-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MM3PePHI05ki+Opl6sVWVCpk9sfN4AxT39Y2BxEOvzFtkj4ErneJSGBRGAgDYEDc jnoWmMaeZ2JTeJ3LqAOZZw== 0000928385-00-001535.txt : 20000515 0000928385-00-001535.hdr.sgml : 20000515 ACCESSION NUMBER: 0000928385-00-001535 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIA NET WORKS INC CENTRAL INDEX KEY: 0001098402 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841412512 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29391 FILM NUMBER: 630182 BUSINESS ADDRESS: STREET 1: 12100 SUNSET HILLS RD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190 BUSINESS PHONE: 7034640300 MAIL ADDRESS: STREET 1: 12100 SUNSET HILLS RD STREET 2: SUITE 110 CITY: RESTON STATE: VA ZIP: 20190 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 000-29391 ---------------- VIA NET.WORKS, INC. (Exact name of registrant as specified in its charter) ---------------- Delaware 84-1412512 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 12100 Sunset Hills Road, Suite 110 Reston, Virginia 20190 (Address of principal executive offices) Registrant's telephone number, including area code: (703) 464-0300 ---------------------------------------------------------------------- (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 [_] As of May 1, 2000, the aggregate market value of the 45,877,215 shares of common stock held by non-affiliates of the registrant was $1,049,441,293 based on the closing sale price ($22.875) of the registrant's common stock as reported on the Nasdaq National Market on such date. (For this computation, the registrant has excluded the market value of all shares of its common stock reported as beneficially owned by executive officers and directors of the registrant and certain other stockholders; such exclusion shall not be deemed to constitute an admission that any such person is an "affiliate" of the registrant.) As of May 1, 2000, there were outstanding 52,867,678 shares of the registrant's common stock and 6,770,001 shares of the registrant's non-voting common stock. 1 VIA NET.WORKS, INC. TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Condensed Balance Sheets as of March 31, 2000 and December 31, 1999 (unaudited)....................................................................... 3 Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 (unaudited).......................................... 4 Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited).......................................... 5 Notes to the Consolidated Financial Statements (unaudited)............................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations............................................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................................... 16 Item 2. Changes in Securities and Use of Proceeds............................................. 16 Item 4. Submission of Matters to a Vote of Security Holders................................... 18 Item 6. Exhibits and Reports on Form 8-K...................................................... 18 SIGNATURES..................................................................................... 19 EXHIBIT INDEX.................................................................................. 20
2 PART I Item 1. Financial Statements VIA NET.WORKS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands of U.S dollars, except share data) (Unaudited) -----------
December March 31, 1999 31, 2000 --------------------------- ASSETS Current assets: Cash and cash equivalents $ 20,067 $ 317,857 Restricted cash 15,000 15,000 Trade and other accounts receivable, net of allowance of $1,296 and $1,475, respectively 9,197 14,805 Other current assets 3,074 4,192 ------------ ------------ Total current assets 47,338 351,854 Property and equipment, net 28,909 32,851 Goodwill and other acquired intangible assets, net 115,194 128,698 Other noncurrent assets 8,142 9,595 ------------ ------------ Total assets $ 199,583 $ 522,998 ============ ============ LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 12,735 $ 13,876 VAT and other taxes payable 1,904 2,223 Short-term notes and current portion of long-term debt 7,808 3,372 Deferred revenue 9,777 11,856 Other current liabilities and accrued expenses 5,660 9,501 ------------ ------------ Total current liabilities 37,884 40,828 Long-term debt, less current portion 5,846 4,153 ------------ ------------ Total liabilities 43,730 44,981 Contingencies Minority interest in consolidated subsidiaries 4,422 2,671 Mandatorily redeemable convertible preferred stock: 180,933 - Stockholders' equity (deficit): Common stock, $.001 par value; 57,000,000 and 125,000,000 shares authorized; 1,962,671 and 52,820,095 shares issued and outstanding; respectively 2 53 Non-voting common stock, $.001 par value; 7,500,000 shares authorized; 0 and 6,770,001 shares issued and outstanding; respectively - 7 Additional paid-in capital 26,023 548,291 Accumulated deficit (36,658) (53,273) Deferred compensation (12,788) (11,794) Accumulated other comprehensive loss (6,081) (7,938) ------------ ------------ Total stockholders' equity (deficit) (29,502) 475,346 ------------ ------------ Total liabilities, mandatorily redeemable convertible preferred stock and stockholders' equity (deficit) $ 199,583 $ 522,998 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 VIA NET.WORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of U.S. Dollars, except share and per share data) (Unaudited) -----------
For the three months ended March 31, --------------------------------------- 1999 2000 ----------------- ------------------ Revenue $ 4,509 $ 20,019 ----------------- ------------------ Operating costs and expenses: Internet services 2,225 10,364 Selling, general and administrative 3,970 17,427 Depreciation and amortization 1,870 9,466 ----------------- ------------------ Total operating costs and expenses 8,065 37,257 ----------------- ------------------ Loss from operations (3,556) (17,238) ----------------- ------------------ Interest income 390 2,011 Interest expense (276) (445) Loss in unconsolidated affiliate (194) - Foreign currency gains (losses) 1,393 (1,493) ----------------- ------------------ Loss before minority interest and income taxes (2,243) (17,165) Income tax expense - (118) Minority interest in loss of consolidated subsidiaries 273 668 ----------------- ------------------ Net loss attributable to common stockholders $ (1,970) $ (16,615) ================= ================== Basic and diluted loss per share attributable to common stockholders $ (4.17) $ (0.54) ================= ================== Shares used in computing basic and diluted loss per share 472,717 30,536,005 ================= ==================
The accompanying notes are an integral part of these consolidated financial statements. 4 VIA NET.WORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of U.S. Dollars, except share and per share data) (Unaudited) -----------
For the three months ended March 31, ------------------------------------ 1999 2000 ----------------- -------------- Cash flows from operating activities: Net loss $ (1,970) $ (16,615) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,870 9,466 Employee stock compensation - 1,578 Unrealized foreign currency transaction gain (1,393) (66) Minority interest in loss of consolidated subsidiaries (273) (668) Loss in unconsolidated affiliate 194 - Changes in assets and liabilities, net of acquisitions: Accounts receivable (520) (1,199) Other current assets 137 (1,079) Accounts payable 321 268 Other current liabilities and accrued expenses (1,913) 3,459 Deferred revenue 364 1,804 Other noncurrent assets - (68) ----------------- -------------- Net cash used in operating activities (3,183) (3,120) ----------------- -------------- Cash flows from investing activities: Acquisitions, net of cash acquired (7,597) (20,799) Purchases of property and equipment (1,387) (6,180) Other assets (1,635) (5,154) ----------------- -------------- Net cash used in investing activities (10,619) (32,133) ----------------- -------------- Cash flows from financing activities: Repayment of debt (217) (1,340) Proceeds from issuance of common stock, net 653 332,930 Proceeds from borrowings - 636 ----------------- -------------- Net cash provided by financing activities 436 332,226 ----------------- -------------- Effect of currency exchange rate changes on cash (368) 817 ----------------- -------------- Net increase (decrease) in cash and cash equivalents (13,734) 297,790 Cash and cash equivalents, beginning of period 34,711 20,067 Cash and cash equivalents, end of period $ 20,977 $ 317,857 ================= ============== Noncash investing and financing transactions: Common stock issued to satisfy debt $ - $ 5,183 ================= ============== Common stock issued in connection with acquisitions $ - $ 3,274 ================= ==============
The accompanying notes are an integral part of these consolidated financial statements. 5 VIA NET.WORKS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) 1. Basis of Presentation These consolidated financial statements for the three-month periods ended March 31, 1999 and 2000 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) as of and for the year ended December 31, 1999, included in VIA's Annual Report on Form 10-K as filed with the Securities and Exchange Commission (Annual Report). These financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) which management considers necessary to present fairly the consolidated financial position of VIA at March 31, 2000 and the results of operations and cash flows for the three-month periods ended March 31, 1999 and 2000. The results of operations for the three-month period ended March 31, 2000 may not be indicative of the results expected for any succeeding quarter or for the year ending December 31, 2000. Initial Public Offering In February 2000, VIA completed an initial public offering of 17,000,000 shares of its common stock at $21.00 per share for proceeds of approximately $333 million, net of underwriting discounts and commissions of approximately $24 million. All outstanding shares of mandatorily redeemable convertible preferred stock were converted on a one-for-one basis into shares of common stock or shares of non-voting common stock upon the closing of the offering. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133", which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. VIA has not committed nor does it expect to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 and amended by Staff Accounting Bullentin No. 101A which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Staff Accounting Bulletin is effective for the year beginning January 1, 2000. The initial adoption of this guidance is not anticipated to have a material impact on VIA's results of operations or financial position, however, the guidance may impact the way in which VIA will account for future transactions. 6 VIA NET.WORKS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) 2. Comprehensive Income Comprehensive income (loss) for the three months ended March 31, 1999 and 2000 was as follows (in thousands of U.S. dollars): March 31, March 31, 1999 2000 ---- ---- Net loss $ (1,970) (16,615) Foreign currency translation adjustment (3,437) (1,857) ----------- -------- Comprehensive loss $ (5,407) $(18,472) =========== ======== 3. Acquisitions of Certain Businesses Between June 18, 1998 and March 31, 2000, VIA has acquired 20 Internet services providers located in Europe and Latin America, offering services that include Internet connectivity, web hosting, e-commerce, Internet security and other services, primarily to small and mid-sized businesses. Each of the acquisitions has been accounted for using the purchase method of accounting and, accordingly, the net assets and results of operations of the acquired companies have been included in VIA consolidated financial statements since the acquisition dates. The purchase price of the acquisitions has been allocated to assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values. In the first quarter of 2000, VIA acquired the following companies:
Aggregate Ownership Aquiree Acquisition Purchase Interest Business Acquired Location Date Price Acquired ------------------------------------------- ---------- ----------------- ------------ ---------- Net4You EDV Dienstleistungs und Handelges.m.b.H (Net4You) Austria January 4, 2000 $ 2.9 million 58% DNS Telecom SAS (DNS) France January 7, 2000 11.8 million 100% I.S.A.R. Netzwerke Dienstleistungs GmbH (SAR) Germany February 16,2000 8.6 million 100%
The allocation of purchase price to the acquired tangible and intangible assets of Net4You, DNS and ISAR has not been finalized pending an analysis of the amount of tangible and intangible assets and liabilities acquired. Currently the entire excess purchase price has been allocated to goodwill. The actual purchase accounting adjustments may be revised, and VIA may allocate a portion of the purchase price to intangible assets other than goodwill. 4. Property and Equipment Property and equipment consisted of the following (in thousands of U.S. dollars): 7 VIA NET.WORKS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) -------------------------- December March 31, 31, 1999 2000 -------------------------- Machinery and equipment $ 23,255 $ 26,180 Indefeasible rights of use (IRU) 12,484 12,036 Furniture and fixtures 2,113 2,892 Purchased software 1,752 3,818 -------------------------- 39,604 44,926 Accumulated depreciation and amortization (10,695) (12,075) -------------------------- Property and equipment, net $ 28,909 $ 32,851 ========================== Total depreciation expense was $421,000 and $2.1 million for the three months ended March 31, 1999 and 2000, respectively. 5. Goodwill and Other Acquired Intangible Assets Goodwill and other intangible assets acquired through business acquisitions consisted of the following (in thousands of U.S. dollars): December March 31, 31, 1999 2000 ----------- ---------- Goodwill $ 126,731 $ 147,549 Customer base 2,123 2,196 Employee workforce 1,213 1,255 ---------- ---------- 130,067 151,000 Accumulated amortization (14,873) (22,302) ----------- ---------- Total $ 115,194 $ 128,698 ========== ========== Total amortization expense was $1.4 and $7.4 million for the three months ended March 31, 1999 and 2000, respectively. The value assigned to goodwill, customer base and employee workforce is being amortized over its estimated useful life of five years. 6. Short-term Notes and Long-term Debt Short-term notes and long-term debt consisted of the following (in thousands of U.S. dollars):
December March 31, 1999 31, 2000 ------------- ---------- Acquisition debt $ 6,108 $ 919 Debt related to IRU Agreements, 12%, due quarterly to 2002 3,899 3,559 Capital lease obligations 858 283 Advances from related parties, noninterest bearing, due 2000 1,968 1,434 Notes payable 821 1,330 ------------- ---------- 13,654 7,525 Less current portion (7,808) (3,372) ------------- ---------- Long-term portion $ 5,846 $ 4,153 ============= ==========
8 VIA NET.WORKS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) The acquisition obligations and advances from related parties represent amounts due to current or former managers of acquired businesses. 7. Contingencies From time to time, VIA is subject to claims arising in the ordinary course of business. In the opinion of management, no such matter, individually or in the aggregate, exists which is expected to have a material effect on the results of operations, cash flows or financial position of VIA. During 1999, VIA established stock option recharge agreements with certain of its subsidiaries located in the United Kingdom, Argentina, Germany, Mexico, Portugal, and Spain. Under these agreements, VIA will charge its subsidiaries for stock options granted to employees of the subsidiaries. As a result of these recharge agreements, the subsidiaries are liable for the payment of certain employer payroll taxes and social charges based on the difference between the exercisable price and fair market value of the stock options granted to international employees. Such payroll taxes become payable upon exercise at rates ranging between 11% and 24%, as determined by the prevailing tax laws in those jurisdictions. No amounts have been accrued for payroll taxes or social charges in the accompanying consolidated financial statement for the quarter ended March 31, 2000, as no stock options have been exercised under these agreements. 8. Segment Reporting VIA offers Internet connectivity, web hosting, e-commerce, Internet security and related services to businesses and consumers in Europe and Latin America. Both segments generate Internet-related revenues from leased lines, dial-up Internet access, web hosting and design, consulting services, and sale of third-party hardware and software. Each of these geographic operating segments is considered a reportable segment. VIA evaluates the performance of its segments based on revenue and earnings before interest, taxes, depreciation and amortization and non-cash compensation charges ("EBITDA"). The table below presents information about the reported revenue, EBITDA and assets of VIA's segments for the quarter ended March 31, 1999 and 2000.
Latin Corporate Europe America Total ------------ ---------- ----------- ------------ (in thousands of U.S. dollars) Three months ended March 31, 1999: Revenue $ - $ 3,271 $ 1,238 $ 4,509 EBITDA $ (1,339) $ (107) $ (240) $ (1,686) Assets $ 59,126 $ 7,731 $ 1,210 $ 68,067 Three months ended March 31, 2000: Revenue $ - $ 16,086 $ 3,933 $ 20,019 EBITDA $ (3,887) $ (678) $ (1,629) $ (6,194) Assets $ 527,293 $ 283 $ (4,578) $ 522,998
9 VIA NET.WORKS, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) A reconciliation from total EBITDA to loss before income taxes and minority interest is as follows:
For the three For the three months ended months ended March 31, 1999 March 31, 2000 -------------- -------------- (in thousands of U.S. dollars) EBITDA $ (1,686) $ (6,194) Non-cash compensation - (1,578) Depreciation and amortization (1,870) (9,466) --------------- -------------- Loss from operations (3,556) (17,238) Other income and interest income, net 1,507 73 Loss in unconsolidated affiliate (194) - --------------- -------------- Loss before income taxes and minority interest $ (2,243) $ (17,165) =============== ==============
For the quarter ended March 31, 1999 and 2000, VIA recognized revenues from the United Kingdom, Germany and Mexico in the amounts of $1.7 million, $1.6 million and $0; and $8.2 million, $3.2 million, and $2.5 million, respectively. 9. Subsequent Event On April 3, 2000, VIA acquired 100% of Internet Access Eindhoven (IAE), a business-focused Internet services provider located in the Netherlands, for approximately $7.5 million in cash. 10 Item. 2. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 1 of this Form 10-Q. This discussion contains forward-looking statements based on current expectations, which involve risks and uncertainties. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "could," "believes," "estimates," "predicts," "potential," or "continue," or the negative of these terms or other similar words. Actual results and the timing of certain events could differ materially from the forward-looking statements as a result of a number of factors including referred to in the "Risk Factors" section of VIA's Annual Report on Form 10-K for the year ended December 31, 1999. Overview We are a leading international provider of Internet access and services focused on small and mid-sized businesses in Europe and Latin America. We have built our business through the acquisition, integration and growth of 20 Internet services providers in 12 countries, all of which have been acquired since June 1998. We currently operate in Argentina, Austria, Brazil, France, Germany, Ireland, Mexico, the Netherlands, Portugal, Spain, Switzerland and the United Kingdom. RECENT BUSINESS ACQUISITIONS On January 4, 2000, we acquired 57.5% of the outstanding capital of Net You, an Internet services provider headquartered in Klagenfurt, Austria, for approximately $2.9 million, $210,000 of which is payable 12 months following this acquisition. Between 12 and 36 months from the date of closing, we have the right to purchase the remaining interest held by the shareholders of Net4You. The exercise price for this option is determined based on annualized revenues for the six months preceding the date of exercise and is payable in cash or shares of our common stock at the election of the Net4You shareholders. If we do not exercise our call right by the end of this period, the Net4You shareholders may require us to sell our 57.5% interest in Net4You to them. We also have a right of first refusal pursuant to which the shareholders must offer to sell their shares to us if they receive an offer from a third party to purchase their shares. On January 7, 2000, we acquired 100% of DNS Telecom, a provider of integrated telecommunications services and solutions located just outside of Paris, France. We issued a promissory note in the amount of approximately $986,000, issued 112,500 shares of our common stock valued at $16.00 per share and, upon closing of our initial public offering, paid $8.5 million in cash to the sellers of DNS Telecom. On January 13, 2000, we entered into an agreement to acquire 100% of ISAR, an Internet services provider located in Munich, Germany, for $8.5 million, in cash. This transaction was completed on February 16, 2000. We may be obligated to pay additional consideration of up to approximately $3.7 million depending upon ISAR's operating results for the year ending December 31, 2000. On April 3, 2000 VIA acquired 100% of Internet Access Eindhoven (IAE), a business-focused Internet services provider located in the Netherlands, for approximately $7.5 million in cash. 11 RESULTS OF OPERATIONS Three months ended March 31, 2000 compared with the three months ended March 31, 1999 Revenue. We generate revenue primarily from the sale of Internet access services, both dial-up and dedicated, and Internet value added services. Internet value added services consist of web-hosting, applications hosting and related maintenance, domain name registration, sales of hardware and third-party software, installation, training and consulting and other services. Revenue for the three months ended March 31, 2000 increased by 344.0% to $20.0 million as compared to $4.5 million for the three months ended March 31, 1999. This revenue was generated by the 20 consolidated subsidiaries that we owned for all or a portion of the first quarter of 2000, as compared to the five consolidated subsidiaries that we owned for all or a portion of the first quarter of the preceding year. Additionally, the increase in revenue reflects the change in our revenue mix from the prior year. In the first quarter of 1999, 79.9% of our total revenue related to access services, whereas in 2000, 62.7% of total revenue related to access services, as we attempt to upgrade our customers from entry-level Internet access to more sophisticated and higher margin products and services, like web-hosting, virtual private networks and e-commerce solutions. For the first quarter 2000, 32.9% of total revenue was generated from web-related services, including web hosting, web design and domain name registration. Internet services operating costs. Internet services operating costs are the costs we incur to carry customer traffic over the Internet. These costs increased by 365.8% to $10.4 million for the three months ended March 31, 2000, as compared to $2.2 million for the corresponding period in the preceding year. We incurred these costs primarily to lease lines, purchase transit for the local networks and compensate customer care personnel maintained by the 20 consolidated subsidiaries that we owned for all or a portion of the period. Additionally, we incurred operating costs associated with our international network, which we established in June 1999. Selling, general and administrative. Selling, general and administrative are primarily compensation and occupancy costs and the costs associated with marketing our products and services. We incurred selling, general and administrative expense of $17.4 million for the three months ended March 31, 2000, a 339.0% increase over the $4.0 million we incurred for the three months ended March 31, 1999. A portion of the increase relates to the increase in corporate expenses, which increased by 308.0% from $1.3 million for the first quarter 1999 to $5.4 million for the first quarter 2000. Non-cash compensation expense, which was $0 and $1.6 million for the first quarters 1999 and 2000, respectively, accounted for a portion of this increase. Corporate expenses also increased as a result of obtaining additional insurance coverage, hiring new corporate staff and incurring incremental legal and accounting fees related to VIA's initial public offering. The remaining increase was generated by the 20 consolidated subsidiaries that we owned for all or a portion of the first quarter of 2000, as compared to the five consolidated subsidiaries that we owned for all or a portion of the first quarter of the preceding year. Depreciation and amortization. Our depreciation and amortization expense was $9.5 million for the first quarter of 2000, up from $1.9 million from the first quarter of 1999. This increase was primarily due to the amortization of goodwill and other intangibles arising from the acquisitions of the 15 consolidated subsidiaries completed between April 1, 1999 and March 31, 2000. The acquisition of these subsidiaries and the implementation of our international network also increased our depreciation expense for telecommunications equipment, computers and other fixed assets. For the 2000 period, $7.4 million, or 78.5% of our depreciation and amortization expense related to the amortization of goodwill and other intangibles and $2.1 million 12 or 21.5% was related to the depreciation of fixed assets. For the 1999 period, $1.4 million or 77.5% of our depreciation and amortization expense related to the amortization of goodwill and other intangibles and $421,000 or 22.5% was related to the depreciation of fixed assets. Interest income and expense. For the three months ended March 31, 2000, we earned $2.0 million in interest income and recognized $445,000 in interest expense. For the same period in the preceding year, we earned $390,000 in interest income and recognized $276,000 in interest expense. Interest in unconsolidated subsidiary. For the three months ended March 31, 1999, we recognized a $194,000 loss related to our minority investment in i-way Limited (i-way), an Internet services provider located in the United Kingdom. We originally acquired a 36% interest in i-way in June 1998. In June 1999, we negotiated the purchase of the remaining 64% equity interest in i-way for total consideration of $13.1 million, including cash and shares of VIA's common stock. We have not acquired an equity interest in any other affiliates and therefore did not recognize any losses related to investments in unconsolidated subsidiaries for the three months ended March 31, 2000. Foreign currency gains and losses. We recognized a $1.5 million loss for the three months ended March 31, 2000, as compared to a $1.4 million gain for the corresponding period in the preceding year. The current period loss is primarily due to the impact of the fluctuation in the value of the Euro on our Euro denominated cash accounts. Liquidity and Capital Resources Since inception, we have financed our operations primarily through the sale of equity securities. We raised approximately $181.0 million, in the aggregate, through three private preferred stock offerings between August 1997 and April 1999, and raised an additional approximately $333 million, net of underwriting discounts and commissions, through our initial public offering in February 2000. At March 31, 2000, we had cash and cash equivalents of $332.9 million, including $15.0 million in restricted cash. Immediately subsequent to our initial public offering, we used $8.5 million to complete the acquisition of ISAR, a German Internet services provider. Additionally, we paid $10.4 million and issued 316,994 shares of our common stock to repay notes we had issued to the sellers of U-Net, VIA NET.WORKS Portugal, formerly known as Esoterica, VIA NET.WORKS Spain, also known as Interbook, and DNS, and to acquire the remaining minority interest in Dialdata. Net cash used in operating activities was $3.1 million for the three months ended March 31, 2000 and $3.2 million for the three months ended March 31, 1999. In each period, cash was primarily used to fund operating losses. Net cash used in investing activities was $32.1 million for the three months ended March 31, 2000 and $10.6 million for the same period in 1999. In each period, cash was primarily used for acquisitions, including bART in the first quarter of 1999 and Net4You, DNS and ISAR in the first quarter of 2000. Net cash provided by financing activities was $332.2 million for the three months ended March 31, 2000 and $436,000 for the same period in 1999. In each period, cash was primarily generated by the sale of equity securities, including in our initial public offering in February 2000. In conjunction with our acquisition of VIA NET.WORKS Mexico in October 1999, we have agreed to pay additional purchase price consideration of up to $30.0 million based on that company's revenue growth between the time of acquisition and December 31, 2000. Based on the formula, for the fourth quarter of 1999, we paid $374,000 as additional purchase price. We have restricted cash of $15.0 13 million to secure the payment of any additional earned purchase price. We are entitled to reduce the restricted cash as payments are made. We continue to pursue an aggressive internal growth and acquisition strategy that we anticipate will require significant additional funding before becoming self-sustaining. Additionally, as a result of our acquisitions, we will continue to amortize substantial amounts of goodwill and other intangible assets. As we grow, we expect that the amount of goodwill and other intangibles we will amortize in connection with our investments will represent an increasingly smaller portion of our expenses. Therefore, we expect to continue to incur net losses until that point in time when the goodwill and other intangibles we amortize represents a sufficiently small amount of our expenses that it is exceeded by our net income before amortization. Exactly when that point in time may occur depends on the nature, size and timing of future acquisitions and future amounts of net income before amortization, which we cannot predict. Foreign Currency Exchange Risks We conduct business in 14 different currencies, including the Euro and the U.S. dollar. With the exception of the Argentine Peso, the value of these currencies fluctuates in relation to the U.S. dollar. At the end of each reporting period, the revenues and expenses of our operating companies are translated into U.S. dollars using the average exchange rate for that period, and their assets and liabilities are translated into U.S. dollars using the exchange rate in effect at the end of that period. Fluctuations in these exchange rates impact our financial condition, revenues and results of operations, as reported in U.S. dollars. Exchange rates can vary significantly. During the first quarter 2000, we experienced similar exchange rate fluctuations in all eight of the Euro-linked currencies we deal in. The Euro-linked currencies varied by approximately 9.0% in relation to the U.S. dollar during the quarter, and ended the quarter approximately 4.6% below where they were at the beginning of the year. We realized a foreign currency loss of $1.5 million due to the impact of the fluctuation in the value of the Euro on our Euro denominated cash accounts in the first quarter 2000. Future changes in the value of the Euro could have a material impact on our financial position and results of operations. We also experienced fluctuations in other exchange rates but they did not have a material impact on our results. Our local operations collect revenues and pay expenses in their home currencies. They do not have significant assets, liabilities or other accounts denominated in currencies other than their home currency, and therefore are not subject to exchange rate risk with respect to their normal operations. On a consolidated basis, we are subject to exchange rate risks because we translate our local operations' financial data into U.S. dollars. Conversion to the Euro On January 1, 1999, 11 of the 15 European Union member countries adopted the Euro as their common legal currency, at which time their respective individual currencies became fixed at a rate of exchange to the Euro, and the Euro became a currency in its own right. Presently, the following 11 currencies are subject to the Euro conversion: the Austrian Schilling, the Belgian Franc, the Dutch Guilder, the Finnish Markka, the French Franc, the German Mark, the Irish Punt, the Italian Lire, the Luxembourg Franc, the Portuguese Escudo and the Spanish Peseta. During a January 1, 1999 through January 1, 2002 transition period, the Euro will exist in electronic form only and the participating countries' individual currencies will continue in tangible form as legal tender in fixed 14 denominations of the Euro. During the transition period, we must manage transactions with our customers and our third-party vendors in both the Euro and the participating countries' respective individual currencies. We have purchased and specified our business support systems, including accounting and billing, to accommodate Euro transactions and dual currency operations during the transition period. In addition, we intend to require all vendors supplying third-party software to us to warrant that their software will be Euro compliant. Because our acquired European companies generally have short operating histories, most of their systems were acquired and implemented after the Euro was already contemplated. Consequently, any expenditures related to Euro compliance have largely been, and will be, in the normal course of business. We conduct business transactions with customers, network suppliers, banks and other businesses, and we will be exposed to Euro conversion problems in these third-party systems. During the transition period, to the extent we are supplying local service, we can continue billings and collections in the individual currencies to avoid Euro conversion problems. However, to the extent we have cross-border transactions in European Union countries, we will be exposed to Euro-related risks. The establishment of the European Monetary Union may have a significant effect on the economies of the participant countries. While we believe that the introduction of the Euro will eliminate exchange rate risks in respect of the currencies of those member states that have adopted the Euro, there can be no assurance as to the relative strength of the Euro against other currencies. Since a substantial portion of our net sales will be denominated in the Euro or currencies of European Union countries, we will be exposed to that risk. Recent Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS No. 133. Subsequent to the issuance of SFAS No. 133, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133", which defers the effective date of SFAS No. 133 to periods beginning after June 15, 2000. VIA has not committed nor does it expect to commit to any derivative instrument transactions, and thus does not anticipate that this pronouncement will have a significant effect on its results. In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 and amended by Staff Accounting Bullentin No. 101A which summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Staff Accounting Bulletin is effective for the year beginning January 1, 2000. The initial adoption of this guidance is not anticipated to have a material impact on VIA's results of operations or financial position, however, the guidance may impact the way in which VIA will account for future transactions. 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk The following discussion relates to our exposure to market risk, related to changes in interest rates and changes in foreign exchange rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially due to a number of factors, as set forth in the "Risk Factors" section of VIA's Annual Report on Form 10-K for the year ended December 31, 1999. VIA has limited exposure to financial market risks, including changes in interest rates. At March 31, 2000, VIA's financial instruments consisted of short-term investments and fixed rate debt related to acquisitions and network purchases. Our investments are generally fixed rate short-term investment grade and government securities denominated in U.S. dollars. At March 31, 2000 all of our investments are due to mature within twelve months and the carrying value of such investments approximates fair value. The majority of our debt obligations have fixed rates of interest. VIA is exposed to foreign exchange rate risk primarily due to its obligations denominated in foreign currencies. These obligations are a result of acquiring operating companies in various European and Latin American countries. VIA is also subject to risk from changes in foreign exchange rates for its international operations which use a foreign currency as their functional currency and are translated into U.S. Dollars. These risks cannot be reduced through hedging arrangements. PART II. Item 1. Legal Proceedings We are not a party to any material legal proceedings. Item 2. Changes in Securities and Use of Proceeds Recent Sales of Unregistered Securities. Between January 1, 2000 and March 31, 2000, VIA sold and issued the following unregistered securities: (a) In January 2000, VIA sold 112,500 shares of common stock to the stockholders of one of VIA's operating companies in connection with the operating company's acquisition by VIA. These shares were valued at approximately $1,800,000 and were issued in reliance on Regulation S under the Securities Act. (b) In January 2000, VIA sold 50,000 shares of common stock to a director of VIA for an aggregate purchase price of $487,500. (c) In January 2000, VIA sold 2,825 shares of common stock to one employee for $27,544 in reliance on Rule 701 under the Securities Act. (d) In January 2000, VIA sold 31,250 shares of common stock to one executive officer for $75,000 upon his exercise of stock options. (e) In February 2000, VIA sold 2,498 shares of common stock to one employee for $20,609 upon his exercise of stock options. (f) In February 2000, VIA sold 38,958 shares of common stock to one executive officer for $93,499 upon his exercise of stock options. 16 (g) In February 2000, VIA sold 41,250 shares of common stock to one executive officer for $99,000 upon her exercise of stock options. (h) In February 2000, VIA sold 32,762 shares of common stock to a former stockholder of Interbook in connection with the operating company's acquisition by VIA. These shares were valued at $688,002 and were issued in reliance on Regulation S under the Securities Act. (i) In February 2000, VIA sold 70,189 shares of common stock to stockholders of Dialdata in connection with the operating company's acquisition by VIA. These shares were valued at $1,473,969 and were issued in reliance on Regulation S under the Securities Act. (j) In February 2000, VIA sold 29,672 shares of common stock to former stockholders of Esoterica in connection with the operating company's acquisition by VIA. These shares were valued at $623,112 and were issued in reliance on Regulation S under the Securities Act. (k) In February 2000, VIA sold 184,371 shares of common stock to former stockholders of U-Net in connection with the operating company's acquisition by VIA. These shares were valued at $3,871,791 and were issued in reliance on Regulation S under the Securities Act. (l) In March 2000, VIA sold 37,500 shares of common stock to a consultant of VIA for $600,000 in reliance on Regulation S under the Securities Act. Except where otherwise indicated, the sales and issuances of securities in the transactions described above were exempt from registration under the Securities Act by virtue of Section 4(2) of the Securities Act. Appropriate legends are affixed to the stock certificates issued in the aforementioned transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients received adequate information about VIA or had access, through employment or other relationships, to such information. Use of Initial Public Offering Proceeds In February 2000, VIA completed its initial public offering of shares of common stock, par value $.001 per share. VIA's initial 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 proceeds to VIA after deducting underwriting discounts and commissions was approximately $333.0 million. Between December 31, 1999 and February 11, 2000, VIA incurred a total of approximately $656,000 in expenses in connection with its initial public offering, excluding underwriting discounts and commissions. Of this amount, approximately $375,000 consisted of expenses paid to or for the underwriters, leaving a balance of $281,000 in other expenses. Between February 11, 2000 and March 31, 2000, VIA has used $18.9 million of the net proceeds of its initial public offering as follows: 17
Amount paid to directors or their associates, executive officers or their associates, 10% stockholders or Amounts paid to Use of Proceeds Amount our affiliates others - --------------- ------------ ----------------------------- --------------- Acquisition of other businesses............. $9.4 million $603,000 $8.8 million Repayment of indebtedness........... $9.5 million -- $9.5
Item 4. Submission of Matters to a Vote of Security Holders The following matters were submitted to a vote of VIA's stockholders during the three months ended March 31, 2000: As of February 3, 2000, stockholders holding over a majority of the shares of VIA's common stock then outstanding, and over 70% of the then outstanding shares of each of VIA's Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock consented in writing to (i) two amendments to our certificate of incorporation in connection with our initial public offering to, among other things, increase to 125,000,000 the number of shares of our authorized common stock (ii) amendments to our bylaws in connection with our initial public offering, (iii) amendments to our 1998 Stock Option and Restricted Stock Plan and our Key Employee Equity Plan to, among other things, increase the number of shares of our common stock reserved under these plans for issuance to our employees, directors and consultants, and (iv) the reelection of our entire board of directors, which consists of the following directors: David M. D'Ottavio, Gabriel A. Battista, Edward D. Breen, Stephen J. Eley, William J. Elsner, Adam Goldman, William A. Johnston, Mark J. Masiello, John G. Puente and Erik Torgerson. Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit - ------- 3.1. Amended and Restated Certificate of Incorporation of VIA NET.WORKS, Inc. (1) 3.2 Amended and Restated Bylaws of the VIA NET.WORKS, Inc. (2) 4.1 Specimen certificate representing the Common Stock (3) 27.1 Financial Data Schedule - -------- (1) Incorporated by reference to VIA's annual report on Form 10-K for the year ended December 31, 1999. File No. 333-91615, as filed with the SEC on January 19, 2000. (2) Incorporated by reference to VIA's registration statement on Form S-1, File No. 333-91615, as filed with the SEC on January 19, 2000. (3) Incorporated by reference to VIA's registration statement on Form S-1, File No. 333-91615, as filed with the SEC on February 8, 2000. b) Reports on Form 8-K VIA filed no reports on Form 8-K during the three months ended March 31, 2000. 18 SIGNATURE Pursuant to 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: May 12, 2000 By: /s/ David M. D'Ottavio --------------------------------------- ------------------------------------------------------------------ David M. D'Ottavio Chief Executive Officer, Chairman of the Board of Directors (Duly Authorized Officer) Date: May 12, 2000 By: /s/ Catherine A. Graham --------------------------------------- ------------------------------------------------------------------ Catherine A. Graham Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
19 EXHIBIT INDEX 3.1. Amended and Restated Certificate of Incorporation of VIA NET.WORKS, Inc. (1) 3.2 Amended and Restated Bylaws of the VIA NET.WORKS, Inc. (2) 4.1 Specimen certificate representing the Common Stock (3) 27.1 Financial Data Schedule -------- (1) Incorporated by reference to VIA's annual report on Form 10-K for the year ended December 31, 1999. File No. 333-91615, as filed with the SEC on January 19, 2000. (2) Incorporated by reference to VIA's registration statement on Form S-1, File No. 333-91615, as filed with the SEC on January 19, 2000. (3) Incorporated by reference to VIA's registration statement on Form S-1, File No. 333-91615, as filed with the SEC on February 8, 2000. 20 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 332,857 0 16,280 1,475 0 4,192 44,926 12,075 522,998 40,828 0 0 0 60 475,346 522,998 20,019 20,019 10,364 10,364 26,893 0 (445) (16,497) (118) (16,615) 0 0 0 (16,615) (0.54) (0.54)
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