			$	120,453				$	76,639

 

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

3

VIA NET.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 June 30,						For the six months ended June 30,
		2004			2005			2004			2005
Revenue		4,152			14,057			8,242			29,586
Operating costs and expenses:
Internet services		2,506			7,065			4,744			15,458
Selling, general and administrative		9,545			13,322			19,033			28,566
Impairment and restructuring charges		195			10,417			495			11,846
Depreciation and amortization		897			1,386			1,995			2,911
Total operating costs and expenses		13,143			32,190			26,267			58,781
Operating loss from continuing operations		(8,991		)	(18,133		)	(18,025		)	(29,195		)
Interest income		180			49			279			60
Interest expense		—			(173		)	(6		)	(333		)
Other (expense) income, net		(74		)	(1,212		)	98			299
Foreign currency gains (losses), net		(544		)	(8,598		)	(3,867		)	(10,366		)
Loss from continuing operations before income taxes		(9,429		)	(28,067		)	(21,521		)	(39,535		)
Income tax expense		(1		)	(162		)	(1		)	(172		)
Net loss from continuing operations		(9,430		)	(28,229		)	(21,522		)	(39,707		)
Discontinued operations:
Gain (loss) from discontinued operations		(2,047		)	(7,767		)	228			(10,928		)
Gain on disposal of discontinued operations		—			1,060			—			4,283
Net loss		$	(11,477	)	$	(34,936	)	$	(21,294	)	$	(46,352	)
Basic and diluted loss per share:
Continuing operations		$	(0.16	)	$	(0.45	)	$	(0.35	)	$	(0.64	)
Discontinued operations		$	(0.03	)	$	(0.11	)	$	(0.00	)	$	(0.11	)
Net loss per share—basic and diluted		$	(0.19	)	$	(0.56	)	$	(0.35	)	$	(0. 75	)
Shares used in computing basic and diluted loss per share		61,076,502			61,839,050			60,860,462			61,471,519

 

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

4

VIA NET.WORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
(Unaudited)

		For the six months ended June 30,
		2004			2005
Cash flows from operating activities:
Net loss from continuing operations		$	(21,522	)	(39,707	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		1,995			2,911
Impairment charges		—			10,197
Provision for doubtful accounts receivable		563			39
Unrealized foreign currency transaction losses		2,867			10,348
Deferred tax		—			132
Stock compensation		80			—
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable		(238		)	927
Other current assets		(1,087		)	2,547
Other non-current assets		35			—
Accounts payable		1,662			(1,284	)
VAT and other taxes payable		(211		)	(80	)
Accrued expenses		(351		)	202
Other current liabilities		772			(996	)
Deferred revenue		(2		)	(729	)
Net cash provided by (used in) operating activities by discontinued operations		3,420			(1,847	)
Net cash used in operating activities		(12,017		)	(17,340	)
Cash flows from investing activities:
(Increase) decrease in restricted cash		(58		)	2,643
Acquisition of subsidiaries (net of cash acquired)		(8,429		)	(1,280	)
Purchases of property, equipment and other assets		(2,301		)	(818	)
Proceeds from disposition of subsidiaries		—			6,140
Net cash used in investing activities by discontinued operations		(959		)	38
Net cash used in investing activities		(11,747		)	6,723
Cash flows from financing activities:
Repayment of debt and principal payments on capital lease obligations		8			(482	)
Proceeds from issuance of common stock, net		369			—
Net cash used in financing activities by discontinued operations		(127		)	(107	)
Net cash (used in) received from financing activities		250			(589	)
Effect of currency exchange rate changes on cash		2			(1,151	)
Net decrease in cash and cash equivalents		(23,512		)	(12,357	)
Cash and cash equivalents, beginning of period		65,803			15,497
Cash and cash equivalents, end of period		$	42,291		3,140

 

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

5

VIA NET.WORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  Basis of Presentation

These condensed consolidated financial statements as of June 30, 2005 and for the three and six month periods ended June 30, 2004 and 2005 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, 2004, included in VIA’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“2004 Annual Report”). These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes to the financial statements included in the 2004 Annual Report. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) that management considers necessary to present fairly the consolidated financial position of VIA at June 30, 2005 and the results of its operations and its cash flows for the six month periods ended June 30, 2004 and 2005. The results of operations for the three and six month period ended June 30, 2005 may not be indicative of the results expected for any succeeding quarter or for the year ending December 31, 2005. Certain prior period amounts have been reclassified to conform to the current period presentation. Reclassifications have been made to prior period amounts to account for discontinued operations.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Going concern:

For the six months ended June 30, 2005, the Company had net losses from continuing operations of $39.7 million and net decrease of cash and cash equivalents for the period of $12.4 million.

As of June 30, 2005, the Company had $3.1 million in cash and cash equivalents and $2.5 million in restricted cash. The Company continues to sustain losses and net decreases of cash and cash equivalents from its continuing operations. As announced on March 17, 2005, the Company has insufficient cash reserves to continue operations of its group parent, VIA NET.WORKS, Inc., without new financing. The Company has sought, with the support of its professional advisors, to address this issue, by seeking new investments in the Company, new financing and opportunities to sell all or part of its business operations. Since Apri1 1, 2005, the Company has financed its continuing operations through the sale of operating units of the Company and obtaining advances of funds in connection with the sale of certain operating units.

On April 1, 2005, the Company announced the sale of two of its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG—to former managers and owners of the businesses, for a cash consideration of CHF 3.5 million ($2.9 million). The net proceeds of the sale provided VIA with additional liquidity to continue its discussions with other parties to obtain new financing or enter into transactions for the sale of all or parts of its business.

On April 30, 2005, VIA NET.WORKS, Inc. entered into a sale and purchase agreement, or Sale Agreement, with Claranet Group Limited (Claranet), a privately-held European Internet services provider based in the United Kingdom, to sell all of the Company’s remaining business operations in Europe and

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the United States (the “Asset Sale”). The agreement followed on the letter of intent entered into between Claranet and VIA on April 10, 2005. The material provisions of the Sale Agreement were described in the Company’s Quarterly Report on Form 10-Q for the three month period ended March 31, 2005.

The Asset Sale was conditioned upon the approval by the Company’s shareholders. On or about June 3, 2005, the Company mailed its definitive proxy statement on Form 14A to its shareholders of record as of May 25, 2005 and scheduled a Special and Annual Meeting of the Shareholders to take place on June 29, 2005. In the proxy statement the Company delivered to its shareholders, the Company requested approval of, among other things, the Asset Sale and a plan of complete dissolution and liquidation of the Company. On June 28, 2005, the Company announced the postponement of the shareholders’ meeting until July 22, 2005. The closing of the Asset Sale was conditioned on receiving the requisite majority vote of the shareholders of the Company.

On July 12, 2005, VIA and Claranet entered into an Amendment and Restatement Agreement relating to the Sale Agreement of April 30, 2005 (the “Amended Sale Agreement”). Pursuant to the Amended Sale Agreement, the Company sold its Amen group of businesses and its U.S., Dutch and Portuguese VIA NET.WORKS branded legacy operations to Claranet for $9.3 million, less a portion of the deposit already paid by Claranet in connection with the Asset Sale (plus interest on such amount), repayment to Claranet of the amounts owed by VIA under the loan facility established on April 30, 2005, including interest, and an amount held as a deferred payment (the “July 12^th Sale”). The sale excluded the PSINet Europe operations and VIA’s legacy operations in France, Germany and Spain and certain assets pertaining to the Company’s centralized back office and technical support systems, including employee contracts of certain headquarters personal (the “Remaining Assets”). No shareholder approval was necessary for the closing of the July 12^th Sale. Upon completion of the July 12^th Sale, the Company recorded a loss in the statement of operations for the three months ending September 30, 2005 of $1.6 million, relating to amounts previously recorded in accumulated other comprehensive loss.

The Amended Sale Agreement contemplated that the Remaining Assets would be sold to Claranet for $17.1 million, subject to certain adjustments, in a second closing that would be subject to shareholder approval. As a part of the July 12^th Sale, VIA and Claranet also entered into an Amendment and Restatement Agreement relating to the Facility Agreement of April 30, 2005 (the “Amended Facility Agreement”). Under the Amended Facility Agreement, Claranet agreed to extend to VIA a secured loan facility of $2.5 million, in replacement of the previous €5.3 million ($7.0 million) loan facility under the Facility Agreement of April 30, 2005. VIA subsequently delivered to its shareholders a supplement to its proxy materials describing, among other things, the July 12^th Sale, the sale of the Remaining Assets and the approval being sought at the July 22^nd shareholders’ meeting. The shareholders’ meeting was convened on July 22, 2005 and then adjourned until August 2, 2005 in order to provide the Company additional time to secure the requisite majority vote.

On July 27, 2005, Claranet delivered a letter purporting to terminate the Amended Sale Agreement. Claranet also delivered a letter of termination that day regarding the Amended Facility Agreement. In its letters of termination, Claranet alleged that certain events had occurred that permit it to terminate the Amended Sale Agreement and the Amended Facility Agreement; specifically, that VIA’s cash flow exceeded the level of negative cash flow permitted by the Amended Sale Agreement, that certain alleged new liabilities have arisen and that Claranet did not consent to VIA’s recent transaction with Sorbie (See Note 10). The Company promptly delivered a notice to Claranet disputing the assertions made by Claranet, disputing the right of Claranet to terminate the agreements and demanding that it fully perform the agreements.

While VIA believes that Claranet’s position is not supported by the facts or the terms of the agreements and that Claranet is therefore in breach of th agreements, VIA’s management also is aware that Claranet is not willing to proceed to complete the sale and provide financing on the terms of the

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agreements, and that VIA will need to pursue a different transaction. VIA therefore has engaged Claranet in discussions toward resolving the dispute, and at the same time VIA also has actively sought a new buyer for the Remaining Assets, and has had substantive discussions with several interested parties. In light of the Company’s liquidity problems and without further advances under the Amended Facility Agreement from Claranet, the Company is seeking to complete its discussions with Claranet and to enter into a new arrangement for the sale of the business and interim funding within the next few weeks. In the absence of a resolution of the dispute with Claranet, the Company could be liable to pay Claranet termination and related charges in an amount of $1.2 million, if Claranet’s position is determined to be justified. If the Company’s position is correct, Claranet would owe the Company $0.5 million for a break fee and the Company could pursue Claranet in litigation for significant damages. Based on discussions to date, the Company anticipates that it will be able to conclude arrangements with a new buyer for the sale of the business and interim financing, as well as an agreement with Claranet to resolve the disputed termination of the sale and financing agreements, within that time frame. There can be no assurances that the Company will be successful in these efforts, or what value a new buyer will place on the Company’s business and assets. If, for whatever reason, the Company is not able to enter into a new arrangement for the sale of the business and interim funding, there can be no assurance that VIA will able to find alternative solutions to its liquidity problem. In that event, the Company would have insufficient funds to continue to operate the Company as a going concern.

Recent accounting pronouncements

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payments” or SFAS 123R. This statement eliminates the option to apply the intrinsic value measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” to stock compensation awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award—the requisite service period (usually the vesting period). SFAS 123R applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. SFAS 123R will be effective for our fiscal year beginning January 1, 2006. We have not yet quantified the effect of the future adoption of SFAS 123R on a going forward basis.

2.   Discontinued Operations

As each of the United Kingdom, Brazilian, Portuguese, Cayman Islands, Swiss, Netherlands, U.S., Spanish, French and Italian operations represented a component of an entity as defined by Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has classified each operation as a discontinued operation for all periods presented.

2004

VIA NET.WORKS UK Limited.

On September 28, 2004, the Company sold 100% of the shares of VIA NET.WORKS UK Limited, which was part of the Solutions segment, to Claranet Limited, a UK-based Internet service provider. VIA NET.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 UK Limited in the aggregate amount of GBP 7.3 million ($13.1 million), subject to certain working capital and other adjustments. The Company received GBP 5.3 million ($9.4 million) in cash on completion. The GBP 2.0 million ($3.8 million) balance was payable, subject to the working capital and other adjustments, as follows: GBP 1.0 million

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($1.9 million) in cash six months after completion and GBP 1.0 million ($1.9 million) in cash one year after completion.

On March 21, 2005, the Company resolved all contingencies surrounding the first escrow payment, and received a payment from Claranet of GBP 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 from discontinued operations in the three months ended March 31, 2005.

The remaining consideration of GBP 1.0 million ($1.9 million) was scheduled to be released from escrow, subject to warranty claims of 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 of the remaining business operations. Upon execution of the letter of intent, Claranet delivered a deposit of $3.0 million for the rights to negotiate on an exclusive basis definitive agreements toward the sale of the Company’s business operations. The deposit was partially paid by the release of the remaining GBP 1.0 million ($1.9 million) in escrow. As all material contingencies surrounding the second escrow payment were resolved as at March 31, 2005, the GBP 1.0 million ($1.9 million) consideration has also been recognized as gain on disposal from discontinued operations in the three months ended March 31, 2005.

Revenues related to VIA NET.WORKS UK Limited were approximately $10.7 million for the six months ended June 30, 2004 and $nil for the six months ended June 30, 2005. The gain, excluding accounting for the sale transaction, related to VIA NET.WORKS UK Limited was approximately $3.5 million for the six months ended June 30, 2004 and nil for the six months ended June 30, 2005.

SURF COMPANIES

During the year ended December 31, 2004, Surftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Cayman were liquidated. The results of the liquidated companies which have been recorded during the six months ended June 30, 2004 are nil for Surftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Cayman. Surftrade Ltda., Surftrade Portugal and VIA NET.WORKS Holdings Cayman results would have been reported in Corporate entity.

2005

VIA NET.WORKS SWITZERLAND

On April 1, 2005, the Company announced the sale of two of its Swiss companies—VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG—to former managers and owners of the businesses, for a cash consideration of CHF 3.5 million ($2.9 million). VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG results would have been reported in our Solutions segment. The Company sold the Swiss operations due to working capital shortfalls. The net proceeds of the sale provided VIA with additional liquidity to continue its operations, while the Company continued discussions for refinancing and sale transactions.

Revenues related to VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG were approximately $4.5 million for the six months ended June 30, 2004 and $2.2 million for the six months ended June 30, 2005. The loss, excluding accounting for the sale transaction, related to VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG was approximately $0.1 million for the six months ended June 30, 2004 and $24,000 for the six months ended June 30, 2005. Upon completion of the VIA NET.WORKS (Schweiz) AG and VIA NET.WORKS Services AG sale, the Company recorded a loss of $1.0 million in the statement of operations in the three months ended June 30, 2005, relating to amounts previously recorded in accumulated other comprehensive loss.

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AMEN GROUP AND LEGACY OPERATIONS IN THE UNITED STATES, THE NETHERLANDS AND PORTUGAL

Pursuant to the Amended Sale Agreement, on July 12, 2005, the Company sold its Amen group of businesses and the U.S., Dutch and Portuguese VIA NET.WORKS branded legacy operations to Claranet Group Limited (the July 12^th Sale). The Amen group of businesses results would have been reported in our Amen segment. The Dutch and Portuguese VIA NET.WORKS branded legacy operations results would have been reported in our Solutions segment and the U.S. VIA NET.WORKS branded legacy operation result would have been reported in our Express segment.

As of June 30, 2005 assets and liabilities held for sale consisted of:

In thousands of U.S. dollars
Current assets				9,215
Goodwill (Amen and Express segment)				10,628
Total assets				19,843
Accounts payable				3,734
Deferred revenue				9,886
Other current liabilities				5,439
Long term liabilities				539
Total liabilities				19,598

 

Revenues related to the companies sold in the July 12^th sale were approximately $13.0 million for the six months ended June 30, 2004 and $16.7 million for the six months ended June 30, 2005. The loss, excluding accounting for the sale transaction, related to the A Group Companies was approximately $3.1 million for the six months ended June 30, 2004 and $10.9 million for the six months ended June 30, 2005. Income tax benefits in connection with deferred tax liabilities relating to intangible fixed assets recognized for the acquisition of the Amen group of companies were approximately $0.2 million for the six months ended June 30, 2004 and $0.2 million for the six months ended June 30, 2005. Details of the impairment charges recorded against the discontinued operations is set out in Note 3.

The balance sheet for the six months ended June 30, 2005 has been reclassified to show the assets and liabilities for the Amen group of businesses and the U.S., Dutch and Portuguese VIA NET.WORKS branded legacy operations separately as businesses held for sale. Upon disposal, a further loss of $1.6 million will be recognized in the three months ending September 30, 2005, as a result of foreign currency translation adjustments being reclassified into the statement of operations. The comparative balance sheet as at December 31, 2004 has not been reclassified to show separately amounts related to discontinued operations.

3.   Impairment and Restructuring Charges

Impairment charges:

				Six months ended June 30,
In thousands of U.S. dollars				2004					2005
Fixed assets and intangible assets					$	—			$	1,382
Goodwill					—				8,815
Total impairment charges					$	—			$	10,197

 

2004

There were no impairment charges for the six months ended June 30, 2004.

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2005

At June 30, 2005, upon completion of an impairment analysis, in accordance with SFAS 144, the Company recorded an intangible fixed asset impairment charge of $0.3 million and a tangible fixed asset impairment charge of $1.1million in relation to the Remaining Assets of the Group (mainly related to the Solutions segment). For definitions of the segments, please refer to Note 12 Segment reporting.

The impairment review reflected the signing of the Amended Sale Agreement with Claranet on July 12, 2005 to sell the businesses of VIA NET.WORKS to Claranet, and the subsequent termination letter issued by Claranet as discussed in Note 1, which provided additional information regarding the fair value of the assets.

Based on the impairment of tangible and intangible fixed assets for the Remaining Assets, at June 30, 2005, the Company determined a triggering event had occurred which required the Company to perform an impairment test on the carrying value of goodwill in accordance with SFAS 142. As a result, the Company recorded an impairment of $8.7 million to the goodwill related to its Solutions segment and an impairment of $0.1 million to the goodwill related to the VIA U.S.A. operation, which is included in the Company’s Express segment. The impairment charge relating to the goodwill of the VIA U.S.A. operation has been classified within loss from discontinued operations in the statement of operations for the three and six months ended June 30, 2005.

The fair value of the Remaining Assets calculated as of June 30, 2005 was based on a discounted cash flow model with appropriate market and business risk factored in for the period until October 31, 2005, the estimated date of completion of the sale of the Remaining Assets. In addition estimated sale proceeds of $17.1 million were used, which represents management’s best estimate of the likely sale proceeds based on substantive discussions with interested parties.

As a part of the process of creating the discounted cash flow model, the Company’s management was required to make estimates and assumptions regarding future revenues, costs and cash flows for the period between June 30, 2005 and October 31, 2005, the estimated date of completion of the sale of the Remaining Assets and the projected working capital position at October 31, 2005. In addition, the use of a discounted cash flow model requires management to make estimates and assumptions about the discount factor, timing of cash flows, terminal values and future growth rates. The assumptions made in calculating the impairment charges represent management’s best estimates based on currently available information. Changes to any of these assumptions can have a material impact on the discounted cash flows and therefore have a further material impact on the level of impairment required to be recorded.

In addition to the impairment charges discussed above, the Company also recorded impairment charges of $5.9 million for the three and six months ended June 30, 2005, against assets classified as held for sale under the Amended Sale Agreement.

Restructuring charges:

In thousands of U.S. dollars				Balance at December 31, 2003					Additions					Cash utilized					Foreign exchange					Balance at March 31, 2004
Employee termination payments					201					151					(159		)			1					194
Future operating lease obligations					276					—					(41		)			—					235
Other					121					149					(114		)			—					156
Total restructuring charges					$	598				$	300				$	(314	)			$	1				$	585

 

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In thousands of U.S. dollars				Balance at March 31, 2004					Additions					Cash utilized					Foreign exchange					Balance at June 30, 2004
Employee termination payments					194					73					(266		)			(1		)			—
Future operating lease obligations					235					—					(83		)			—					152
Other					156					122					(253		)			—					25
Total restructuring charges					$	585				$	195				$	(602	)			$	(1	)			$	177

 

In thousands of U.S. dollars				Balance at December 31, 2004					Additions / releases					Cash utilized					Foreign exchange					Balance at March 31, 2005
Employee termination payments					319					106					(212		)			(14		)			199
Future operating lease obligations					164					(40		)			(70		)			(4		)			50
Other					484					176					(174		)			(16		)			470
Total restructuring charges					$	967				$	242				$	(456	)			$	(34	)			$	719

 

In thousands of U.S. dollars				Balance at March 31, 2005					Additions / releases					Cash utilized					Foreign exchange					Balance at June 30, 2005
Employee termination payments					199					1,407					(143		)			(69		)			1,394
Future operating lease obligations					50					—					(45		)			(1		)			4
Other					470					—					(97		)			(14		)			359
Total restructuring charges					$	719				$	1,407				$	(285	)			$	(84	)			$	1,757

 

2004

The Company recorded restructuring charges of $0.2 million and $0.5 million during the three and six months ended June 30, 2004 respectively. The restructuring charge for the three months ended March 31, 2004 related to severance payments at the corporate headquarters and transition implementation costs for back-office and administrative outsourcing initiatives. The restructuring charge for the three months ended June 30, 2004 related to severance payments at the corporate headquarters, and transition implementation costs for back-office and administrative outsourcing initiatives.

The employee termination costs of $0.2 million for the three months ended March 31, 2004 relate to five employees in finance at the corporate headquarters. Cash payments for severance and benefits of $0.2 million were made in the first quarter of 2004 by the European operations ($0.1 million) and Corporate ($0.1 million). The employee termination costs of $0.1 million for the three months ended June 30, 2004 relate to three employees at corporate headquarters. Cash payments of $0.3 million were made in the quarter in respect of the March 31, 2004 accrual and costs incurred in the period.

The accrual for future operating lease obligations, relating mainly to the Reston office, has been drawn down by the monthly payments on the office lease, which continues through February 2005, less the income from a sublease of the space. Other charges incurred in the three and six months ended June 30, 2004 related to the implementation costs for back-office and administrative outsourcing initiatives.

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2005

The Company recorded restructuring charges of $1.4 million and $1.6 million during the three and six months ended June 30, 2005 respectively. During the three months ended March 31, 2005, the Company recorded restructuring charges of $0.2 million. The restructuring charge for the three months ended March 31, 2005 related to severance payments at the corporate headquarters and transition implementation costs for back-office integration initiatives.

The employee termination costs of $0.1 million for the three months ended March 31, 2005 relate to one employee at the corporate headquarters. The employee termination costs of $1.4 million for the three months ended June 30, 2005 relate to forty one employees at the corporate headquarters. Cash payments for severance and benefits of $0.1 million were made in the three months ended June 30, 2005 by the corporate headquarters. The remaining accrual of $1.4 million at June 30, 2005 relates to forty two employees at the corporate headquarters.

The accrual for future operating lease obligations, relate to the Reston office and future lease obligations in the VIA Germany operation. As at June 30, 2005 the accrual for the future operating lease obligations of the Reston office and the VIA Germany operation have been drawn down to nil by the monthly payments on the office lease. $40,000 of the accrual for the future operating lease obligations has been 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 in the three months ended March 31, 2005, relate to the implementation costs for back-office integration initiatives. The remaining accrual of $0.4 million at June 30, 2005 relates to $0.2 million implementation costs for back-office integration initiatives and $0.2 million for the termination of a reseller agreement in the PSINet France operation.

4.   Income Tax

The provision for taxes based on income for the six months ended June 30, 2004 and 2005 was computed in accordance with Interpretation No. 18 of Accounting Principles Board Opinion No. 28 on reporting taxes for interim periods and was based on management’s expectation of an effective income tax rate of 0% for the year ending December 31, 2005.

5.   Comprehensive Loss

Comprehensive loss for the three and six months ended June 30, 2004 and 2005 was as follows:

				Three months ended June 30,						Six months ended June 30,
In thousands of U.S. dollars				2004			2005			2004			2005
Net loss				$	(11,477	)	$	(34,936	)	$	(21,294	)	$	(46,352	)
Foreign currency translation adjustment (losses) gains				607			9,705			2,533			12,033
Comprehensive loss				$	(10,870	)	$	(25,231	)	$	(18,761	)	$	(34,319	)

 

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6.   Property and Equipment, net

Property and equipment consisted of the following:

In thousands of U.S. dollars				December 31, 2004					June 30, 2005
Hardware and other equipment					$	19,586			$	6,969
Network and data center assets					8,330				4,349
Software					17,237				15,654
Furniture and fixtures					1,186				221
					46,339				27,193
Accumulated depreciation					(33,274		)		(20,971		)
Property and equipment, net					$	13,065			$	6,222

 

Depreciation expense was $2.0 million and $2.7 million for the six months ended June 30, 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 the six months ended June 30, 2005, respectively. The table above shows the balances, net, after the effect of the impairment charges and property and equipment at June 30, 2005 classified as Assets of businesses held for sale. The fixed asset impairment charge related to all property and equipment categories. (See Note 3 for further information.)

7.   Goodwill

The changes in the carrying amount of goodwill during the six months ended June 30, 2005 are as follows:

In thousands of U.S. dollars				Total			Solutions					Amen			Express
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
Impairment charges related to discontinued operations				(70		)		—				—			(70		)
Impairment charges related to continuing operations				(8,815		)		(8,815		)		—			—
Goodwill classified under assets of businesses held for sale				(10,628		)		—				(9,552		)	(1,076		)
Foreign exchange adjustment				(2,247		)		(1,574		)		(673		)	—
Balance as of June 30, 2005				$	18,834			$	18,834			$	—		$	—

 

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

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8.   Intangible Assets, net

Intangible assets consisted of the following:

In thousands of U.S. dollars				December 31, 2004					June 30, 2005
Customer lists					$	6,580			$	3,508
Software					2,183				—
Tradename					1,062				697
Accumulated amortization					(1,130		)		(1,153		)
Intangible assets , net					$	8,695			$	3,052

 

The amortization expense for the six-month periods ended June 30, 2004 and 2005 for continuing operations was nil and $0.2 million, respectively. The Company amortizes customer lists, software and trade names over three to seven years, five years and ten years respectively. The Company recorded an asset impairment charge of $0.1 million and $0.3 million for the year ended December 31, 2004 and the six months ended June 30, 2005, respectively. The table above shows the balances net after the effect of the impairment charges and intangible assets at June 30, 2005 classified as Assets of businesses held for sale. (See Note 2 and 3 for further information.)

9.   Stock-Based Compensation

SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the estimated fair value of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.

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The Company has adopted the “disclosure only” alternative described in SFAS No. 123, which requires pro forma disclosures of net income and earnings per share as if the fair value method of accounting has been applied. The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:

				For the three months ended June 30,						For the six months ended June 30,
In thousands of U.S. dollars				2004			2005			2004			2005
Net loss (as reported)				$	(11,477	)	$	(34,936	)	$	(21,294	)	$	(46,352	)
Add back: Total stock-based employee compensation expense determined under intrinsic value method, net of related tax effects				—			—			80			—
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects				(509		)	(230		)	(1,118		)	(547		)
Pro forma net loss				$	(11,986	)	$	(35,166	)	$	(22,332	)	$	(46,899	)
Net loss per share, basic and diluted (as reported)				$	(0.19	)	$	(0.56	)	$	(0.35	)	$	(0.75	)
Net loss per share, basic and diluted (pro forma)				$	(0.20	)	$	(0.57	)	$	(0.37	)	$	(0.76	)

 

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

10.  Non-cash transactions

On June 14, 2005, the Company issued 4,180,663 shares of its common stock to Reachtown Limited. The shares were issued in satisfaction of an earn-out provision set forth in the Share Purchase Agreement made and entered into as of January 28, 2004, among VIA, VIA NET.WORKS Holdco, Inc. and Reachtown Limited, pursuant to which the Company acquired 100% of the issued and outstanding shares of the Amen group of companies.

On June 29, 2005, the Company entered into a series of agreements (the “Agreements”) relating to the release by Sorbie Europe B.V. (formerly PSINet Europe B.V.) (“Sorbie”) of all of the Company’s obligations related to the unsecured zero-coupon convertible note of Euro 6.0 million ($7.2 million) due in full November 20, 2005 issued to Sorbie in connection with its acquisition of the PSINet Europe companies on August 9, 2004. Under the Agreements, the Company and the sellers of the PSINet Europe companies mutually released all claims that either party has or may have in the future have against the other party under the August 9, 2004 purchase agreement. In consideration for the release, Sorbie agreed that it will cancel the Note if VIA pays Sorbie, prior to August 31, 2005, Euro 1.5 million (approximately $1.8 million) in cash and issues to Sorbie or its designee shares of common stock of VIA equal to 9.9% (7,173,341 shares) of the total outstanding shares of the Company as of June 29, 2005. Pursuant to the Agreements, the release and cancellation and the Company’s payment and issuance of the shares to Sorbie will occur no later than two days after the date of completion of the sale of the Company’s business or the recapitalization of the Company with new funds.

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11.   Contingencies

Legal Proceedings

On November 5, 2001, the Company was named as a defendant in a class action lawsuit in the District Court for the Southern District of New York against VIA NET.WORKS, Inc., certain of the underwriters who supported our initial public offering (“IPO”) and certain of our 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. The Complaint alleges that the prospectus we filed with our registration statement in connection with our IPO was materially false and misleading because it failed to disclose, among other things, that: (i) the named underwriters had solicited and received excessive and undisclosed commissions from certain investors in exchange for the right to purchase large blocks of VIA IPO shares; and (ii) the named Underwriters had entered into agreements with certain of their customers to allocate VIA IPO shares in exchange for which the customers agreed to purchase additional VIA shares in the aftermarket at pre-determined prices (“Tie-in Arrangements”), thereby artificially inflating the Company’s stock price. The Complaint further alleges violations of Sections 11, 12 (a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under arising out of the alleged failure to disclose and the alleged materially misleading disclosures made with respect to the commissions and the Tie-in Arrangements in the prospectus. The plaintiffs in this action seek monetary damages in an unspecified amount. Approximately 300 other issuers and their underwriters have had similar suits filed against them, all of which are included in a single coordinated proceeding in the Southern District of New York (the “IPO Litigation”). On June 30, 2003, the special litigation committee of the board of directors of the Company conditionally approved the global settlement between all plaintiffs and issuers in the IPO Litigations. The special litigation committee agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other defendants in the proposed settlement, the consent of the Company’s insurers to the settlement, and the completion of acceptable final settlement documentation. The settlement would provide, among other things, a release of the Company and of the individual defendants for the conduct alleged in the action to be wrongful by the plaintiffs. Under the proposed settlement, the Company would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential 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 preliminary approval of the settlement. The court granted the preliminary approval on February 15, 2005, subject to certain modifications. If the parties are able to agree upon the 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 to the class members, the settlement will be approved. Any direct financial impact of the proposed settlement is expected to be borne by our insurers.

The Company is engaged in a dispute with its former chief executive officer, Rhett Williams, regarding the termination of his employment agreement. VIA terminated the agreement for cause as of April 6, 2005. On May 24, 2005, Mr. Williams caused an attachment to be placed on VIA’s bank accounts in the Netherlands. In support of his application for the attachment, Mr. Williams claimed that under his employment agreement he was entitled to notice of termination of twelve months, an additional six months separation pay, reimbursement of moving expenses and his costs in the action, for a total claim of in excess of €950,000. In June 2005, Mr. Williams filed an action for summary judgment and immediate payment of the claim. In a ruling of the Dutch employment tribunal delivered on July 5, 2005, the court denied his petition. VIA secured the release of the attachment against the bank accounts August 5, 2005. On August 8, 2005, Mr. Williams served the Company with a summons for a trial on the matter. VIA believes that the suit of Mr. Williams is without merit, and there existed sufficient grounds to terminate the employment agreement for cause. VIA has engaged counsel and intends to defend vigorously the action. If

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the Company is determined to be liable or if we conclude that a settlement is in its best interests, the Company may incur substantial costs.

In August 2004, VIA acquired PSINet Belgium as a part of its acquisition of five PSINet Europe companies. PSINet Belgium is a defendant in a lawsuit filed in September 2002 by the former Vice President Europe Sales & Marketing of PSINet Europe, based on the termination of her employment in February 2002. In her suit filed in the Belgium employment tribunal, the claimant alleges that that she was entitled to notice and termination pay, reimbursement for expenses incurred and other damages in an amount in excess of €1.7 million. In January 2003, after the tribunal delivered a ruling in favor of PSINet Belgium with regard to the initial request of the former employee for holiday allowance, the claimant did not prosecute the matter further; however the matter is still pending in the Belgium employment tribunal and may be restarted at any time by the former employee. In June 2005, through her counsel, the claimant contacted PSINet Belgium and VIA’s chief executive officer to renew her demands for payment of her claims, which she now claims is in excess of €2.1 million. VIA has communicated to the former employee its willingness to discuss the matter with a view toward reaching an appropriate settlement. However, if a settlement of the matter is not concluded and the matter is restarted, the Company intends to defend vigorously the action. If PSINet Belgium is determined to be liable or if the Company concludes that a settlement is in its best interests, that subsidiary may incur substantial costs.

PSINet Belgium, an indirect wholly-owned subsidiary of the Company, is a defendant in a lawsuit filed by Perceval Technologies N.V. (“Perceval”) regarding a commercial agreement entered into for the provision by Perceval of a DSL network in Belgium, Luxembourg and France. The agreement of 15 March 2004, entered into prior to VIA’s acquisition of PSINet Belgium, was for the benefit of a customer of PSINet Belgium, 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 to stop the project, whereupon PSINet Belgium terminated the agreement with Perceval. On February 28, 2005, Perceval brought a civil action before the commercial court of Brussels for the early termination of the contract and claims damage in the amount of €1.4 million plus €250,000 moral damages, plus interests, costs and attorneys’ fees. The Company believes PSINet Belgium was entitled to terminate the agreement under the circumstances and that the allegations are without merit and have engaged counsel to defend the action. If PSINet Belgium is determined to be liable or if the Company concludes that a settlement is in its best interests, that subsidiary may incur substantial costs.

The Company is subject to a dispute with Reachtown Ltd., a UK limited liability company from whom VIA acquired the Amen group of companies in January 2004. The dispute relates to the management agreement between the Company and Reachtown under which Reachtown provided day to day operational management of the Amen group of companies and other services. In April 2005, after the announcement of the letter of intent entered into between VIA and Claranet, Reachtown representatives undertook a series of actions that the Company believes was intended to disrupt the Claranet transaction and that adversely impacted the Amen operation. As a result of these actions, the Company terminated the management agreement with Reachtown for cause with effect as of April 14, 2005. On April 25, 2005, Reachtown notified the Company that it disputed the allegations and the basis for the termination for cause and demanded payment of a termination payment of €120,000 and a pro-rata portion of the contractual bonus of €200,000. The Company believes its actions were justified and that it has a claim against Reachtown and its representatives for damages of an amount which exceeds the claim of Reachtown. The Company has engaged counsel to defend its position.

The Company is engaged in a dispute with Claranet regarding the right of Claranet to terminate the Amended Sale Agreement and the Amended Facility Agreement. See discussion of termination letters under Note 11 to the condensed consolidated financial statements and ITEM. 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; Proposed Sale of the Businesses; Interim Funding Arrangements.

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Guarantees

From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, service providers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that historically, costs incurred to settle claims related to these indemnifications have not been material to the Company’s financial position, results of operations or cash flows and that this is the expectation for the future. Additionally, the fair value of the indemnifications that the Company issued during the year ended December 31, 2004 and the six months ended June 30, 2005, respectively, were not material to the Company’s financial position, results of operations or cash flows.

Other

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

12.   Segment Reporting

VIA offers a variety of Internet access, managed bandwidth, web-hosting, Internet security and related services to businesses and consumers in Europe and the Americas. As of June 30, 2005, the Company served primary markets in six countries. These country operations generate Internet-related revenues from leased lines, dial-up Internet access, web-hosting and design, Internet security and consulting services, and sale of third-party hardware and software.

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

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

The table below presents information about the reported revenue, adjusted EBITDA and impairment and restructuring charges from continuing operations of the Company’s operating segments for the three and six months ended June 30, 2004 and June 30, 2005. Total segment assets, as presented in the table below, are total assets net of intercompany funding amounts and include assets relating to the Amen group of businesses and the U.S., Dutch and Portuguese VIA NET.WORKS branded legacy operations, which have been classified as businesses held for sale as of June 30, 2005. Total assets relating to the Amen group of businesses, $13.7 million, have been included within the Amen segment above. Total assets relating to

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the Dutch and Portuguese VIA NET.WORKS branded legacy operations, $4.3 million, have been included within the Solutions segment. Total assets relating to the U.S. VIA NET.WORKS branded legacy operation, $1.8 million, have been included within the Express segment.

In thousands of U.S. dollars				Solutions					Express			Amen			Corporate			Total
Total assets as of June 30, 2004					$	31,467			$	2,475		$	20,431		$	51,170		105,543
Total assets as of June 30, 2005					41,268				2,190			13,827			19,354			76,639
Three months ended June 30, 2004:
Revenue					4,152				—			—			—			4,152
Adjusted EBITDA					(1,146		)		(117		)	—			(6,636		)	(7,899	)
Impairment and restructuring charges					—				—			—			195			195
Three months ended June 30, 2005:
Revenue					14,100				(135		)	—			92			14,057
Adjusted EBITDA					926				(763		)	—			(6,493		)	(6,330	)
Impairment and restructuring charges					8,815				195			—			1,407			10,417
Six months ended June 30, 2004:
Revenue					8,242				—			—			—			8,242
Adjusted EBITDA					(2,192		)		(117		)	—			(13,226		)	(15,535	)
Impairment and restructuring charges					—				—			—			495			495
Six months ended June 30, 2005:
Revenue					29,426				46			—			114			29,586
Adjusted EBITDA					(1,154		)		(1,135		)	—			(12,149		)	(14,438	)
Impairment and restructuring charges					9,822				197			—			1,827			11,846

 

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The reconciliation between Adjusted EBITDA to net loss for continuing operations is as follows:

Three months ended June 30, 2004
Adjusted EBITDA		(7,899	)
Impairment and restructuring charges		(195	)
Depreciation and amortization		(897	)
Interest income		180
Interest expense		—
Other income, net		(74	)
Foreign currency losses, net		(544	)
Income tax benefit		(1	)
Net loss from continuing operations		(9,430	)
Three months ended June 30, 2005
Adjusted EBITDA		(6,330	)
Impairment and restructuring charges		(10,417	)
Depreciation and amortization		(1,386	)
Interest income		49
Interest expense		(173	)
Other income, net		(1,212	)
Foreign currency losses, net		(8,598	)
Income tax expense		(162	)
Net loss from continuing operations		(28,229	)
Six months ended June 30, 2004
Adjusted EBITDA		(15,535	)
Impairment and restructuring charges		(495	)
Depreciation and amortization		(1,995	)
Interest income		279
Interest expense		(6	)
Other income, net		98
Foreign currency losses, net		(3,867	)
Income tax benefit		(1	)
Net loss from continuing operations		(21,522	)
Six months ended June 30, 2005
Adjusted EBITDA		(14,438	)
Impairment and restructuring charges		(11,846	)
Depreciation and amortization		(2,911	)
Interest income		60
Interest expense		(333	)
Other income, net		299
Foreign currency losses, net		(10,366	)
Income tax expense		(172	)
Net loss from continuing operations		(39,707	)

 

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13.   Subsequent events

On July 12, 2005, VIA and Claranet entered into the Amended Sale Agreement and the Amended Facility Agreement. Pursuant to the Amended Sale Agreement, on July 12, 2005 the Company sold its Amen group of businesses and the U.S., Dutch and Portuguese VIA NET.WORKS branded legacy operations to Claranet Group Limited for $9.3 million, less a portion of the deposit already paid by Claranet in connection with the Asset Sale (plus interest on such amount), repayment to Claranet of the amounts owed by VIA under the loan facility established on April 30, 2005, including interest, and an amount held as a deferred payment. The July 12^th Sale excluded the PSINet Europe operations and VIA’s legacy operations in France, Germany and Spain. The Amended Sale Agreement provided that these remaining assets would be sold by Claranet in a second closing shortly after the Company received the requisite approval from its shareholders. Upon completion of the July 12^th Sale , we recorded a loss in the statement of operations for the three months ending September 30, 2005 of $1.6 million, relating to the reclassification of cumulative foreign translation adjustments previously recorded in accumulated other comprehensive loss. Further details of the July 12^th Sale are described under Note 1 Basis of Presentation; Going Concern.

On July 27, 2005, Claranet delivered a notice of termination of the Amended Sale Agreement and the Amended Facility based on events which allegedly occurred and gave rise to its right to terminate. The Company has notified Claranet that it rejects the allegations and denies that Claranet has the right to terminate. The Company is currently engaged in discussions with other parties and is seeking to enter into a new transaction for the sale of Company’s businesses. See Note 1 Basis of Presentation; Going Concern and Note 11 Contingencies.

On August 1, 2005, VIA’s board of directors acknowledged the termination of employment of Cameron Mackenzie, the Company’s Chief Financial Officer, as of July 31, 2005. Also on August 1, 2005, VIA’s board accepted the resignation of Dick Theunissen, Vice President, effective as of July 31, 2005. These terminations are a part of VIA’s plan to prepare the Company for a potential sale.

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