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)

 

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

 

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 ý  No o

 

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

 

As of November 9, 2004, there were outstanding 56,053,988 shares of the registrant’s common stock and 5,050,000 shares of the registrant’s non-voting common stock.

 

 

VIA NET.WORKS, INC.

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of December 31, 2003 and September 30, 2004
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2004
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2004
	Notes to Condensed Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Submission of Matters to a Vote of Security Holders
Item 5.	Other Information
Item 6.	Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX

 

2

 

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, 2003			September 30, 2004
					(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	65,803		$	23,942
Restricted cash		1,391			5,159
Trade and other accounts receivable, net of allowance of $1,911 and $2,794 respectively		14,295			12,842
Prepayments		3,610			5,246
Other current assets		932			969
Deferred tax assets		—			1,655
Total current assets		86,031			49,813
Property and equipment, net		12,003			14,807
Goodwill		3,111			40,379
Intangible assets, net		731			8,764
Other non-current assets		884			451
Deferred tax asset		7,928			7,928
Total assets		$	110,688		$	122,142
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	10,021		$	13,352
VAT and other taxes payable		1,303			1,200
Current portion of capital lease obligations and long-term payables		173			985
Deferred revenue		13,264			13,539
Accrued expenses		7,659			20,029
Deferred tax liability		7,928			7,928
Other current liabilities		1,848			4,666
Total current liabilities		42,196			61,699
Capital lease obligations and long-term payables, less current portion		328			7,385
Deferred tax liability		—			2,644
Total liabilities		42,524			71,728
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $.001 par value; 132,500,000 shares authorized; 61,507,694 and 62,624,777 shares issued, respectively		62			62
Additional paid-in capital		556,112			557,909
Treasury stock, 1,520,789 shares		(1,521		)	(1,521		)
Accumulated deficit		(452,154		)	(480,100		)
Accumulated other comprehensive loss		(34,335		)	(25,936		)
Total stockholders’ equity		68,164			50,414
Total liabilities and stockholders’ equity		$	110,688		$	122,142

 

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 September 30,						For the nine months ended September 30,
		2003			2004			2003			2004
Revenue		$	10,681		$	18,156		$	32,959		$	43,924
Operating costs and expenses:
Internet services		5,783			8,809			17,487			22,005
Selling, general and administrative		10,518			14,252			32,374			43,269
Impairment and restructuring charges		850			1,293			2,643			1,788
Depreciation and amortization		1,545			2,045			4,278			5,990
Total operating costs and expenses		18,696			26,399			56,782			73,052
Operating loss from continuing operations		(8,015		)	(8,243		)	(23,823		)	(29,128		)
Interest income		224			165			943			456
Interest expense		(2		)	(82		)	(12		)	(100		)
Other (expense) income, net		(65		)	81			(286		)	(161		)
Foreign currency gains (losses), net		1,545			2,140			8,809			(1,734		)
Loss from continuing operations before income taxes		(6,313		)	(5,939		)	(14,369		)	(30,667		)
Income tax expense		—			(41		)	—			(98		)
Net loss from continuing operations		(6,313		)	(5,980		)	(14,369		)	(30,765		)
Discontinued operations:
Gain (loss) from discontinued operations		(1,401		)	675			(4,534		)	4,166
Gain on disposal of discontinued operations		164			663			164			663
Net loss		$	(7,550	)	$	(4,642	)	$	(18,739	)	$	(25,936	)
Basic and diluted loss per share:
Continuing operations		$	(0.11	)	$	(0.10	)	$	(0.24	)	$	(0.51	)
Discontinued operations		(0.02		)	0.02			(0.07		)	0.08
Net loss per share—basic and diluted		$	(0.13	)	$	(0.08	)	$	(0.31	)	$	(0.43	)
Shares used in computing basic and diluted loss per share		59,820,950			61,103,988			60,005,479			60,911,452

 

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 nine months ended September 30,
		2003			2004
Cash flows from operating activities:
Net loss from continuing operations		$	(14,369	)	$	(30,765	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		4,278			5,990
Impairment charges		134			—
(Benefit) / provision for doubtful accounts receivable		(169		)	725
Unrealized foreign currency transaction (gains) losses		(7,233		)	1,082
Deferred tax		—			(437		)
Stock compensation		—			80
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable		2,044			1,742
Prepayments and other current assets		(1,179		)	(484		)
Other non-current assets		14			806
Accounts payable		(201		)	(1,115		)
VAT and other taxes payable		26			(1,132		)
Accrued expenses		(365		)	1,152
Other current liabilities		(415		)	233
Deferred revenue		(819		)	(1,486		)
Net cash used in operating activities		(18,254		)	(23,609		)
Cash flows from investing activities:
Increase in restricted cash		(60		)	(3,768		)
Proceeds from the disposition of operating subsidiaries (net of cash paid)		(471		)	7,224
Proceeds from businesses transferred under contractual obligations		310			—
Acquisition of subsidiaries (net of cash acquired)		—			(20,638		)
Purchases of property, equipment and other assets		(3,753		)	(4,228		)
Net cash used in investing activities		(3,974		)	(21,410		)
Cash flows from financing activities:
Repayment of debt and principal payments on capital lease obligations		(96		)	(145		)
Purchase of treasury stock		(788		)	—
Proceeds from issuance of common stock, net		472			369
Net cash (used in) received from financing activities		(412		)	224
Cash flows (used by) received from discontinued operations		(1,696		)	3,316
Effect of currency exchange rate changes on cash		(415		)	(382		)
Net decrease in cash and cash equivalents		(24,751		)	(41,861		)
Cash and cash equivalents, beginning of period		97,813			65,803
Cash and cash equivalents, end of period		$	73,062		$	23,942

 

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 and Recent Pronouncements

 

These condensed consolidated financial statements as of September 30, 2004 and for the three and nine month periods ended September 30, 2003 and 2004 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, 2003, included in VIA’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“2003 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 2003 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 September 30, 2004 and the results of its operations and its cash flows for the three and nine month periods ended September 30, 2003 and 2004. The results of operations for the three and nine month periods ended September 30, 2004 may not be indicative of the results expected for any succeeding quarter or for the year ending December 31, 2004. 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 generally accepted accounting principles requires VIA to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, together with amounts disclosed in the related notes to the consolidated financial statements. Actual results could differ from the recorded estimates.

 

2.                                      Discontinued Operations

 

2003

 

In July 2003 VIA NET.WORKS Italia, which had been included in the European segment, was sold for nominal consideration to the then-current management team. VIA also sold its operations in Brazil and Mexico in 2002, but because of the method by which these transactions were structured, these operations were not treated as discontinued operations in 2002 but rather classified as businesses transferred under contractual agreements. The Company eliminated all continuing involvement in these operations in 2003 and both are now treated as discontinued operations for all periods presented. See Note 2 of the financial statements included in the 2003 Annual Report for further details.

 

2004

 

On September 28, 2004, the Company sold 100% of the shares of VIA NET.WORKS UK Ltd., which was part of the European segment, to Claranet Limited, a UK-based Internet service provider. The consideration for the shares of VIA NET.WORKS UK Ltd. is an aggregate sum of GBP 7.3 million (approximately $13.1 million), subject to certain working capital and other adjustments. The Company received GBP 5.3 million in cash (approximately $9.4 million) on completion. The balance is payable, subject to the working capital and other adjustments, as follows: GBP 1.0 million in cash six months after completion and GBP 1.0 million in cash one year after completion.

 

The gain on disposal of the UK operation amounted to $0.7 million. This gain is net of $5.5 million of cumulative foreign currency translation losses that had been deferred in other comprehensive income until the date of sale. The additional consideration that may be receivable of GBP 2.0 million (approximately $3.6 million) has not been included in the determination of the gain because the amounts are not fixed and determinable at the date of this report. If any further amounts are receivable, this will result in a corresponding increase in the gain recognized.

 

As each of the United Kingdom, Italian, Brazilian and Mexican operations represented a component of an entity as defined by 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. Revenues related to discontinued operations were approximately $5.9 million and $18.6 million, respectively, for the three and nine months ended September 30, 2003 and $5.1 million and $15.8 million, respectively, for the three and nine months ended September 30, 2004. The gain (loss), excluding accounting for the sale transaction, related to discontinued operations was approximately $(1.4) million and $(4.5) million, respectively, for the three and nine months ended September 30, 2003, and $0.7 million and $4.2 million, respectively, for the three and nine months ended September 30, 2004. The comparative balance sheet as at December 31, 2003 has not been reclassified to show separately amounts related to discontinued operations.

 

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3.                                      Impairment and Restructuring Charges

 

Impairment charges:

 

Accruals regarding impairment and restructuring charges are accounted for in accordance with FAS 146 “Accounting for costs associated with exit or disposal activities”.

 

There were no impairment charges for the three and nine months ended September 30, 2004. During the first quarter of 2003, the Company recorded fixed asset impairment charges of $0.1 million for fixed asset fixtures and fittings that were written down to net realizable value as a result of the closure of the Reston office.

 

 

Restructuring charges:

 

In thousands of U.S. dollars		Employee termination payments			Future operating lease obligations			Other			Total Restructuring Charges
Balance at December 31, 2002		$	415		$	456		$	—		$	871
Additions		422			57			—			479
Reserves utilized		(356		)	(73		)	—			(429		)
Balance at March 31, 2003		$	481		$	440		$	—		$	921
Additions		648			92			440			1,180
Reserves utilized		(666		)	(66		)	(99		)	(831		)
Foreign exchange		10			—			—			10
Balance at June 30, 2003		$	473		$	466		$	341		$	1,280
Additions		532			—			318			850
Reserves utilized		(494		)	(111		)	(399		)	(1,004		)
Foreign exchange		6			1			—			7
Balance at September 30, 2003		$	517		$	356		$	260		$	1,133

 

In thousands of U.S. dollars		Employee termination payments			Future operating lease obligations			Other			Total Restructuring Charges
Balance at December 31, 2003		$	243		$	276		$	121		$	640
Additions		151			—			149			300
Reserves utilized		(200		)	(41		)	(114		)	(355		)
Foreign exchange		(1		)	—			—			(1		)
Balance at March 31, 2004		$	193		$	235		$	156		$	584
Additions		73			—			122			195
Reserves utilized		(266		)	(83		)	(253		)	(602		)
Balance at June 30, 2004		$	—		$	152		$	25		$	177
Additions		898			91			304			1,293
Reserves utilized		(14		)	(32		)	(176		)	(222		)
Foreign exchange		7			—			—			7
Balance at September 30, 2004		$	891		$	211		$	153		$	1,255

 

2003

 

During the three and nine months ended September 30, 2003, the Company recorded restructuring charges related to the implementation of its strategic plan of $0.9 million and $2.5 million respectively.  The restructuring charge for the three months ended March 31, 2003 related to severance payments at three of its European operations and an adjustment to the future lease obligations for the closure of the Reston, Virginia office. The restructuring charge for the three months ended June 30, 2003 related to severance payments at five of its European operations and at the corporate headquarters, future lease obligations on vacant office space in Germany, and implementation costs for back-office and administrative outsourcing initiatives.  The restructuring charge for the three months ended September 30, 2003 related to severance payments at three of its European operations and at the corporate headquarters and transition implementation costs for back-office and administrative outsourcing initiatives.

 

The employee termination costs accrual of $0.5 million carried forward at June 30, 2003 comprised $0.4 million in respect of three European operations and $0.1 million at the corporate headquarters. Cash payments of $0.5 million were made in the quarter ended September 30, 2003 in respect of these brought forward balances ($0.4 million by European operations and $0.1 million by Corporate). The employee termination costs incurred in the three months ended September 30, 2003, of $0.5 million, relate to the

 

7

 

severance and benefits for five employees at three European operations and two employees at the corporate headquarters. No cash payments were made in the period in respect of these third quarter costs.

 

The future operating lease obligations balance at September 30, 2003, comprised of $0.3 million related to the former corporate headquarters office in Reston, Virginia, USA and $0.1 million related to vacant space in the German operation office. The Reston office accrual reflects the net of the future lease obligations, which continues through February 2005, less the income from a sublease of the space. The German office lease accrual reflects the fair value of the future lease obligations on vacant office space, which continue through December 31, 2003. The Reston and German accruals have been drawn down during the year by the monthly payments on the office lease for the remainder of the term.

 

Other charges of $0.4 million and $0.3 million, respectively, incurred in the three months ended June 30, 2003 and September 30, 2003 related to the implementation costs for back-office and administrative outsourcing initiatives. Cash payments of $0.1 million and $0.4 million were made in each quarter, respectively.

 

2004

 

The Company recorded restructuring charges of $1.3 million and $1.8 million during the three and nine months ended September 30, 2004 respectively. The restructuring charge for the six 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 restructuring charge for the three months ended September 30, 2004 related to severance payments at four of the Company’s European operations, costs associated with integrating the PSINet Europe operations recently acquired, transition implementation costs for back-office and administrative outsourcing activities and a charge for future lease obligations at the German operation.

 

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 our 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 all costs incurred in the second quarter. The employee termination costs of $0.9 million for the three months ended September 30, 2004 relate to thirty eight employees at our European operations, most notably thirty-four in Germany. Cash payments of $14,000 were made in the quarter in respect of these third quarter costs, relating to one employee at the operation in Spain. The remaining accrual of $0.9 million at September 30, 2004 relates to 37 employees at the European operations.

 

The accrual for future operating lease obligations, relating 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. During the three months ended September 30, 2004 an additional accrual of $0.1 million has been made for future lease obligations in the German operation. Other charges incurred in the three and nine months ended September 30, 2004 related to the implementation costs for back-office and administrative outsourcing initiatives. In addition, other charges include $0.2 million for the three months ended September 30, 2004 relating to costs associated with integrating the PSINet Europe operations recently acquired (see Note 4) and related system migration costs.

 

Certain of the actions VIA might take as part of its strategic plan may lead to additional impairment or restructuring charges in future periods and such amounts may be material.

 

4.                                      Acquisitions

 

PSINet Entities:

 

On August 20, 2004, VIA acquired 100% of the issued and outstanding shares of the PSINet Europe B.V. operations in Belgium, France, Germany, the Netherlands and Switzerland. These operations provide managed hosting, managed networks and monitored access services to 3,700 customers in mainland Europe. The Company paid total consideration for the shares and inter-company debt of the PSINet Europe companies as follows: Euro 10.0 million in cash (approximately $12.3 million) at closing; Euro 2.0 million (approximately $2.5 million), subject to adjustments for any deficit in the agreed working capital balance, to be paid in the fourth quarter of 2004; Euro 6.0 million (approximately $7.4 million) in cash or, at the option of the sellers, 4.5 million shares of VIA common stock, 15 months after closing, subject to any final adjustments for warranty claims, if any.  Any payments in the fourth quarter to the former shareholders in relation to the finalization of the working capital balance at acquisition will result in a corresponding increase in the amount of goodwill recognized.

 

8

 

The purchase price allocation is as follows:

 

In thousands of U.S. dollars
Goodwill (Europe segment)		$	27,740
Intangible assets		4,551
Other assets and liabilities		(11,056		)
Purchase consideration, including acquisition costs		$	21,235

 

The intangible assets, including customer lists and the tradename “PSINet Europe”, are being amortized over 7 and 10 years respectively. The results of the PSINet Europe companies have been included from August 20, 2004, the acquisition date. The allocation of purchase consideration is preliminary and may change once the Company completes its valuation of the assets and liabilities acquired..

 

The following unaudited pro forma results of operations of the PSINet operations acquired are presented assuming the acquisition had been completed on January 1, 2003:

 

		For the three months ended September 30,						For the nine months ended September 30,
		2003			2004			2003			2004
Revenue		$	10,265		$	10,376		$	32,777		$	31,174
Net loss from continuing operations		(337		)	(1,234		)	(4,109		)	(2,704		)
Basic and diluted loss per share, from continuing operations		(0.01		)	(0.02		)	(0.07		)	(0.04		)

 

The unaudited pro forma amounts are not necessarily indicative of the results that would have been achieved if the acquisition had been consummated on January 1, 2003, nor are the results indicative of VIA’s expected future results.

 

Amen:

 

In January 2004, the Company purchased 100% of the issued and outstanding shares of Amen SAS, Amen Srl and Amen Limited (collectively “Amen”), a European web-hosting company based in Paris, France. Amen has operations in France, the United Kingdom, Spain and Italy. The Company acquired Amen to strengthen its Europe segment and benefit from Amen’s operating platform and service offerings. The Company paid $7.5 million in cash and issued 673,652 shares of its common stock, which had a market value of $2 per share on the date of acquisition having a total value of approximately $1.3 million for Amen common stock. The former shareholders will have the opportunity to receive further consideration expected to be between $1.2 and $1.8 million in cash and shares of the Company’s common stock, based on the 2004 operating performance of Amen. The purchase consideration calculated below includes $0.7 million of additional consideration, which is currently determinable. If any further amounts are paid to the former shareholders, this will result in a corresponding increase in the amount of goodwill recognized.

 

The purchase price allocation is as follows:

 

In thousands of U.S. dollars
Goodwill (Europe segment)		$	11,279
Intangible assets		4,445
Other assets and liabilities		(5,006		)
Purchase consideration, including acquisition costs		$	10,718

 

The intangible assets are being amortized over 3-10 years. The results of Amen have been included from January 28, 2004, the acquisition date. The allocation of purchase consideration was amended in the second quarter from the preliminary allocation as a result of additional acquisition costs ($0.2 million). The allocation of purchase consideration was amended in the third quarter from the preliminary allocations as a result of a reduction in acquisition costs ($0.1 million). It is anticipated that the final allocation of the purchase price will not differ materially from this amended allocation.

 

The actual results of operations for the three and nine months ended September 30, 2004 did not differ materially from the pro forma results of operations computed under the assumption that the acquisition was consummated effective January 1, 2004.

 

9

 

5.                                      Income Tax

 

The provision for taxes based on income for the 2003 and 2004 interim periods 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 expectations of tax expense having an effective income tax rate of 0%.

 

6.                                      Comprehensive Loss

 

Comprehensive loss for the three and nine months ended September 30, 2003 and 2004 was as follows:

 

		Three months ended September 30,						Nine months ended September 30,
In thousands of U.S. dollars		2003			2004			2003			2004
Net loss		$	(7,550	)	$	(4,642	)	$	(18,739	)	$	(25,936	)
Foreign currency translation adjustment (losses) gains		(717		)	5,866			(6,093		)	8,399
Comprehensive loss		$	(8,267	)	$	1,224		$	(24,832	)	$	(17,537	)

 

7.             Property and Equipment, net

 

Property and equipment consisted of the following:

 

In thousands of U.S. dollars		December 31, 2003			September 30, 2004
Hardware and other equipment		$	16,393		$	19,669
Network and data center assets		11,914			9,018
Software		14,471			17,241
Furniture and fixtures		1,105			1,225
		43,883			47,153
Accumulated depreciation		(31,880		)	(32,346		)
Property and equipment, net		$	12,003		$	14,807

 

Depreciation expense was $1.5 million and $1.6 million for the three months ended September 30, 2003 and 2004, respectively. Depreciation expense was $4.3 million and $4.8 million for the nine months ended September 30, 2003 and 2004, respectively.

 

8.                                      Goodwill

 

The changes in the carrying amount of goodwill during the three and nine months ended September 30, 2004 are as follows:

 

In thousands of U.S. dollars		Total			Europe			Americas
Balance as of December 31, 2003		$	3,111		$	1,965		$	1,146
Acquisition (see Note 4)		11,157			11,157			—
Foreign exchange adjustment		(284		)	(284		)	—
Balance as of March 31, 2004		$	13,984		$	12,838		$	1,146
Acquisition (see Note 4)		236			236			—
Foreign exchange adjustment		(66		)	(66		)	—
Balance as of June 30, 2004		$	14,154		$	13,008		$	1,146
Acquisition (see Note 4)		27,626			27,626			—
Divestiture (see Note 2)		(1,957		)	(1,957		)	—
Foreign exchange adjustment		556			556			—
Balance as of September 30, 2004		$	40,379		$	39,233		$	1,146

 

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9.                                      Intangible Assets, net

 

Intangible assets consisted of the following:

 

In thousands of U.S. dollars		December 31, 2003			September 30, 2004
Customer lists		$	794		$	7,136
Software		—			1,973
Tradename		—			922
Accumulated amortization		(63		)	(1,267		)
Intangible assets, net		$	731		$	8,764

 

Amortization expense for the three months ended September 30, 2003 and 2004 was nil and $0.4 million, respectively. Amortization expense for the nine months ended September 30, 2003 and 2004 was nil and $1.2 million, respectively. See Note 4 for intangible asset additions from the acquisition of Amen and the PSINet Europe companies. We amortize customer lists, software and trade names over three to seven years, five years and ten years respectively.

 

10.                               Stock-Based Compensation

 

SFAS No. 123, “Accounting for Stock-Based Compensation,” 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.

 

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 income and earnings 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 September 30,						For the nine months ended September 30,
In thousands of U.S. dollars		2003			2004			2003			2004
Net loss (as reported)		$	(7,550	)	$	(4,642	)	$	(18,739	)	$	(25,936	)
Add back: Total stock-based employee compensation expense determined under intrinsic value method		—			—			—			80
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects		(726		)	(301		)	(2,649		)	(1,418		)
Pro forma net loss		$	(8,276	)	$	(4,943	)	$	(21,388	)	$	(27,274	)
Net loss per share, basic and diluted (as reported)		$	(0.13	)	$	(0.08	)	$	(0.31	)	$	(0.43	)
Net loss per share, basic and diluted (pro forma)		$	(0.14	)	$	(0.08	)	$	(0.36	)	$	(0.45	)

 

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 nine months ended September 30, 2004.

 

11.                               Long-term debt

 

In connection with the acquisition of the PSINet Europe companies (see Note 4), in August 2004 the Company issued an unsecured zero coupon convertible note. The note is due in November 2005 and is convertible into 4.5 million of VIA common stock at the option of the holder. The face value of the note is Euro 6 million (approximately $7.4 million), subject to any final adjustments for warranty claims if any, and the effective interest rate is 5.27%. Based on this effective interest rate, the present value of the unsecured zero coupon convertible note is Euro 5.6 million (approximately $6.9 million). The discount of Euro 0.4 million (approximately $0.5 million) is being amortized as interest expense over the duration of the note.

 

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12.                               Contingencies

 

Legal Proceedings

 

On November 5, 2001 a class action lawsuit was filed in the District Court for the Southern District of New York against VIA NET.WORKS, Inc., certain of the underwriters who supported its initial public offering (“IPO”) and certain of its officers, under the title O’Leary v. Via Net.works [sic], et al [01-CV-9720] (the “Complaint”). An amended complaint was filed in April 2002. The Complaint alleges that the prospectus the Company filed with its registration statement in connection with its 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 thereunder 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 Company is in the process of completing a settlement with the plaintiffs in the case. 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. Any direct financial impact of the proposed settlement is expected to be borne by the Company’s insurers. 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. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the IPO Litigations. The Company continues to progress toward settlement and awaits approval of settlement by all parties involved.

 

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 three and nine months ended September 30, 2003 and 2004 was 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.

 

13.                               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 September 30, 2004, VIA served primary markets in ten 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 sales of third-party hardware and software. All of the European operating companies are grouped into one reportable segment (Europe). The Company’s U.S operating company is reported as Americas. The Company is reorganizing its sales operations into two channels, VIA Express and Industry Solutions, and integrating the recently acquired PSINet Europe operations. As the channels and PSINet integration further develop, it is anticipated that the Company will begin to manage its operations around these channels and will adapt its segment reporting accordingly. The chief operating decision makers within the Company are the Chief Executive Officer and the Chief Financial Officer.

 

The Company evaluates the performance of its segments based on revenue and operating loss. Corporate expenses, which also include the regional IRU companies, are shown to reconcile to the total consolidated figures. Total segment assets, as presented in the table below, are total assets net of intercompany funding amounts. Prior period amounts have been reclassified to conform to the current period

 

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presentation to account for discontinued operations.

 

The table below presents the total assets by reportable segment as of September 30, 2003 and 2004. In addition, the table presents information about the reported revenue, operating loss from continuing activities, and impairment and restructuring charges of the Company’s segments for the three and nine months ended September 30, 2003 and 2004.

 

In thousands of U.S. dollars		Europe			Americas			Corporate			Total
Total assets as of September 30, 2003		$	19,614		$	3,254		$	78,965		$	101,833
Total assets as of September 30, 2004		$	84,530		$	2,327		$	35,285		$	122,142
Three months ended September 30, 2003:
Revenue		$	9,706		$	975		$	—		$	10,681
Operating loss from continuing operations		(1,083		)	(296		)	(6,636		)	(8,015		)
Impairment and restructuring charges		346			—			504			850
Three months ended September 30, 2004:
Revenue		$	17,194		$	962		$	—		$	18,156
Operating loss from continuing operations		(2,714		)	(134		)	(5,396		)	(8,244		)
Impairment and restructuring charges		989			—			304			1,293
Nine months ended September 30, 2003:
Revenue		$	30,006		$	2,953		$	—		$	32,959
Operating loss from continuing operations		(3,453		)	(639		)	(19,731		)	(23,823		)
Impairment and restructuring charges		1,308			—			1,335			2,643
Nine months ended September 30, 2004:
Revenue		$	41,099		$	2,825		$	—		$	43,924
Operating loss from continuing operations		(7,743		)	(745		)	(20,641		)	(29,129		)
Impairment and restructuring charges		989			—			799			1,788

 

In the second and third quarters of 2003, VIA sold its operation in Italy previously reported in the Europe region and recognized Brazil and Mexico as discontinued operations. In September 2004, VIA sold its UK operation previously reported in the Europe region. See Note 2 for further details.

 

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ITEM. 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in Item 1 of this Form 10-Q. This discussion contains forward-looking statements, or statements that relate to future events or our future performance. These statements include, but are not limited to those relating to the Company’s strategic plan and business model changes, projections regarding financial impacts of the business model shift, new product roll-out, cost reductions in general, statements relating to reductions in cash usage, and the benefits or cost savings we may achieve through the acquisition of the PSINet Europe companies we acquired during the quarter or the disposition of our UK company, VIA NET.WORKS UK Ltd., or any other acquisition or disposition activities in which we may engage. These statements are only predictions or planned actions that are subject to a number of risks, uncertainties and other factors. Actual events or results may differ materially. Information regarding the risks, uncertainties and other factors that could cause actual results to differ from the results in these forward-looking statements are discussed in the “Risk Factors” described in Exhibit 99.1 on this Form 10-Q, as well as those described in the “Risk Factors” section of VIA’s 2003 Annual Report. You are urged to carefully consider these factors, as well as other information contained in this Form 10-Q and in our other periodic reports and documents filed with the Securities and Exchange Commission.

 

Overview

 

We are a provider of Internet-protocol, or IP, based business communication solutions to more than 135,000 ?businesses, primarily small- and medium-sized enterprises, or SMEs, in Europe and the United States. Through the VIA, AMEN and PSINet Europe brands, we offer a comprehensive portfolio of business communications services, including web-hosting, Internet and network security services, Internet access (through dial-up, DSL, or ISDN, and leased-line connectivity), virtual private networks, voice and professional services.  We have operations in Belgium, France, Germany, Italy, the Netherlands, Portugal, Spain, Switzerland, the United Kingdom and the United States.

 

Operating strategy

 

Our operating strategy is to provide our target market with a broad suite of business communications solutions, with a focus on selling high margin services such as web-hosting and Internet security services that we can deliver over our own scalable product platforms. In support of this strategy, we have completed and will continue to pursue actively strategic acquisitions, partnerships and divestments that complement or enhance our infrastructure, product offerings, channel strategies or customer base, and that allow us to leverage our core operational capabilities to realize higher margins from acquired revenue.  Since January of this year, we have acquired the Amen group and five of the mainland Europe operations of PSINet Europe B.V., and we have sold our United Kingdom unit, VIA NET.WORKS UK Ltd. (see discussion below under “Strategic Acquisitions and Divestments”). Among other benefits, through each transaction we have increased the proportion of our revenues attributable to high margin services while, at the same time, decreasing the proportion of our revenues attributable to Internet access services.  These results also reflect our intent, announced earlier this year, to improve VIA’s revenue base by focusing on high margin web-hosting and Internet security services and becoming less dependant on revenues generated through the resale of access services.

 

The effect of the three transactions on our revenue mix is as follows:

 

				2004
		Start of Year		Post-Amen Acquisition (1)		Post-PSINet Acquisition (2)		Post Sale of VIA UK (3)
Hosting		21	%	25	%	30	%	33	%
Other services		14		15		15		15
Access		65		60		55		52

Notes:

(1).                               As of February 2004

(2).                               Pro forma, based on results as of 30 June 2004

(3).                               Based on results as of 30 September 2004; includes PSINet Europe data; excludes VIA UK data

 

For the first time in its seven year history VIA is well-positioned to achieve positive cash flow from consolidated operations, which we believe the Company will reach by mid-2005. We expect to reach this goal through the generation of new and incremental revenues and the cost savings and higher efficiency we can achieve through the effective integration of the PSINet operations. We believe we are positioned to achieve this objective as we have successfully implemented a program to reduce our operating expenses, developed and begun implementing a refocused business model designed to generate increased, and higher-margin, revenues, and

 

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acquired financially accretive business operations.

 

We recognize that our ability to successfully execute our strategy to improve operational performance and generate meaningful and profitable revenue growth is subject to a number of risks and dependencies, which are not insignificant.  These risks and dependencies are further discussed in the “Risk Factors” described in Exhibit 99-1 on this Form 10-Q, as well as those described in the “Risk Factors” section of our 2003 Annual Report.

 

Strategic Acquisitions and Divestments

 

As part of our corporate development strategy, and consistent with our focus on high margin services, we continue to explore and evaluate acquisition and divestment opportunities, as well as partnerships, even as we remain committed to prudent cash management.  Our goal in pursuing these transactions is to complement or enhance our existing infrastructure, product offerings, channel strategies or customer base. Our strategic plan calls for us to be flexible and opportunistic regarding acquisitions and as a result, if we find one or more appropriate opportunities, we may decide to utilize a substantial portion of our available cash to finance these acquisitions.

 

In 2004, we have identified, and acted upon, two acquisitions:

 

1.               In January 2004, we purchased 100% of the issued and outstanding shares of Amen SAS (France), Amen Srl (Italy) and Amen Limited (UK) (collectively “Amen”), a group of European web-hosting companies based in Paris, France, with additional operations in Spain, Italy and the UK.  We acquired Amen to strengthen our operations by leveraging Amen’s shared web-hosting operating platform and service offerings. For this acquisition, we paid $7.5 million in cash and issued 673,652 shares of our common stock, which had a market value of $2 per share on the date of acquisition of a total value of approximately $1.3 million. The former shareholders will have the opportunity to receive further consideration that we expect will be between $1.2 and $1.8 million in cash and shares of VIA common stock, based on the 2004 operating performance of Amen. Information related to our operational opportunities as a result of this acquisition as well as other details and risks associated with the Amen business is described in the “Risk Factors” in Exhibit 99.1 on this Form 10-Q and the “Risk Factors” section of our 2003 Annual Report. To date, Amen’s performance has been consistent with our expectations, both financially and operationally. Since the acquisition and through September 30, 2004, Amen has contributed approximately $2.4 million of positive cash flows.  The Amen group now represents approximately 13% of VIA’s consolidated revenues.

 

2.               On August 20, 2004, we completed the acquisition of PSINet Europe operations in Belgium, France, Germany, the Netherlands and Switzerland. These operations provide managed hosting, managed networks and monitored access services to more than 3,700 customers in mainland Europe.  Under the terms of the transaction, we paid or will pay total consideration for the shares and inter-company debt of the PSINet Europe companies as follows: Euro 10.0 million in cash (approximately $12.3 million) at closing; Euro 2.0 million (approximately $2.5 million), subject to adjustments for any deficit in the agreed working capital balance, to be paid in the fourth quarter of 2004; Euro 6.0 million (approximately $7.4 million) in cash or, at the option of the sellers, 4.5 million shares of VIA common stock, 15 months after closing, subject to any final adjustments for warranty claims, if any.

 

As a part of our corporate development strategy, we continuously evaluate our operating units to ensure their ongoing fit to our operating and financial strategy. We are committed to acting upon these evaluations in a meaningful and expeditious manner. Based on the analysis of our operations earlier this year, we engaged in the following sale activity:

 

On September 28, 2004, we sold 100% of the shares of VIA NET.WORKS UK Ltd. to Claranet Limited, a UK-based Internet services provider. Claranet agreed to pay total consideration for the shares of VIA NET.WORKS UK Ltd. in the aggregate amount of GBP 7.3 million (approximately $13.1 million), subject to certain working capital and other adjustments. We received GBP 5.3 million in cash ($9.4 million) on completion. The GBP 2.0 million balance is payable, subject to the working capital and other adjustments, as follows: GBP 1.0 million in cash six months after completion and GBP 1.0 million in cash one year after completion.

 

In addition to increasing the share of our revenues generated by web-hosting services, our transactions were also driven by other compelling strategic considerations:

 

•                  The Amen transaction has positioned us as a leader in shared hosting and Amen’s fully automated and scaleable end-to-end operating platform will permit us to grow our shared web-hosting revenues cost effectively.  With this platform, we have the ability to enter new geographic markets with superior service offerings and low incremental investment.  Since the acquisition of the Amen group in January of this year, we have introduced Amen into the Portuguese and Dutch markets, using the same operating platform, which remains in Paris. Finally, Amen has been immediately financially accretive and provides us with a

 

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cash generating pre-paid business model.

 

•                  The PSINet Europe acquisition enhances our geographic presence and revenue run rate, and the territorial overlap in some of the markets will provide significant opportunities for operational, product and sales related synergies, including access to larger corporate customers.

 

•                  The sale of VIA UK eliminated an operation whose revenue mix was off strategy and cost structure too high.  VIA UK derived the majority of its revenues from Internet access services, such as DSL, leased-line connectivity and dial-up.  The access market in the UK had been subject to significant and ongoing price erosion and competition among established larger and infrastructure-based ISPs and telecommunications companies, leading to lower revenues and lower margins. Our ability to compete in the UK was limited by VIA UK’s cost structure as it does not have its own access infrastructure, depending instead on reselling the access services of others.

 

We will continue to review appropriate new potential acquisitions as the opportunities arise. We do not know whether we will be successful in identifying further appropriate opportunities and, if we are successful, there is no assurance that such acquisitions or partnerships will be executed and integrated efficiently. As noted above, our corporate development program also calls for us to examine from time to time each of our operations and business segments to ensure their overall strategic fit and potential for contributing to shareholder value. To the extent that market conditions permit, and anticipated future opportunities for the operation or segment are not anticipated to contribute as required, we will seek to dispose, sell or otherwise discontinue that operation or segment.

 

Integration of PSINet Europe

 

In addition to the enhancements in our presence, revenue run rate and revenue mix, the territorial overlap in some of PSINet Europe’s markets provides significant opportunities for operational, product and sales related synergies.

 

We expect to realize cost-related synergies of at least than $4 million annually, after completion of the integration activities, which are expected to be substantially complete by the first quarter of 2005. The synergies would consist of savings through headcount reductions, network costs, selling, general and administrative expenses and the combination of back-office functions.  It is expected that the operational synergies will be implemented in the fourth quarter of 2004 and that the financial results will begin to be realized in the first quarter of 2005.

 

Our integration plan has focused immediately on the organizational structure of the combined corporation, as well as back office systems, network operations systems, web interfaces, product platforms, operational processes, and sales and marketing programs. During the integration process, particular care is being taken to maintain the quality of service expected by PSINet Europe customers, with a view to introducing further enhancements once integration is complete.

 

The PSINet Europe integration process has allowed management to assess the strength of the PSINet Europe customer base and, as a result, we are adopting the PSINet Europe brand for our Industry Solutions channel in Belgium, the Netherlands, Germany, Switzerland and France – the five countries in which both companies operate.  We believe we can best develop the Industry Solutions channel by leveraging the existing brand strength of PSINet Europe in those markets.

 

Our Operations

 

In the second and third quarters of 2003, we sold VIA NET.WORKS Italy and recognized Brazil and Mexico as discontinued operations. In September 2004, we sold VIA NET.WORKS UK Ltd. These operations are accounted for as discontinued operations and have been excluded from the financial results from continuing operations, as well as the financial results for the comparative prior period. In January 2004, we acquired Amen, which has operations in France, the United Kingdom, Spain, and Italy. In addition, in August 2004, we acquired certain PSINet Europe operations in Belgium, Germany, the Netherlands, Switzerland and France. The following table shows the revenue contribution from each of our continuing operations in the Europe and the Americas reporting segments. As of September 30, 2004 we owned 100% of all our operations.

 

Country		Percentages of Total Revenue from continuing operations for the Three Months Ended September 30, 2003		Percentages of Total Revenue from continuing operations for the Three Months Ended September 30, 2004		Percentages of Total Revenue from continuing operations for the nine Months Ended September 30, 2003		Percentages of Total Revenue from continuing operations for the nine months ended September 30, 2004
VIA legacy business:		100	%	62	%	100	%	77	%
France		15	%	9	%	16	%	12	%
Germany		16	%	10	%	17	%	13	%
The Netherlands		24	%	13	%	21	%	16	%
Portugal		13	%	9	%	13	%	11	%
Spain		4	%	2	%	4	%	3	%
Switzerland		19	%	14	%	20	%	16	%
United States		9	%	5	%	9	%	6	%
Amen:		—	%	13	%	—	%	13	%
Amen France		—	%	10	%	—	%	10	%
Amen United Kingdom		—	%	2	%	—	%	2	%
Amen Spain		—	%	1	%	—	%	1	%
Amen Italy		—	%	—	%	—	%	—	%
PSINet Europe companies:		—	%	25	%	—	%	10	%
PSINet Switzerland		—	%	7	%	—	%	3	%
PSINet Germany		—	%	9	%	—	%	4	%
PSINet The Netherlands		—	%	5	%	—	%	2	%
PSINet France		—	%	1	%	—	%	—	%
PSINet Belgium		—	%	3	%	—	%	1	%

 

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RESULTS OF OPERATIONS

 

Three and nine months ended September 30, 2003 compared with the three and nine months ended September 30, 2004

 

Foreign Currency Impact

 

Foreign exchange rates can vary significantly and impact our results of operations, which are reported in U.S. dollars. As a percentage of consolidated revenues, we had operations conducting business in the following underlying currencies:

 

		Three months ended				Nine months ended
		September 30, 2003		September 30, 2004		September 30, 2003		September 30, 2004
Euro		72	%	72	%	71	%	73	%
Great British pounds		—	%	2	%	—	%	2	%
Swiss Francs		19	%	21	%	20	%	19	%
U.S. Dollars		9	%	5	%	9	%	6	%
		100	%	100	%	100	%	100	%

 

The Euro varied by approximately 4% in relation to the U.S. dollar during the third quarter of 2004 and by approximately 10% in the nine months ended September 30, 2004. The Euro varied by approximately 8% in relation to the U.S. dollar during the third quarter of 2003 and by approximately 15% in the nine months ended September 30, 2003. The Swiss Franc varied by approximately 5% in relation to the U.S. dollar during the third quarter of 2004 and by approximately 9% in the nine months ended September 30, 2004. The Swiss Franc varied by approximately 8% in relation to the U.S. dollar during the third quarter of 2003 and by approximately 12% in the nine months ended September 30, 2003. These exchange rate fluctuations have a significant impact on our reported results of operations, including revenue, expenses and net loss.

 

The average Euro-to-U.S. dollar foreign exchange rate for the three and nine months ended September 30, 2004 was 8% and 9% higher respectively than the average Euro-to-U.S. dollar foreign exchange rate for the corresponding periods in 2003. The average Swiss Franc-to-U.S. dollar foreign exchange rate for the three and nine months ended September 30, 2004 was 8% and 7% higher respectively than the average Swiss Franc-to-U.S. dollar foreign exchange rate for the corresponding periods in 2003. The effect of the weakening of the U.S. dollar is that revenues, operating costs and expenses and operating profits and losses in operations with a functional currency other than U.S. dollars translate into larger U.S. dollar amounts than would have been the case had foreign exchange rates remained unchanged.

 

Revenue:

 

		Three months ended						Nine months ended
		September 30, 2003		September 30, 2004		% Increase/ (Decrease)		September 30, 2003		September 30, 2004		% Increase/ (Decrease)
		(in thousands of U.S. dollars)						(in thousands of U.S. dollars)
Revenue		10,681		18,156		70	%	32,959		43,924		33	%

 

We derive our revenue from the sale of Internet-related goods and services, specifically third party hardware and software and

 

17